Comments on: Should You Be Reluctant to Use Your Emergency Fund?

By: BT

BT — Tue, 12 May 2009 21:02:00 +0000

I probably don’t do what I “should”, but I also keep a small balance on my credit card even if I have the money in my savings to cover it. I guess it’s just a psychological thing with me. I look at the two as totally different. I always pay myself each month to build up my savings, and if a large expense occurs I pay what I can within my budget even if it means keeping a small balance on my credit card. I have built up close to 8 months of living expenses in my emergency fund, but still carry a small balance (less than 1,000 dollars) in credit card debt. The only way I’m tapping into my e-fund is if I lose my job, or have a major expense with my house.

By: David Weliver

David Weliver — Tue, 12 May 2009 19:43:22 +0000

Hey Jason, You raise a great point about how to keep “paying yourself first” even when you’re faced with a big unexpected expense. Although it seems counter-intuitive, I think what you’re doing is the best course of action: actually transfer money out of savings to cover the expense (and leave your auto “self-payments” alone for the month). The net result might be the same; but you keep the habit of paying yourself. I would probably still be reluctant to leave a balance on the credit cards unless you had a 0% intro APR. Anybody else agree or think differently?

By: John Hunter

John Hunter — Mon, 11 May 2009 20:53:10 +0000

I would be reluctant to withdraw all the emergency fund at this time. I would rather get a small loan. But I think using the emergency fund is an ok option too. I would try to cut done expenses then to build back up the emergency fund (and increase it) – or to pay off the small loan. Or use a part time job to pay off loans or increase the emergency fund.

By: Jason

Jason — Mon, 11 May 2009 16:48:24 +0000

In regards to the above question, I personally might take it from one of the retirement accounts, like you suggest. Given that he’s only 28, he has time to make it up, and the emergency fund in this case is just too small. If his emergency fund was any bigger, then it’d be a no-brainer but in this case I’d say use the Roth IRA, and possibly kill off the 529 savings account, especially if it’s not part of any active contribution plan right now.

Separately, this is a bit off-topic, but I’m kind of curious:

Dave, in the past you’ve extolled the virtues of “paying yourself” at the same time (or before) you pay your bills. I’ve long believed in this too, so I have set up an automatic withdrawal to my online savings account for the same day as each payday. I view this like a bill, so that I keep making it except in exceptional times (like around a big move, for example).

However, inevitably there will be months with a big expense when I don’t have quite enough to cover my credit card bills (where I stash most expenses). Typically, what I do is I just draw off of that savings account to make up the difference, but keep plugging ahead with my savings plan.

However, since you should “pay yourself first,” do you think that I should actually carry a small balance on the card before I withdraw from my savings account. Financially, this obviously doesn’t make sense, I just don’t know if there’s some greater psychological benefit to doing it differently. I suppose one other option is keeping a bigger cushion in my checking, but that seems like an even bigger waste of money since it is really not doing anything.