Can you handle a $2,000 USD emergency?

[joesmoke]

thanks to those who replied, definitely given me some new perspectives.

 

[soulcougher73]

Homes are very, very costly for the first five years after you get your first home. Then, assuming you don't go up to a massively more expensive house later, they just get cheaper and cheaper. While rent just goes up and up. After a couple decades the home is nearly free while rent will be thousands of dollars a month.

Why the first 5 years? Is it just because that is the time you are doing the upgrades you like to the house? We still need to replace our deck and fence. Not looking forward to that. I just keep saving away till i can pay for it with cash.

 

[dullard]

Can you explain a bit more about money market accounts? I'd like to know more about how they work, what you can and can't do with them, why someone might not want one, etc.

There are two types: (1) money markets at a bank and (2) money markets at an investment company.

A money market at a bank is essentially 100% guaranteed to never lose money. You can think of it as like a savings account, as the rules are usually very similar. It pays interest, often significantly more than savings accounts, but be careful as they aren't always better deals. The bank invests your money for you and usually pays you a decent interest rate. I don't think there has ever been a time where a bank didn't pay interest, even when the bank lost money on the investment. If one did stop paying or if you lost some of your money, it would bring down the entire banking system as they rely on money market accounts.

A money market at an investment firm is similar. Except you can lose money (very rarely). It acts like a savings account that pays a bit more interest usually. However, the main thing is you can sell it in a millisecond and use that money to buy an investment in another millisecond. A good investor has maybe 10% or even 20% of the investments in cash to pounce on the great deals that come along. If you kept it in a bank, you'd have to wire money over (which takes a day and costs $10+) or even worse send in a check (which can take days even with electronic checks). That delay might cause you to miss that great investment opportunity.

 

[illusion88]

I couldn't even handle a $200 emergency.

 

[dullard]

Why the first 5 years? Is it just because that is the time you are doing the upgrades you like to the house? We still need to replace our deck and fence. Not looking forward to that. I just keep saving away till i can pay for it with cash.

You have the big expenses all up front with a house. People want to upgrade the house, repair things the previous owner neglected for far too long, repaint, get better appliances, buy furniture that you never wanted or had room for before, get a lawn mower or snow blower or grill, get all the tools that you need, etc. To top it off, you have the most debt so you are paying the most interest.

As time goes on, you really don't often need most of those expenses. You already have the grill and the tools. You already have a house full of furniture, etc. Most of those expenses are concentrated at the beginning. Plus, the monthly payments keep shifting from mostly interest to mostly principal. The principal part is you paying yourself. The first ~5 years of a mortgage is mostly you paying the bank interest. The last ~5 years of a mortgage is mostly you paying yourself (dropping how much you owe). Then when the mortage is paid off, you only have to pay property taxes and upkeep.

 

[hanoverphist]

i'm broke as shit. my cc is maxed. no one is giving me extra credit. i blame Obama.

this, except i dont blame anyone. i could have handled a 5k emergency just fine before wife left, now i cant handle 200 bucks emergency. slowly getting out of that hole, but its damn difficult.

 

[SKORPI0]

I'll have to touch my $$$ savings if needed. :\

 

[Alienwho]

All of you saying that having $10-20k in reserves is extra cautious are wrong. IMO that's just plain where you want to be. I think having six months of maintain-your-lifestyle expenses in reserve is a minimum. Then if the crap hits the fan you start living poor and stretch that money out.

Like Dullard was saying, you want to have at least $2k in your checking at any time for emergencies. For many this is probably too low though (at least it is for me). This is your highly liquid account where you can pull the cash out at the drop of a hat.

After that, you want to have $12k+ available in semi-liquid accounts. These are accounts where your money is available within 3 or 4 business days, but it's also working harder for you than in a crappy savings account. These accounts include things like CD's, other higher-interest savings accounts or maybe even stocks. I've got about $14k sitting in an ING high interest regular savings account and in the average of the past 5 years have made something like $20/month (it was way more when I was in a 4.5% CD that has since expired.) It's not a lot but the money is instantly available cause I can transfer it to my ING checking account and use my debit card instantly. When interest goes up I'll put it in another CD. It's also zero maintenance so I don't have to think about it.

So what happens if I have a $5000 emergency? I'll just put it on my credit card and have 30 days to pay it off. That will give me time to pull the money out of one of my semi-liquid accounts to pay off the card in full at the due date.

I personally maintain a minimum of $20k in my liquid accounts and max out IRA's then invest whatever I have left over into diversified stock accounts (like vanguard). These are semi-liquid because I could sell and transfer the money to my bank account within a week or two max. There is nothing my credit limit couldn't cover before getting the money to pay off the balance in full (I don't pay interest).

 

[classy]

I can thankfully. While have the liquid cash, and well over 75K in useable in credit, I am 40 with put near zero for retirement. Now I have 3 months worth of cash to cover everything and it never gets touched. Debt is a part of life. Now I took all my money paid of all credit card debt, loans, etc. But I sacrificed my possible long term future. But I have raised one child to adulthood and another scratching teenage now. So its tough even for those who make a lot. I had friend who became an attorney. He took a 125K a year start. But he owed something like over 100K in school loans. His payments were like a grand a month to repay a school loan. I am not too bad off, but unless you are born fortunate you can still do well, but there will be some bumps along the way.

