Make us your home page
Instagram

Spending smart: Save your way to soft landing in emergencies

A basic tenet of personal finance that gets short shrift but can dramatically improve your money life is having a cash emergency fund.

"Tens of millions of families struggle to afford a car repair or dental treatment because they lack sufficient emergency savings," Stephen Brobeck, executive director of the Consumer Federation of America.

It sounds so simple: Put away some money for a rainy day. Yet so many people don't do it — perhaps because they don't have a good answer to a fundamental question: Why?

Here are some good answers to that question:

Avoid finance charges. Cars break down, roofs leak and teeth need crowns. If you have the cash to pay for life's curveballs, you'll avoid putting charges on a credit card and paying finance charges, or, worse, taking a payday loan. If you can't pay the bill at all, it will likely go to collections and damage your credit rating.

Lower insurance costs. If you have cash, you can choose higher insurance deductibles for auto and home policies, significantly and permanently lowering your annual insurance costs.

Say no to extended warranties. Similar to insurance, having cash for repairs and replacements of appliances and gadgets allows you to forgo pricey extended warranties.

Job loss. A robust emergency fund can help bridge the financial gap until you can get income flowing again.

Sense of control. Some of the worst money worries never materialize but are conjured in our minds. Having even a few thousand dollars stashed away can relieve anxiety.

Irregular income. For those with up-and-down income — those paid on commission, for example — a cash cushion can even out high- and low-income months.

Give yourself options. If you're broke, you might make decisions you later regret, such as not visiting a sick relative.

Frequently asked questions

How much do I need?

Typical advice is cash equal to three to six months of bare-bones expenses — food, shelter and utilities. But that dollar figure can be overwhelming. Start with intermittent goals, such as $1,000, $2,500 or enough to pay four months of the mortgage or rent.

Where does it fall among money

priorities?

It's a good idea to start with a small emergency fund, say $1,000 or 2 percent of gross household income. But then turn attention to high-interest debt, such as credit card balances, before returning to the goal of beefing up the emergency fund.

Does it have to be in cash?

Preferably. Cash gives you the most options and is quickly available. But when trying to safeguard against job loss, which requires a much bigger fund, consider unused credit on credit cards, home-equity lines of credit and even potential borrowing from family.

Where do I keep it?

Ideally, you would keep cash in a separate account. Consumer behavior studies show we're more likely to keep our hands off it for discretionary spending because of "mental accounting."

Where do I get the money?

Fund it with automatic contributions — an electronic transfer from your checking account on payday, for example. Also fund it with lump-sum windfalls, such as a portion of your income tax return.

Spending smart: Save your way to soft landing in emergencies 05/12/13 [Last modified: Sunday, May 12, 2013 5:14pm]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, Tribune News Service.
    

Join the discussion: Click to view comments, add yours

Loading...
  1. Marina at Hudson Beach poised to become 24-unit condominium-hotel

    Business

    HUDSON — One of the mainstay businesses at Hudson Beach is poised for redevelopment into a 24-unit condominium-hotel.

  2. Have your say Tampa Bay on the region's future transit options

    Mass Transit

    TAMPA — It's time, yet again, for Tampa Bay residents to tell officials what kind of transit options they want for their region.

    The Cross-Bay Ferry docks at the Tampa Convention Center on its maiden voyage on Nov. 1, 2016. A regional premium transit study will determine whether a ferry, or other options such as express buses or light rail, would be a good addition to Tampa Bay. [SCOTT KEELER  |  Times]
  3. SOCom seeks civilian drone pilots to develop new technology through ThunderDrone

    Macdill

    TAMPA — For the last three years, Nicole Abbett has been using drones as part of her photography business, with clients like the city of Tampa and construction companies.

    Josh Newby, 31, Palm Harbor, of Tampa Drones fly's a drone in England Brothers park, Pinellas Park, 8/25/16. As drone popularity increases as a hobby and business, local governments are navigating a legal grey area- where, when, and how should drone flights be allowed?
  4. New apartment complex delivers unique floor plans



    Business

    RIVERVIEW — A new luxury apartment community has opened in the Progress Village area touting itself as a distinct living option just 10 miles from downtown Tampa.

    Alta at Magnolia Park dubs its new apartment community, that opened earlier this year in Riverview, a modern and distinct option for living just 10 miles from downtown Tampa.
  5. 'Road to Nowhere' is back: Next phase of Suncoast Parkway coming

    Roads

    Despite intense public opposition and dubious traffic projections, the Florida Department of Transportation has announced that construction of the toll road known as "Suncoast 2" is expected to start in early 2018.

    The Suncoast Parkway ends at U.S. 98 just south of Citrus County. For years residents have opposed extending the toll road, a project dubbed the "Suncoast 2" into Citrus County. But state officials recently announced that the Suncoast 2 should start construction in early 2018. [Stephen J. Coddington  |  TIMES]