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Old 04-04-2009, 05:28 PM   #41
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In the general case, true, but I believe that recent laws will leave Uncle Sam paying 65% of COBRA for up to nine months for folks laid off through the end of 2009.
True, a 9 month hiatus.
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Old 04-04-2009, 05:40 PM   #42
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But what if you pay off the CC and then they slash your credit line to the bone at the same time you lose your job (and thus losing access to more credit)?
Isn't it more likely that your CC limit will be lowered if you carry a large balance? I've never rung up more than 50% of my limit and usually pay it monthly (most months I don't use it so occasionally I forget and pay interest on a couple of hundred). Credit is most easily available to those who don't need it.
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Old 04-04-2009, 05:52 PM   #43
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As stated an emergency fund is to be used in case you loose your job. So you could look at it am my emergency fund is = to my salary X the number of months I expect to be without a job + a fudge factor. My spouses would be the same. Now we may be out of a job for a different amount of time. If I am a financial analysis for say a wall street firm, it may be 24 months, but my spouse a hamburger flipper at Mickey D's. maybe two weeks. The amount of time and the amount of cash would depend on how much we bring into the relationship, and how long we expect to be unemployed.
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Old 04-04-2009, 06:07 PM   #44
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It would have hurt worse if you had my homeowners insurance. My deductible is 2% of the insured value -- currently about $2,700 based on replacement value...
I insure my house and car with USAA. So, I could have been hit a $1K deductable for the car, and a $1K deduc for the house!

Luckily the house is fine. Just my pride and my car damaged.
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Old 04-04-2009, 06:55 PM   #45
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Originally Posted by Sue J
But last September we stopped paying any extra on debt and saved it all instead. When he signs his contract we will pay off a $6000 credit card ....


Isn't this a non-helpful "shell game" to say you have an "emergency fund" while you have credit card debt?

Why would anyone "save" money in a low interest rate savings account while they have outstanding CC debt? This makes no sense to me.

Let's say I have that $6,000 CC debt, and I "save" $5,000 and put in a savings account. Do I feel good because I have a bank statement that says I have $5,000? I'm kidding myself.

So let's say I apply the $5,000 to the CC. I wipe out some CC interest and I'm ahead of the game. Am I "poor" because I don't have a bank statement that says I have $5,000 even though I have $5,000 less in "bad debt"? No.

OK, so an emergency comes up, a $1,500 car repair. Take it from savings, and you still have the $6,000 CC debt. If you have no savings because you paid down the CC to $1,000, put it on the CC. You are still ahead with only $2,500 CC debt and no savings.

Unless your CC company does not charge you interest. Then never mind

-ERD50
Yes, my CC card company does not charge me interest. It's on a 12 month 0%. The minimum payment is $100 a month on about $6000. We have the money and will pay it off as soon as DH signs his contract. It would have been paid off by now but if he lost his job that $6000 would cover more than 2 months of living expenses and with such a low minimum payment right now I'd rather have the cash in the bank.

This is the last hunk of debt left on a CC used for my son's college expenses. He was in college from 2002 to 2006 and we would pay what we could from savings and put the balance on a 0% charge card. In 2002 they were 12-18 months and I never paid a balance transfer fee. When the 0% would expire, I'd get another intro card and transfer again. Now, it's rare to find a 0% without a BT fee, so I'll be glad to be done with this very soon.

All in all not a bad way to borrow for a college education. Almost 7 years and never paid any interest.
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Old 04-04-2009, 08:23 PM   #46
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Yes, my CC card company does not charge me interest. It's on a 12 month 0%.
In that case - Nice work!

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Old 04-04-2009, 09:52 PM   #47
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A lot of the Dave Ramsey folks are seriously cash poor. For a lot of them the $1000 represents A LOT of money and takes months to save up. This is even true for some of the high wage earners!
Suze was on Oprah last week with some advice that only makes sense if you're already in serious debt trouble and maybe one circle away from going down the drain.

Suze said that if you're laid off and get some sort of lump-sum severance, you should not use the severance to pay off your credit-card debt.

Note: It took my spouse a long time to get me to understand the implications of that last statement. First, these people have credit-card debt that they're not paying off every month. Second, the amount of debt that they have on the card is near the card's limit and they're not able to get new cards to transfer the balance. Third, it's been this way for a long time-- months at least, maybe years. So they've been paying thousands of dollars of monthly interest charges as a way of life. OK, having said that, back to the story.

You would think that Suze was advising you to save the severance money to keep paying the mortgage or buying groceries, but she had an additional reason.