 

[Jeff7]

...60% said they would dip into savings...

Doesn't that kind of open it up a bit? If it's money that I'm not spending, then it's pretty much by definition "saved". What are they counting as "savings" in this context? Long term bonds, or just a bank account?

 

[AyashiKaibutsu]

Maybe if I didn't spend a penny on entertainment and ate gruel over the past 2.5 years I could.

 

[MarkXIX]

wouldnt someone who rents, has good health insurance and a reliable car not really have to worry about that?

You would think, but you can ask one of my Soldiers who had a pipe break above her apartment that flooded her apartment while she was on a training exercise that destroyed her clothes and some of her uniforms. Fortunately, we were able to replace uniforms, but she lost quite a bit of personal property not covered by her landlord. She had no renter's insurance, which would have cost her probably about $20/month or so depending on her coverage plan.

As stated, shit happens.

As for the OP, I can easily cover $2,000.00 with cash. We are steadily working toward saving six months of salary or more. Getting close, would be easier without two kids in child care though.

 

[dullard]

All of you saying that having $10-20k in reserves is extra cautious are wrong. IMO that's just plain where you want to be. I think having six months of maintain-your-lifestyle expenses in reserve is a minimum. Then if the crap hits the fan you start living poor and stretch that money out.

The issue is that most people think you need to have that in a savings account just sitting there fully liquid. Semi-liquid is far, far better. Have wealth you can borrow against. Take a CD for example. You could lock up your money for years and in an emergency pay a huge fee and lost interest to withdraw from the CD. Or, talk to a personal banker, he'll just loan you money from your CD at a nominal interest rate. You still have the CD, you don't pay fees or lose that interest. But you get through your emergency. It is far better to be semi-liquid.

 

[Alienwho]

By the way I don't see how so many people have these money problems, especially young single adults. From 2005-2007 I made between $12-$14/hr, attended college full time and I never went one penny into debt. By the time I saved up about $5k, tuition was due ($4k). I still paid for my car and all my little toys and treats without any issue. Now I make 3x that amount, have a family and a mortgage and I feel like my rate of savings is almost identical to what it was when I was single making crap money.

 

[MotF Bane]

Yes, nearly twice over. I'm a college student, so this represents a substantial sum.

 

[blinblue]

Many people keep 6 months expense in savings liquid, that can be much more than 20k. It's there for liquid cash with zero risk.

2 months in checking
6 months in savings
invest the rest.

Pretty much exactly how I have my money right now. I like my 6 months of liquid emergency fund, sure I could make some if I invested more of it, but the peace of mind knowing that I could survive just fine for 6 months (well more than that right now, going to be transfer a chunk into my Roth IRA sometime soon) if something terrible happened is worth more than what the market could make on that money (my work is contract based, so no unemployment benefits for me).

Not to mention my health insurance deductible is $5000, so I need at least that around at all times (though the amount I'm saving in premiums is much better than what the market could do with $5000)

 

[Koing]

Most people here aren't going to have issues...just look at the crazy spec pcs in the signatures!

I have the NHS for all emergency treatments and private health care for speedy non emergency stuff or better emergency treatment.

£500-1500 checking account
6-8months in savings account
Max out my companies additional matching retirement fund, they add an additional 25% of my 7% plus a free 6% from them. I was debating on adding another 7% to get 25% of that added at the start but thought f0ck it, I won't spend it anyway. I'll just save it so might as well get a safe 25% extra.

Koing

 

[Ronstang]

I have that in a drawer. People are stupid these days.

 

[TheVrolok]

I'm roughly 155k in debt, so I'd say, no, without credit, not a shot.

 

[tranceport]

I would be O.K.

I'm happy to be able to say that and that I do not fit this %.

I'm also happy to say that a few years ago in my 20's, it would have been very sketchy. In my teen's no way, I was paycheck to paycheck and still negative it seemed. I know why and I fixed all of that.

 

[Oil]

I could handle a $20,000 emergency and I've only been out of school a year

 

[IndyColtsFan]

random 2000 dollar things/shit? like what? im genuinely curious, because i certainly dont have that in savings

Lots of things creep up that can cost around that. For example, a project we hadn't planned to do but we decided had to be done was to point and tuck some of the mortar joints on my chimney and around the windows. The previous owner had never done it and while walking outside one day, I noticed cracks and chunks missing. It is a lot cheaper to pay $2K to fix it now then let it rot and possibly have to have the entire chimney rebuilt.

Other things like car repairs, emergency issues (need a new furnace, etc) can blindside you. You MUST have money in the bank for these kinds of emergencies. $2K should be considered almost pocket change when you're a home owner.

 

[Specop 007]

Used to be able to handle that and more. Then my rainy day came. Just this March in fact. These days? Ha.

 

[HardcoreRobot]

prob have a yrs worth of expenses saved up, so yes. tho most of it is earmarked for a new house

 

[MotionMan]

If you do, then you are in good company (25%) because half of Americans don't have $2,000 USD for a rainy day/emergency.



http://money.cnn.com/2011/05/24/news/economy/americans_lack_emergency_funds/?iref=NS1#0_undefined,0_

We just had to replace a fence to the tune of over $2,500 this week, so, yeah, I did.

MotionMan