So.... I'm looking for advice.

Nothing flat out stupid like bailing out of my 401k, don't worry. This summer, I took care of the last of my credit card debt. For over two years, I've been using my debit card for most things, and held cash against small emergencies.

The problem is, I want some buffer for larger emergencies. The best way I can see to do this, even at the start of a global recession, is either Master Card or Lady Visa (if you don't get the joke, don't worry) with a couple grand for max limit. I'd probably splurge a little with it at first (I do need a good .22) and then stick it in the back of my wallet and maybe put a tank of gas on it each month. And this time, pay it off that month.

So, the advice I'm asking is, am I out of my mind?

That's basically what I'm doing. I have cash out for emergencies, but most purchases are with the MC which is paid off each month. I use it for cash flow purposes, not to extend myself credit.

Just a clarifying point because the terminology can be confusing (actually, confusing on purpose) and I wouldn't want someone to get confused and make a mistake. What Izzy is referring to is usually referred to as a Money Market Mutual Fund that mutual fund companies or brokerage houses sell. These accounts are classified as investments, and technically could fall in value, and are NOT protected by FDIC.

It's so rare for these funds to lose money for their customers that when the Reserve Primary Money Market Mutual Fund actually lost money when a very big IOU from Lehman Brothers went belly up, that was arguably the tipping point that triggered the recent panic and credit freeze around the world.

To compete with these higher yielding but very safe mutual funds, banks long ago created Money Market Accounts with a name that sounds confusingly like the Money Market Mutual Funds to trick customers into thinking they are the same thing. These are bank accounts and are covered by FDIC, so if the bank goes belly up, you're fully protected up to the FDIC limit. You don't make as much interest as in a Money Market Mutual Fund, but they are very secure.

I'm assuming that you still have at least one credit card, right? Is the credit limit high enough a buffer for you?

Assuming that you have a card but the limit isn't high enough, first thing you could do is call them and ask to have it raised. However, in this climate, some customers are having their limits lowered lately so that might not work.

If that doesn't work, I would suggest that you start using the card and paying the balance off each month. By doing so, your credit report shows that you can handle credit without going hog wild and then declaring bankruptcy every seven years. Ironically, once you start carrying a balance, they become a lot more receptive to raising your limit, too, so that's an option to raise your limit. Or get a second card.

If you have a 401K account, there are rules that allow you to borrow against your balance for hardship reasons. Or you could actually withdraw that money, if you pay a penalty and the income tax. Roth IRA contributions can be withdrawn any time with no penalty.

Depending on the kinds of emergencies you're thinking of needing money for, try to have the proper insurance. Even a small medical problem can turn into a large medical bill.

I do the same as Izzy, put everything I can on the VISA Card and pay it off each month. I then use the reward points to buy RRSP's (Canadian tax deductable saving plans, with tax sheltered income; until you withdraw it). Then with my larger income tax refund I sometimes pay down the mortgage .... or sometimes I buy myself a new toy (you got to have fun sometimes). Mike

Uhm, yeah... that would have been the SMART thing to do. I am living proof that a near genius can be a sub-moron at times. :P When it comes cards, I'll have to be starting over.


You know... this is stuff they should be teaching in high school. I have a piece of paper that says I'm a computer engineer, I almost had a minor in math, I've studied history and politics, and this stuff still flusters and confuses me.

I know it confuses everyone. I know it is designed to confuse everyone. It's like the game of Fizben.

It's the sucker punch that I'm waiting for.

And it was ALMOST a math minor- 2 classes shy. I left a perfectly good hat and some skin behind getting out of my last one, it was a very close thing. Dr Jones' remains had to be left behind. I didn't bother to go further. :P

Three things to do:

1. Make darn sure any securities account you have is not a margin account. If the firm with which you have the account goes bust, the margin account holder is at risk of being a general creditor. Why? Because the margin account allows the securities to be loaned out and traded by others, this is needed by short sellers. But if it goes bust when what you own is loaned, you get screwed. NO MARGIN ACCOUNTS. See: http://www.bogleheads.org/forum/viewtopic.php?p=243626&highlight=

2. FDIC protection runs to $250K. If you have more, then spreading the money out among banks will spread out the risk and potentially get you more protection. Also, a married couple can get protection on three accounts by having one in each person's name and a joint account. All three would get FDIC protections, as I understand things.

3. Have cash. I know of major bank employees who recently having been maxing out their ATM wthdrawals every day. If banks have runs, having cash is going to be good. Banks in NYC have almost no $100 bills. Lots of people ae hoarding cash too.

ok, so you have to start over with a credit card you will use for emergencies. no biggie. the sooner you do, the sooner you will be where you want to be.

maybe try you local bank first. or a major department store - maybe buy some socks or ? - they're typically easy to get and then you will start to get offers from a lot of different cards.

please be aware NOT all credit cards have cash back.

you can search the net for sites that compare credit cards and their unique advantages.

If all you want is a buffer of a couple grand, what's the matter with putting a couple of grand in a savings account?

As I've said before, an emergency is the worst time to be getting back into credit card debt.

A rule of thumb I've heard is to keep a reserve of three to six months of expenses as an emergency fund. Buying another car because your old one is wearing out is not an emergency, that should be a seperate savings goal.

Many banks offer a "high interest" savings account with "money market rates" which seems to amount to about 2-3% these days. Put it there and FORGET about it, you're not trying to "build weath". Don't put it in CD's, keep it liquid.

One thing on credit cards that I hope is not too off topic. Be sure that any old credit card accounts that you may have had in the past, including retail store accounts (e.g. Pennys, Sears, Home Depot etc.) are actually CLOSED. Simply not using the account and cutting up the card is not sufficient; you must contact them by phone or snail mail to close the account. Here is the problem(s) if you don't.

