Does the grace period help your emergency fund?

[vanillabean]

It’s not uncommon to benefit from the grace period of credit cards by keeping your money until the due date. Of course this month’s money will be spent on last month’s billing statement, so the only money you keep is from the very first month long ago.

Have you invested that one month’s money for maximum return, or is it stored in a liquid bank account for emergencies? And do you believe in the upfront cost of having household expenses for say a full six months stored in your emergency fund?

[Anonymous]

You're asking simple and complexity at the same time. The definition of emergency is different for different people. If I lost my job right now I can go get a retail or light construction job immediately and have a paycheck rolling again in 20 days. If timed right any new purchases I had to make would still be in grace. I have several Idle visa/mc I haven't used in months.
A family emergency like flying across the country now? I don't have the cash for that the credit for it, sure.
A family emergency where they need money from me? Nope I don't have that but I have credit for help, I suppose.

So to answer your question I'm about 2 paychecks ahead without counting grace period and pif liquidity, but that definitely does not equal a full month of bills and creditors money saved up either. Due dates are over the place and by then new calendar month is here. To make six months would be a dream however if I saved six months I could almost put a down payment on a house!
To be honest I am in debt I need to pay them off. so for me to save money to invest, it will not give a return like the banks are getting off of me. Putting money away for rainy day… to train yourself to do more with less… that is part of the Dave Ramsey's philosophy. You have to train your habits no matter how much money is coming in. Killing credit card use completely, building a fund, and be cash only while you're paying down is a win-win but it is a very harsh approach forgoing rewards and our grace period float.

[Anonymous]

This is one of those "maybe" situations.  My online interest-receiving savings account lets me do up to 6 payments a month without an "excess withdrawal fee".  I pay my CC out of that account on the due date so the money sitting in the account for the grace period is definitely earning interest.

I also have a significant emergency balance in that savings account so it's earning quite a bit.

I don't think it matters all that much in the grand scheme of things, though.  Earn rewards from using the credit card, earn interest from keeping the payment in an interest-bearing savings account, etc.  If I put $5000 a month through a rewards card at 1% or so ($50 per month earned) and I hold that $5000 in a 0.9% annual interest savings account it's probably an extra $45 a year or so in interest earned?  I never broke it down.

It all adds up, though.  Every dollar extra you can earn is your dollar.

[Anonymous]

The homeless guy picking up soda cans is making more money than 1% interest. Cynical perspective.

[Anonymous]

My understanding of an "Emergency Fund" is actual money set aside in case the pay check stops or you have an emergency. In my reading over time often the recommendations are three to six months of monthly earnings set aside. The idea of cash was staying out of debt while a person looks for a way to continue. This thread has opened a look at other ways to consider an emergency fund.

[grillandwinemaster]

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@Anonymous wrote:
The homeless guy picking up soda cans is making more money than 1% interest. Cynical perspective.

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I like your analogy Fordguy.  However, couldn't the same homeless guy make more money collecting

cans than the 2% of say, Citi's DC card?  Or certainly the plethora of 1.5% cards?  Maybe this puts

the credit card "cash-back" marketing in perspective? I don't know... I'm just saying...

[grillandwinemaster]

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@Anonymous wrote:
My understanding of an "Emergency Fund" is actual money set aside in case the pay check stops or you have an emergency. In my reading over time often the recommendations are three to six months of monthly earnings set aside. The idea of cash was staying out of debt while a person looks for a way to continue. This thread has opened a look at other ways to consider an emergency fund.

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Hey Dinosaur, very interesting perspective.  What may be an emergency to one, may not be an emergency to another.

I'm self employed, so the paychecks will not stop coming in for me unless I become physically disabled, which would

certainly be an emergency!  

How would I handle that?  I have no idea!  :-(

[wmweeza]

We don't ever pay close to the due date, so no. The cash back goes back into spending.

As far as "Emergency funds" we saved that up from our income, we have about 8 or 9 months worth, maybe more if something else were to come up.

[Anonymous]

I pay on the due date or maybe a couple days beforehand.

However I don't do that because I'm trying to earn interest.. that's silly. I just simply believe in paying what I owe when its due. Life is simpler that way.

[Anonymous]

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@Anonymous wrote:
I pay on the due date or maybe a couple days beforehand.

However I don't do that because I'm trying to earn interest.. that's silly. I just simply believe in paying what I owe when its due. Life is simpler that way.

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+1 Unless you had a decent amount saved up in a savings account, the 'interest' you would lose is minimal.  I prefer not touching the savings at all.  I pay my cards every week to make sure I am less than 10 or even 5% utilized at all times.  I am a conservative spender (unless I had a spending bonus to meet).