The VaultIn a recent comment, Grant from the Corner Office Blog wisely pointed out that while its great that I’m eliminating debt so aggressively, I should probably be accumulating more of an emergency savings cushion, you know, just in case…

I agree and I disagree at the same time.

A lot of people in personal finance circles hem and haw about establishing an “emergency fund” (EF) containing 6 months worth of expenses. That’s probably good advice.

Obviously, I don’t have that (current savings is $575) nor do I really strive for it. Six months, while nice, is overkill in my book.

My pseudo-EF has always been just keeping at least $1000 in my checking account at all times.

Combined with the modest amount I have invested as I-Bonds, this would be enough to pay the next mortgage bill — which it seems to me is the most common worry when an emergency comes up.

I’m also routinely ahead by a month on all of my non-utility bills. Next bill due date is always a minimum of 3 paychecks down the road — so in my own “imaginary” sort of way, I actually do have an EF.

I may not have the money on hand right now, but I also don’t have to send it out right now either. I’ve got around two months leeway.

Some will say, “What if you lose your income?”

Well, based on what I’ve already said, I’d have a few months to coast before the big bills came due.

I’d also like to think that that would enough time for me to be able to find a decent new income or more time to allow me to add new paying clients to my side business to cover my expenses.

If not, I’d likely end up using my credit cards to cover my expenses. You see, credit is my other EF. I have a zero balance right now, but in excess of $100k in available credit. Many will disagree, but as a last resort, and in a real emergency, that’s a pretty powerful thing to have in your back pocket.

On a side note, and something I should probably reveal anyway, in a pinch, my wife’s income is enough to pay all of our bills in the short term. It would require a bit of a lifestyle change, but it would definitely be possible for us to get by — and that’s just another (and the best) financial safety net going for me.

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6 COMMENTS

  1. Why do you bother blogging? $1000 in checking? That’s poor advice to give to people, especially when you “qualify” it with a little, easily missed statement at the end about your wife’s income. Christ, you might want to spend a little more time focusing on your day job.

  2. Wow… Thanks for the comment. I guess.

    Not sure what my day job has to do with anything — it pays the bills — and it’s secure enough that I don’t feel the need to have any more than a $1k EF. That’s just my personal risk tolerance.

    You call it “poor advice”, but that’s just the thing — I’m not handing out any advice, just stating facts from my own personal experiences. My method has worked very well for me. I sense a little jealousy (based on the link you, ahem, provided), but perhaps I’m out of line.

    As for my wife’s income, I don’t feel a need to justify it, and I hardly think that it’s hidden or that I set out to make it “easily missed” in my post. We’re a two income household, yes, but this blog is about *my* finances and always has been.

    Prior to being married, I still had a $1k checking account balance. Nothing has changed in regards to my finances, I’ve just added an additional safety net through the benefit of marriage. I thought that was pretty clear.

    As for why I bother blogging, well, read today’s post

  3. Hey Brainy. It really all boils down to what you consider an “emergency expense” and how much you want to lean on your credit.

    It’s a bit odd to me that you’re excited about paying off your debt, which is a good thing, don’t get me wrong, but then choose to lean on credit cards in a real pinch…

    I think there is a lot to be said for the job environment as well, especially as it pertains to your job security. If you’re a school teacher, chances are you’ll be able to land a job just about anywhere, and you probably don’t need 6 months worth of expenses. On the other hand, if you’re an IT specialist, your company may go out of business and you could have a hard time landing a new job in todays environment.

    No one should tell you how much you should have in your EF. As for me, I have about $20k in an emigrant direct account that I could get to fairly quickly if need be. It sucks watching it sit there earning such little interest, but at least there’s no risk to it (as far as “no risk” can go anyway).

    Anyway, as long as you’re comfortable with your finances, and as long as you have an “out” if you need it, that’s all that matters.

    -Grant

  4. Hi Grant!

    Thanks for the vote of confidence!

    Yeah, I guess it may seem a little strange to pay down all of the credit cards only to fall back on them in a pinch. In the past, though I wasn’t anywhere near my credit card limits, I would have been very hesitant to use them in that fashion. I could tell I was headed in the wrong direction, and any higher balances could have set me up for disaster.

    But what paying down all of the debt has taught me is that I *can* go $10-20k in the hole and dig out again. That isn’t to say that I’m about to go on a spending spree, but in a true emergency, it wouldn’t “break” me. I’ve never held the idea of abandoning credit cards altogether either, I’ll just choose to use them more wisely now.

    Besides, at this point, with my debt totals falling with each passing month (increasing my cash flow), it won’t be long until there’s a substantial savings cushion in it’s place.

    On the job front, oddly enough, I do work in the IT field, but it’s pretty safe to say this so-called slowing economy doesn’t have my field in it’s sights… yet.

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