Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 04-21-2009, 05:17 PM   #61
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,614
Quote:
Originally Posted by Texas Proud View Post
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...
I'm with Ziggy on this one. If you lose your job, it could take months to find a new one. At a time like that, it could be tough to get new credit. That "ready credit" may not be available-that's in large part what our current financial mess is about. I'd much rather have enough dough in the bank to make the house payments and keep food on the table for 5-6 months (even though I'm paying interest on that $15K debt, that's a small pittance compared to my other issues/concerns at that point).
__________________

__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 04-22-2009, 02:45 PM   #62
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 13,251
Quote:
Originally Posted by samclem View Post
I'm with Ziggy on this one. If you lose your job, it could take months to find a new one. At a time like that, it could be tough to get new credit. That "ready credit" may not be available-that's in large part what our current financial mess is about. I'd much rather have enough dough in the bank to make the house payments and keep food on the table for 5-6 months (even though I'm paying interest on that $15K debt, that's a small pittance compared to my other issues/concerns at that point).
I got in this thread late and went from the front to the back... saw the responses to this along the way...

BUT, you do pay a cost to have that debt (at least most do, unless you are juggling zero rate CCs).... something like $2,000 per year or more... I would much rather not pay up front for the possibility that I will need it...

Since I have never been in that situation, maybe credit would be hard to get... but right now I have maybe 10 times that amount and even if I lost some of it, I would not lose it all... and there is another approach...
if you lose your job, take out the $15,000 in credit RIGHT NOW and put it in the bank before they cut your credit.. you will likely pay a fee for this, but it is still cheaper than paying on debt for years...
__________________

__________________
Texas Proud is offline   Reply With Quote
Old 05-16-2009, 01:52 AM   #63
Recycles dryer sheets
Lawrence of Suburbia's Avatar
 
Join Date: Mar 2009
Location: Newcastle, WA
Posts: 109
I have three years' living expenses. These days, I'd suggest at least one years' worth. We may be heading into difficult times.
__________________
Don't just do something; stand there!

- Jack Bogle
Lawrence of Suburbia is offline   Reply With Quote
Old 05-16-2009, 09:15 AM   #64
Thinks s/he gets paid by the post
growing_older's Avatar
 
Join Date: Jun 2007
Posts: 2,608
Quote:
BUT, you do pay a cost to have that debt (at least most do, unless you are juggling zero rate CCs).... something like $2,000 per year or more... I would much rather not pay up front for the possibility that I will need it...
Ordinarily I would not want to pay up front for exercising credit, only to not necessarily need it. However, these don't seem to be ordinary times and there are plenty of stories of folks who went to exercise their credit when they needed it, only to find it had dried up, or lenders were closing lines of credit preemptively.

I'm not sure about your cost figures. Ordinarily I maintain an untapped HELOC as a source of emergency funds. As credit conditions deteriorated, I decided to tap the line for about 3 years living expenses to avoid the possible situation of wanting to exercise the credit but not being able to. I have to say it's been great for my peace of mind to know that the funds are not theoretically available but are actually in a deposit account in my name. In fact the "emergency" I was preparing for (job loss during tough market to find new employment) actually happened to me yesterday. I am able to sort through my options without panic. I am able to have confidence that I have resources to sustain me while I plan for any transition. I am MUCH more secure than I would be if I had to go and try to tap credit now or after my other resources were depleted - and hope it would still work.

Actual cost has been negligible. HELOC rates are very low and I was able to park the funds in CDs that paid more than my cost of funds. As rates have continued to drop it may be hard to find that anymore, but if you are tapping the credit just to keep the money on hand, you should still be able to get some kind of safe return on it that will reduce (or eliminate) your cost of borrowing. Even better if you are juggling zero rate CC, but that seemed more chancy and more effort than I wanted to make sure the arrangements didn't fall apart.
__________________
growing_older is offline   Reply With Quote
Old 06-05-2009, 08:59 AM   #65
Recycles dryer sheets
 
Join Date: Dec 2006
Posts: 191
I agree with posters who had mentioned that nothing can replace cash on hand... it may be true that you have access to sufficient credit today, but will that be the case two months from now what you actually need the money?

We still maintain our traditional 9 months of living expenses (including health care) as our emergency funds. However, in our case with both of our jobs more or less on the chopping block at all times, we have swapped out a portion of our fixed income out of our IRAs/401(k)s and keep it as cash/near cash. This accounts for an additional 1 1/2 years of living expenses. Once things pick up a bit, these funds will be swapped back into tax advantaged accounts (overall AA remained unchanged throughout) -- having a tax inefficient portfolio for a while seemed a small price to pay for additional security.
__________________
lucija is offline   Reply With Quote
Old 06-05-2009, 02:01 PM   #66
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
freebird5825's Avatar
 
Join Date: Feb 2008
Location: East Nowhere, 43N Latitude, NY
Posts: 9,017
Quote:
Originally Posted by Lawrence of Suburbia View Post
I have three years' living expenses. These days, I'd suggest at least one years' worth. We may be heading into difficult times.
One of the things I have not squirelled away is a large size money market fund. I have instant check writing privileges on 2 nicely sized VG muni bond funds, so I am covered for the near term.
I'm lucky enough to have steady income, so covering my expenses has not been a huge issue. Yet.
I also can quickly divert monthly muni MF dividends and periodic cap gains into my savings account instead of re-investing them. It hasn't come to that yet TG.
I just re-started a monthly DCA into an existing but empty VG NY TE money market fund account. This is a proactive move just in case inflation goes bonkers, i.e. double digits.
This is in addition to my usual DCA (munis and stock MFs). I will continue accumulating as long as I am able to meet expenses, which is going well. Whew!!!!
__________________
"All our dreams can come true, if we have the courage to pursue them." - Walt Disney
freebird5825 is offline   Reply With Quote
Old 06-17-2009, 11:50 PM   #67
Recycles dryer sheets
 
Join Date: Jun 2009
Location: SoCal
Posts: 230
I keep a year's worth of an emergency fund. I would likely get an 8-9 month severance as well, and even with that I get a little anxious. I would not want to rely on a line of credit - too much risk it could change, plus - when you get another job you have all that debt to pay off. I would rather keep the cash and pay as I go.
__________________

__________________
caninelover is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Where to keep my emergency fund? tmm99 FIRE and Money 17 01-05-2009 02:20 PM
It's best to fund an IRA or emergency fund account? Nanita8140 FIRE and Money 9 08-08-2008 09:43 AM
How Much to the Emergency Fund??? Singleee Young Dreamers 17 08-06-2008 04:16 PM
HELOC as Emergency Fund growing_older FIRE and Money 59 02-19-2008 11:10 AM
Emergency fund almost depleted dwk FIRE and Money 26 02-14-2007 10:56 PM

 

 
All times are GMT -6. The time now is 03:48 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.