Savings garden club?

[Anonymous]

lol probably!

[Revelate]

Guess similar to the house as asset argument, you can take a loan against the 401K or you can simply take it as income + penalties with a withdrawal worst case?

I mark it as a leveragable asset personally and so do lenders (at a 40% discount), but I ain't making the rules haha.

What's really the difference between a savings account or a money market fund, or really a straight equity investment that can be converted to cash in your bank account in a week assuming you're willing to do the math to maintain said playground even in the face of market losses?  Mandating a low interest savings account (currently, 1.05% at Alliant is still less than inflation) seems awkward and lame .

[Anonymous]

I think the sign above the playground entrace is "Are you ever stressed that you won't be able to make your minimum payments for a month or three?"

If the answer is yes, then savings is more important than anything.

For the past decade or so, I've gone against the Dave Ramseys and Susan Powters and said that paying down high interest debt MUST come second to putting money into a savings account.  I've beaten up people with the thought game until they caved and decided to test the theory out.

In that same decade I've gotten probably hundreds of "thank you" emails from people said that that even though their overall interest costs went up for a year or two, that savings account saved them from a credit destruction because when someone lost their job or whatever, they were able to pay at least the minimum for a few months until the life emergency was over.

Had they "saved interest" on paying down debt, what would they use to pay off the minimums when a life emergency came around?

Having big credit limits means NOTHING if you start to just pay the minimum, living on an ever growing credit balance, and then creditors realize you're in trouble and take AA.

On the flip side, if you have a savings account and only pay the minimum for a few months and get balanced chased, what do you care?  You have your playground account to keep paying the minimum and you're not living on credit for new purchases.

Emergency savings > paying less interest.  Savings will SAVE you when trouble comes, paying less interest will only save you money.

[Sandman771]

Well i get the golden tricylce or whatever. I got the minimum in my PenFed savings. And my NFCU savings I just rake my rewards each Monday in there and see where that adds up. 

I did have a rewards question. I have the cash rewards card 1.5% cash back on everything. My monthly spend is about $1500 give or take. I thought about PC-ing that to the Go Rewards, but i don't understand how the points system works for redemption. I did notice that gas paid 3 points and dining paid 2 and all others paid 1 point. So I guess i have to figure out my spend do I do enough on gas and dining that it outweighs what I'd lose on all the other. I'll work on that question if someone will explain how their rewards points work? Is it one point is one dollar or what? Thanks in advance gang. 

[Anonymous]

Well thankfully even though I just closed on a house, I didnt do that until I KNEW I'd still have at LEAST 6 months of money in case of a job loss for example.   As you said we all got in trouble probably due to job loss etc., and not having enough savings to cover our 'needs'.  I was WAY overextended at the time (mostly because my student loans became due and I just couldnt pay without that job!)  Anyway.... I have quite a bit still stashed and am now extremely gun-shy to ever be in that situation again so I saved and saved and saved ...and even budgeted savings $300 every paycheck into my new house budget...no way was I going to get a mortgage that didnt allow me to still save...its not as much as I was, but its still hefty by a lot of folks standards I assume.

[Anonymous]

Yep, the worst thing I see lately is people going to get a mortgage, they get pre-approved for $300,000 with 5% down, they beg borrow and plead for loans from relatives for $15,000 to make their down payment and then mortgage the maximum with ZERO in savings.  Horrifying results will likely happen.

I'm blessed that I own my home mortgage-free but my house's value is about one year's income for me.  I made that decision because I didn't want to pay for a house anymore, and now my house actually pays me back every month above and beyond what it costs me to maintain, pay taxes on, utilities, insurance, etc.  So my house went from a depreciating asset to a profit center, haha.

I would like to buy another house in the same area in the next 12-18 months so I am socking away a ton of savings in hopes that I can get a second one mortgage-free and turn this one into a full time profit line.

The more you save, the more power you have in life.  If you want to move to change jobs, you can.  If you want to sell of your house, you can always pay off any upside down amounts.  If you want to take time off to see grandkids, you can.  It's all about power -- savings is power, credit limits is merely nice to have.

I have a lot of friends and family who are totally in over their heads with high debts but higher incomes than me, and they stress about it constantly, but do they halt their expenses?  Nope.  I got rid of cable, Internet, TVs, fancy laptops, fancy cars, fancy appliances, etc in order to reduce my financial stress level to literally zero.

And when those over-debted friends of mine invite me to dinner at a fancy restaurant down the stress, they can't balk when I say "nah, I'd rather barbecue at home, I'm trying to save another $100,000 so I can buy another house to make money on so I don't have to work in my 50s and on."

They can have their overpriced $90 steaks and $80 bottles of wine served to them on a fake silver platter, lol.

[UncleB]

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@Anonymous wrote:

For the past decade or so, I've gone against the Dave Ramseys and Susan Powters and said that paying down high interest debt MUST come second to putting money into a savings account.

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This we definitely agree on.

My past 'troubles' are similar enough to how you describe your own that I certainly know the value of having easy-to-access savings, even if that comes at the expense of paying a few dollars of interest for a few months. 

I know (and appreciate) that there are many opinions on this, but personally I find having a "stash" invaluable... I plan to never be without it again.  Actually, it it's a litmus test of sorts for my financial health; if I were to have to dip into that particular savings it would serve as a red flag that there are problems.

[Anonymous]

Yep!  My two red flags for me personally would be if I touch my playground funds for any reason, or if I pay interest on revolving credit.  That's just because those are the two signals that screwed up my credit in the past (although my emergency funds in the past were mediocre, about 25% of one month's cost of living and ignored debt payment costs).

Nowadays, I just don't charge something unless I have the funds readily available in checking, or I know I will be clearing funds in time before the due date.  I get paid through deferred compensation quite often, though, so at least I know how much is in my deferred account waiting to be released.  Paying from emergency savings to avoid interest on a credit card is a no-no for me.  But both would be a red flag that I have overspent and need to cut back until I am back to a balanced position!

[Sandman771]

I'm trying to get my savings to that point myself. I've been using my CC that way already and just feeding some of my paycheck into my PenFed savings account. 

[Anonymous]

That's a good way to start things out, for sure!

Just having SOME savings is a big start.  Once that balance grows a bit and you start feeling the relief of any hidden stress that comes from not having anything, you may start to see the advantage of setting some goal posts for future savings balances.  I know when I finally passed my 3 months of living expenses + minimum debt payments based on my typical balances I PIF each month, I felt huge relief.  It ended up being not that much money and I should have taken care of it when I was 18, not in my 40s.