The twisted logic behind her precaution is that the credit-card company is keeping an eye on your balance because it's so close to the max and hasn't made much payoff progress. You're on their radar. If you knock that balance down with a big slug of cash, the credit-card company's risk managers understand that the statistical probability is severance money by newly-unemployed people who are about to stop paying their balance or getting ready to go on a serious shopping spree. So, as soon as the computer recognizes what's happened, it'll reduce the card limit by the amount of the paydown. If they time it right, you'll overspend your new (lower) limit before the reduction notification reaches you, which means that you'll be subject to additional over-limit fees and a higher interest rate.

Suze's advice was to keep paying the minimum fee on the monthly balance (which includes a high interest payment) so that you could still have a couple thousand dollars' overhead if you needed it. Of course you were expected to cut all your other expenses to the bone-- no cell phone, no cable, no broadband, no satellite radio, no car lease, and so on.

Her other "twisted logic" advice was to continue to let the kids go to their private school and their activities (so that you wouldn't totally disrupt their lives and add stress to your job search) but to cut off all other unecessary spending.

So, in summary, she expected the newly unemployed to continue to pay the carrying charges on credit-card debt and to be able to let their kids continue their normal lives (sans cell phones or cable TV or other extras but still with school & activities)... but to cut back in all other areas.

No wonder she's raised her eight-month recommendation to 12 months.

I guess this only applies to people who have been living so large for so long that they've nearly maxed out all their credit and have plenty of excess spending to cut out. I can't imagine the monthly expenses of $7000-$8000 that some of these people have achieved.

Suze also suggested that couples should attempt to live on one wage-earner's income instead of spending the extra paycheck. Oprah asked the audience how many people could do that, and about 10 hands went up. When it became clear that Suze meant "for a year, not just a month", there were zero hands up.

No wonder I don't watch Suze or Ramsey. I can't relate to their audience...
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Old 04-05-2009, 12:34 AM   #48
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No wonder I don't watch Suze or Ramsey. I can't relate to their audience...
I never heard of Ramsey until I frequented this forum, and still have not seen or read him. Yes, I have watched Suze a few times and, as you said, there is an audience for her, and she fulfills that need. Because of that, I do not knock her.
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Old 04-05-2009, 04:23 AM   #49
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It's naive and an oversimplification to think of an emergency fund as being only cash.

What you need is an emergency plan. How would you replace your income if you lost your job or how would you pay for emergency purchases that are above your income? The answer might be some cash in hand but could also include investments liquid enough and stable enough that they could conveniently be converted to cash before your actual cash is depleted. Or it could be some sort of line of credit.

Here's an example. If I had a significant position in the Vanguard GNMA fund and a HELOC lined up on the house, I'd probably keep no more than 3 or 4 months of expenses in true cash. If all my investments were in volatile equities and I was a renter, I'd probably keep a year or more in true cash.
How does one view rental income? Should be liquid enough since tenants sign a fixed year lease. How liquid is a fully paid house in this market (assuming you have another house you are staying in and the second house is not rented out). Can one take a certain % of the value of that house as emergency fund on the assumption that you can always use it as collateral or sell it within the year at a reduced price if needed?
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Old 04-08-2009, 12:56 PM   #50
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Suze also suggested that couples should attempt to live on one wage-earner's income instead of spending the extra paycheck. Oprah asked the audience how many people could do that, and about 10 hands went up. When it became clear that Suze meant "for a year, not just a month", there were zero hands up.

No wonder I don't watch Suze or Ramsey. I can't relate to their audience...
I saw that show too and assumed (maybe wrongly) that the audience was responding based on their current budget. They hadn't had time to figure out how much they could reduce their spending so they couldn't know whether they could make it on 1/2 for a year.

But it is telling that, based on their current spending, they couldn't cut by half. I think that's probably true for most of us. I would have to sell my home to cut my spending by half.
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Old 04-09-2009, 10:19 AM   #51
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Wow... this is a really great thread. Let me add my own thoughts to this one. I had a crushing layoff very early in my career. In a way I am glad of it, because I think it helped to form the way I feel about money, savings, etc.

I think the conventional wisdom of 3-6months especially in this economy is way too small. I would think closer to 9-12 months. And as some other people said, have an extra few grand socked away for that inevitable unexpected lightning bolt that may find you. A major medical expense or car problem can happen at any time, and certainly cannot be put off until financial times are better.

I think the most important thing about planning for life's eventualities like loosing your job in a bad economy, is not to develop a "but that will NEVER happen" attitude. I have personally seen way too many friends bring themselves to the brink of financial ruin because of it. Their attitude was...,"why buy insurance... I am healthy now.... why do preventative maintenance on my car it runs just fine .. etc."

