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3 Months Salary

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Anonymous
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Re: 3 Months Salary


@Anonymous wrote:
 

A co-worker and I were just talking about "what if we had been saving 10% of every paycheck since we started working. Things are really clear in the rearview mirror. Smiley Happy


I write on Facebook and blog about this daily to show people what a difference it makes to save.

 

If you save $3 per day, every day, at just 1.1% interest in a savings account, after 10 years you have $12,000 in emergency savings.  That's $3 per day which is affordable for MOST.

 

When someone in their 30s tells me that having $15,000 in an emergency fund is impossible, it only takes my 5 minutes going through their Facebook photos to roll my eyes.

 

I haven't had cable TV or internet at home in YEARS.  8 years for cable, 4 years for internet.  In my neighborbood, the combined package is frequently over $160 a month and that doesn't include Netflix and all the other junk.  $160 a month at 1.1% over 10 years = $20,500.

 

Either you want to save, or you don't want to save.  If you say you can't save but are squandering thousands a year on digital media...

Message 31 of 32
Anonymous
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Re: 3 Months Salary


@Kree wrote:

@Anonymous wrote:

@Kree wrote:

@iced wrote:

Credit cards are not money. Credit cards are not spending power. Credit cards are not an extension of your assets. All credit cards should be seen as is a means by which you can spend your already acquired assets/wealth. That is to say, if you cannot buy something right now with cash, you should not buy it right now with a credit card.

 

When it comes to paying down CC debt, you do need to do a bit of juggling as you are now factoring the value in having a safety net with the significant cost of carrying debt. My advice in this situation is conditional:

 

- If you are not confident that your current financial situation will remain stable for the next 6 months, don't touch your emergency savings. This means if you think the likelihood of your needing it is more than about 5%, leave it be. It's far better to deplete savings to get through a tough spell than to take out 20% loans (which is what CCs basically are) to get through a tough spell. Keep paying down your debt as you are currently.

 

- If you are highly confident your current financial situation will not change for the worse for the next 6 months, dip into your emergency savings by up to whatever you can replace in 6 months and make some large CC payments today. The reduction in balance will immediately reduce your monthly interest paid and make future payments go a little further toward paying them down. At the same time, slowly replace what you spent from your emergency fund over that time. Once replenished, rinse and repeat if necessary.

 

Do not deplete your savings to the point that a minor to moderate emergency (car repair, emergency room) will force you to put some or all of that emergency on a card. This is because of what I said at the top - never, ever use credit cards to pay for something you can't afford to buy with cash. Once you start needing credit cards to get through the month, you're in danger. It's very difficult to get back from that point without a major change to your financial situation, and unfortunately that major change is often of a bad form, such as bankruptcy.



But I could contend that not paying off CCs is like taking out a 20% loan to fudn your emergency fund. And a definite loan today will always trump a maybe loan in the future.  I do agree that career outlook is important to the decision though, risk factors aren't easily quantified in this situation, but they do exist.

 

A second thought, as I like your conditional thinking,  What if there is a guaranteed asset bump in 6 months. For example a guaranteed large tax return due to various factors.  The interest paid over 6 months is much less than over 5 years, but the chance of having an emergency is also smaller due to the shorter time period. Would you be more likely or less likely to recommends paying down debt with some or most of a savings?  What about if there is no current savings, would 100 a month be better applied to CCs as there is no chance of building an emergency fund within 6 months, or to save what you can, as you can?

 


Sure, you can view "not paying off CCs as like taking out a 20% loan to fund your emergency fund," but that is a false view. Loans should not be viewed as income, they should be viewed as DEBT; ergo, not paying off CCs should not be viewed as "a 20% loan to fund your emergency fund," it should be viewed as DEBT.


Loans are debt. CC are debt. So I shouldn't count debt as debt, because loans are debt, instead I should count debt as debt, because loans are debt?


 

All the best, OP. Hope it all works out for you.

Message 32 of 32
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