Building a Good Foundation Will do More Than Keep Your Head Out of the Water. It Will Become Your Life Raft.

When it comes to building an emergency fund there are two schools of thought. One preaches that people should have three to six months worth of income saved for emergencies. The other proclaims that it is very difficult and impractical for people to save thousands of dollars making up three to six months income. Most people are able to save smaller amounts of money such as a few thousand dollars. In a world where bankers eagerly sell debt rather than a house when it comes to home mortgages, it has gotten far easier for people to buy more house than they can afford with little or no money down. With the decline of the American auto industry the same has become true for buying cars. We are seeing more and more ways to buy cars with little or no money down as well. In a world that continually pushes debt through hyper-consumerism it is no wonder people are unable to put way money for themselves, let alone bigger purchases. With competitive credit card interest rates, and so called deals and programs it is argued that having a high end credit line replaced the need for such a hearty emergency fund in this modern world. Which may help people feel safer when it comes to facing such emergencies as a broken water heater, car accidents, medical situations, and job loss. The problem with relying on a high credit line is that when these emergencies do happen, the set back is far more severe when it comes time to pay the credit cards, with money that you haven’t set aside, and have to suddenly rearrange your finances in order to make good on your payments. With the average household being in $8000 credit card debt, the numbers seem to show us that most people rarely only use their credit cards for emergencies.
We had initially put away a thousand dollars into a savings account and are working toward building our three to six month cushion. After talking with our financial advisor it was recommended that we open a mutual fund designed to earn a higher interest rate than a traditional savings account. If you are deciding to do this it is important that you choose a mutual fund that is more conservative, geared at maintaining wealth rather than accumulating it. I also recommend having your emergency fund before you do any real investing weather it be stocks bonds or real estate. If a thousand dollar cushion has helped us tremendously in the past year I can only imagine what ten thousand dollars in liquid assets will do.


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