I guess the only other thing that I might suggest is remembering never to under-estimate the power of a favor in business. Every now and again... go that extra mile and exceed someones expectation. People will remember that... and something as simple as that can make the difference. I left my previous job around 3 years ago. Due to the tech nature of it... to this day on occasion I will get a phone call from people working there, asking me questions about the systems that I worked on.

My original intention was to ask to be compensated (like a tech support call) when they needed help. But ultimately, I decided that in this work climate, being owed a favor is far more valuble than cash. So the deal I made was I would help them out whenever needed, even spend an hour or so on weekends if the need was great enough. And I would do it all for free. But in return, the people I am helping would start sending around e-mails letting the managers there know what I have been doing for them.

The hope is that should the job I have now go south... I might be able to return to the previous job. That is the thought anyway... I hope I never have to test it ...
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Old 04-09-2009, 12:37 PM   #52
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I think the most important thing about planning for life's eventualities like loosing your job in a bad economy, is not to develop a "but that will NEVER happen" attitude. I have personally seen way too many friends bring themselves to the brink of financial ruin because of it. Their attitude was...,"why buy insurance... I am healthy now.... why do preventative maintenance on my car it runs just fine .. etc."

..

The one life event I see people not having planning for is death of a spouse or partner . Reading the threads I'll see budgets posted with their pension , their wife's pension and both SS payments . Since the average age for widows is 55 in the US this is something that really needs to be addressed . Not only the loss of income but the immediate needs such as funeral expenses . Sorry to be a downer but this is as likely as losing a job.
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Old 04-09-2009, 02:04 PM   #53
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The one life event I see people not having planning for is death of a spouse or partner . Reading the threads I'll see budgets posted with their pension , their wife's pension and both SS payments . Since the average age for widows is 55 in the US this is something that really needs to be addressed . Not only the loss of income but the immediate needs such as funeral expenses . Sorry to be a downer but this is as likely as losing a job.
Agreed, but that's more relevant to life insurance than an emergency fund, IMO.
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Old 04-10-2009, 03:43 PM   #54
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Since the average age for widows is 55 in the US this is something that really needs to be addressed . Not only the loss of income but the immediate needs such as funeral expenses . Sorry to be a downer but this is as likely as losing a job.
Is that right? I'm surprised that it's so young. I know there are lots of divorces at that age, mine included. Divorce is also an adverse event that few plan for in their budgets. But I understand why. I can't imagine happy couples sitting down to plan their yearly budgets and trying to estimate line item number 20 -- "divorce expenses."
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Old 04-15-2009, 01:21 PM   #55
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emergency fund

We currently keep 12 months of expenses split between Ibonds and a Money Market account.
With young children..you never know what kind of emergency may come up...in addition to loss of employment.
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Old 04-16-2009, 10:59 AM   #56
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Even the one versus two incomes rule that is thrown around for deciding 3-6 months of expenses is too general.

Both real estate agents?
One in advertising, one in IT but for same company?

Examples like that surely should consider replacement of lost income needing a larger buffer than two incomes that have completely different careers in different companies.
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Old 04-16-2009, 11:06 AM   #57
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Examples like that surely should consider replacement of lost income needing a larger buffer than two incomes that have completely different careers in different companies.
True. Whether investing or cash flow management, diversification matters! Single company risk and sector risk can impact a household's income stream just as it can impact their portfolio.
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Old 04-21-2009, 03:04 PM   #58
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emergency Fund

I based mine on 6 months worth of living expenses. We live on one salary and invest/save the bulk of the other salary.
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Old 04-21-2009, 04:49 PM   #59
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In a job market like this one, liquidity is critical. If I had good cash flow, I'd rather have $20,000 in the bank and $15,000 in debts than $5,000 in the bank with no debt.

In a more robust job market, I'd pay off the debt licketysplit. But in this market, it's all about the cash.

But is there really any difference in the two? YES... if you have $15,000 debt you are paying interest at probably a high rate to make you feel good that you have $20,000 in the bank...

In reality, on #2 you have $5,000 in the bank and $15,000 of ready credit that you can tap... so still $20,000 to spend...

Now, if you are a person who would run up your debt again... well then there really is not the two options you listed... but based on the two the second is better IMO...
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Old 04-21-2009, 05:00 PM   #60
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In the general case, true, but I believe that recent laws will leave Uncle Sam paying 65% of COBRA for up to nine months for folks laid off through the end of 2009.

Not quite true.... our company was just informed that WE would have to pick up the extra cost of COBRA for our employees... not the gvmt...
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