1. The credit line that you have with, say, Pennys, eats into the overall amount of credit you have when another lender looks at your credit report. Enough of these old open but unused accounts and you have no credit but don't owe anybody anything.

2. It an identity theft vulnerability. You forgot about the account. Someone gets your account # and starts using it. You suddenly find that you owe $$$ on an account you thought was closed.

I recommend 2 credit cards. One primary daily EDC and use. A second for back-up if the primary one is lost/stolen/compromised. Do not keep them in the same place.

And always pay the bill off when it comes in.

Uhm, if I had a couple spare grand hanging around it wouldn't be as much of a problem. Right now, I can consistently keep my account north of 1K, and going higher, but it only takes take a bad month to blow that away and leave me with nothing. Right now, I'm putting about 30% of my after-tax into housing, and another 40% into repaying my school loans which I've begged and pleaded as low as I can get them.

I'm thinking of this thing as the financial equivalent of a suture kit and tourniquet. Can I use either one? My class work says I can us the latter, and I've been taught by friends how to use the former, but I'm pretty sure I never want to.

Us too. To help out even more, our most used credit card is an American Express from Costco. Ours is the older version, we get 1.5% back in cash for everything we put on it outside of Costco, and 2% back for Costco purchases. Almost all of our normal monthly payments are automatically put on the card. We ALWAYS pay it off completely every month, and in a normal year we will get between $600 and $700 back from Amex and $150 or so from Costco, just for using their card, giving them zero back. Free money...

Congratulations on getting and staying out of debt. It is always a good first step.

A CC that offers a percentage cash back may be an improvement over regular CCs. It depends on the fee arrangements, interest rates and all the other details.

But if you really want to see savings your better off avoiding CCs and debit cards altogether. Many studies have shown that using cash, and the act of physically pulling out and counting cash, serves to make spending more conscious and focused to the point that people who use cash consistently spend less overall. Savings far exceed what cash back CCs offer.

With a CC or debit card paying is so quick and easy that there is less chance to feel the weight and consequence of what your doing. A days wage can be tossed away in a thrice. Which is what the CC companies want. Paying off the bill is, of course, far less quick and easy. This is something the CC companies want you to forget as soon as you enter the store.

Using cash keeps the mind much better focused on the weight and consequence of the issue.

With the money you save every day you can afford to save money the old fashion way: Socking away a few dollars every week in an interest bearing account.

1 thing I learned from a close friend: Get a receipt for every purchase you make during the day. Sit down with your spouse every night for a few minutes while y"all go through the day's receipts.

This way, you're both aware of where you spent money each day. As Arney pointed out, this keeps people aware of their spending habits and subsequently, they spend wisely!

Too true. So many times I've made purchases and didn't even know the total as I signed the slip. With cash I'd have known. . . I don't carry that much cash.

The point is to control spending. As inflation ramps up (as it will once the reality of our financial situation kicks in), folks will start to watch prices much more closely.

That's what I like about using Quicken. (YMMV)

We categorize everything so when I sit down (theoretically daily) and enter in the debit receipts everything gets put a category.

It makes spending patterns a lot easier to identify.

Example:

FOOD
FOOD: Groceries
FOOD: Dining - Planned
FOOD: Dining - Unplanned

FINANCIAL SERVICES: Good (for tax preps, etc)
FINANCIAL SERVICES: Bad (for late fees, finance charges, nsf fees, credit card interests, bank charges for having balance below certain point, etc)

My wife and I sit down every so often to look at our categories and see if the info we want to capture is being covered.

End of year tax time is a bit easier as well, by just printing out the cash flow report for the CPA.

The main problems are:
1) Me disciplining myself to enter in the receipts as we get them instead of waiting for the end of the week

2) Doesn't capture cash purchases.

3) It's a lot harder to fool myself that I really didn't blow that much on "X" this month. Quite depressing when "Denial" is removed as a coping mechanism.

I'm still looking for a "Denial Reconcile" function on the tool bar, anyone know where it is?

Well, I'm gonna assume/hope that 40% going into student loans is more than the minimum payment. In this case, consider stopping or reducing the extra principle for a few months to build up your cash emergency fund. What? Tom is telling to you slow paying down your debt?!?!? Kinda. If you get into credit card debt for an emergency while aggressively paying down your student loans, that is exactly as if you borrowed on your credit card to pay down principle on your student loans.

Now, if you don't ramp your debt payment back up after you've built the emergency fund, I'm gonna have to send my brudder in laws Vinny and Angelo over there to have a discussion.

One can set up a cash account in Quicken and use it the same way as a checking/debit account to track expenditures.

Thanks for the reminder Grouch,

We did try that for a while early on with a household petty cash account, and at that time in our marriage (going on 18 years)it was just too cumbersome.

Now that the both of us have settled into our routines and habits as a couple/financial entity, maybe it's time we revisit that.

(Wow, contemplating that did bring back some memories for me.... wait til my hunny-bunny gets home!!)

Aloha IronRaven,

FYI...Financial people would likely be prohibited from commenting on financial matters in a public forum without some kind of prior approval, so you might be best served seeking an advisor local to you.

It's right next to the DWIM (do what I mean) key on my computer...

Good points Art.

Concerning credit card fees and even bank account fees, they are all negotiable. When I renew my mortgage I get price quotes (play one bank against the other) then when you think you have pushed them to the max, ask for no fees on your CC and accounts, I even had the bank give me a free safety deposit box in last round. I really enjoy these negotiations; maybe too much?

Mike

I was just looking for that one tonight. Usually I like the new office layout. It makes charts & presentations much easier. The equation editor in Word leaves a lot to be desired.