As we all know Dave Ramsey, teaches starting a $1000 Emegency Fund. Then after your debts are paid off, to have 3-6 months of income in this savings account. I have decided that I will have this same fund pay for my insurance. So right now to cover full coverage on the car, home and life insurance, I will need a good $1200 additional. In my mind to help cover inflation, my minimum emergency/Insurance fund should be $3000. With $100/month going in to replace insurance payments. After my debts are paid off, this fund should then be raised to about $10,000 to cover the 3-6 months. What i am thinking is, when I get to that point is put $5,000 in the savings account and the other $5,000 in a higher interest bearing CD at the same institution. $5,000 would cover me for 3 months and the other 3 months would be inside that 6 month CD. Of course, if I am debt free, $5,000 should get me further then three months. According to my figures the utilities for 1-year would be $3560, which I could easily pay upfront for say 6-months of at the outset of an unforseen job loss. Allowing me to not worry about the regular bills, while looking for another job. Then all I would have to worry about is food and gas for the car.
Currently though, this fund only has $209.90 after the $75, I put in early this week, and the unexpected $20 refund from the dentist that I received last week. Still though, those two items nearly doubled what i had in that savings account.
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You might look into an interest-earning saving account. emigrantdirect.com has one. I wish every bank had these. That way you could get at your money in an emergency, but when there's no emergency, it's earning a really good return.
ReplyDeleteI was extended $14,500 credit today at 0% for 12 months, bringing the interest-free total to $24,000. That's worth $1,000 at today's CD rates. I'm doing it partially because you said it's a bad idea. ;)
My savings earns interest, never had a savings account that didn't. However, the CD earns HIGHER interest then a regular savings. That is why I would keep "3 months" liquid and the other "3-months" in a CD. I could make it by, untill that CD came due with what was in the savings, by budgeting carefully, as I would be Debt Free.
ReplyDelete---
Keep on borrowing....when you file bankruptcy (like Donald Trump) because ou have gotten yourself over your head, I will laugh all the way to the bank and take out cash for my purchases.
Kevin, if you're serious about helping people get and stay debt-free, you need to start talking about where medical insurance fits into the financial safety net. Half of bankrupcy stems from medical causes! Yet getting medical insurance can be hard or impossible in some states, and it can easily lapse due to job change. HALF! So one's readiness for unplanned medical expenses is a very serious piece of this puzzle. Are you prepared?
ReplyDeleteI like the ING accounts, however they aren't quite a liquid as people think. Although they will pay a 3.5-4% yield, it can take as much as 7 days to get your money out. Still, it would be OK to put a majority of money in that, with a 2-3 week buffer into a local bank account.
ReplyDeleteAnonymous is right, Medical debt is the cause of many bankruptcies. With todays Health Savings Accounts, many young healthy people can save thousands per year on their medical coverage.
However, credit card debt is the #2 cause of bankruptices. The card sharks are out of control sending out over 6 BILLION credit card offers per year to dead people and dogs among others. Hospitals aren't setting out to put people into medical debt.
I do have one question for you, though anonymous: Can you find any millionaires who made thier money investing cash advances from credit cards?
Tom Stanley says in his best selling book The Millionaire Next Door that of all the millionaires he interviewed for his book said the #1 key to becoming a millionaire is to get out and stay out of debt.
Play with snakes, man...and you will get bit. For your sake, I hope not...but I'm afraid that's where you are heading. It probably will not break you, but at the very least, it'll cost you more than what you are making.
Pyroguy: If I have the money in cash, and owe it at no cost, am I really in debt? The last penny I gave to a credit card bank was in 2003. What should I spend the $1,000 on? I'm gonna save it, of course. A thousand here and a thousand there starts to add up. How many millionaires achieve success through controlling costs and building multiple revenue streams? Right now I have three revenue streams.
ReplyDeleteThe study I read most recently said medical causes were behind half bankrupcies, and that they often manifest as credit card debt. And many have insurance, but the coverage isn't appropriate. That fact has me nervous! Here's the link:
content.healthaffairs.org/cgi/content/full/hlthaff.w5.63/DC1
I have an HSA which I fund at the maximum each year. Some criticize them but I think they're an excellent approach to the cost problem.
I think Massachusetts has an interesting idea requiring citizens to have medical insurance, and assisting those who cannot afford it. In Washington state, manditory auto insurance has lowered the cost of insurance. Let's see what happens in Mass.