Your Emergency Fund Or Your Debt?

@Guymann: Of course, but simply not shopping won't pay the rent/mortgage at the end of the month !

@Gepeto: Yeah, better still, don't spend more money than you make. If you aren't employed, stop shopping.

Guymann

Duh. If you lower your debt by 50% and get canned, you might not be able to re-use that debt you just paid back.

They are both very important but having an emergency fund setup before accelerating debt payments only makes sense.

An emergency fund is a great way to keep yourself from going back into debt. My wife and I put aside $5k before attacking our debt. When my company folded, we were able to live off of savings WHILE still paying off our debt until I found a new job.

Without it, the loss of my job would have easily put us back to square one (and if not, the psychological toll of having to get more in debt after working so hard to get out would have been very taxing).

I dont have a credit card and dont have or ever had any debt and a fairly large emergency fund. With the current economic times im very grateful for all of that. One bad thing about that though is i have no credit :( but as im not looking for a new car or buying a house anytime soon its not such a big deal for the time being.

Thats right shirk paying your debt so you can create an emergency fund. While you at it don't pay your car or house either who cares. MAYBE YOU SHOULD BE RESPONSIBLE AND NOT GET INTO SO MUCH DEBT. I know I know its some how someone elses fault you can't manage your money. Bunch of losers no wonder our economy is as bad as it is.

AudreyLubob

@AudreyLubob: I think the idea is to pay the minimum balances on your cards as you build up your emergency fund... which is why it said, "only pay the minimum due on your credit card balance"

Man, with people who can't read like you, no wonder our economy is as bad as it is!
;-)

@AudreyLubob: I don't think this article indicates that you should shirk paying your debt. It's actually talking about striking the right balance between paying off your debt as fast as you can, or paying down your debt a little slower while establishing an emergency fund. Nothing about not paying at all, as your comment suggests.

edebaby

@AudreyLubob: Well let's all hope AudreyLubob never gets laid off and has to choose between buying food on a credit card and not eating, because OH NO that would mean she's a loser. Get off your high horse and realize that not everyone who gets into debt did so because they just HAD to have the newest Coach bag. A lot of them do because their children just have to eat or they'll go hungry. If I had to choose between debt and putting my kids to bed hungry I'd choose debt.

@Thanatos: I commend you on your good financial sense. Also, I wouldn't worry too much about not having any credit. You'll probably be better off having no credit history than most people with credit histories by the time we get to the other end of this recession.

My only debt right now is my mortgage. I'm splitting any extra funds three ways -- extra payment on the mortgage, beefing up the emergency fund, and extra into retirement. Probably could tweak the ratio for a better return, but it works for me.

Fabrictramp

@AudreyLubob: i had a good response typed out to you, but it pretty much just boiled down to 'fuck you'. there. i saved us all some time.

I watched this video, and for some it might seem counter intuitive, but it does make sense.

You're better off building your rainy day fun, and accruing interest on your CC's than trying to pay them off--in the current state of the economy.

@AudreyLubob: Did you read the article?

Prior to this crisis, the advice was to put as much money you can to pay off your high-interest debt. Since economic situations have changed, that no longer makes sense.

Gawker should enforce some sort of basic competency test before allowing people to comment.

@AudreyLubob: While many people who have large debts have only themselves to blame, that's not true for everyone. Just one hospital visit that your insurance decides isn't covered can put you many thousands in debt. How about legal fees to defend yourself against a frivolous lawsuit? How about something really frivolous like a college education?

Fabrictramp

This should not be the "new" method. You should have always squirreled away a thousand or two BEFORE tackling your debts in earnest...that's how you stay on track when the inevitable yet unexpected car repair, medical procedure, etc hits you.

I'm a HUGE fan of Dave Ramsey [www.daveramsey.com] as his advice makes perfect sense.

Here is his list of financial priorities.

1. $1,000 to start an Emergency Fund
2. Pay off all debt using the Debt Snowball
3. 3 to 6 months of expenses in savings
4. Invest 15% of household income into Roth IRAs and pre-tax retirement
5. College funding for children
6. Pay off home early
7. Build wealth and give!
8. Invest in mutual funds and real estate

SpudDude

@Gepeto: But the money you saved on that iPhone will!

The answer entirely depends on how likely it is that you'll be able to reuse the debt that you're paying off if you get into trouble.

If you think you'll be able to reuse it, just run it up again in an emergency IF ONE HAPPENS. Otherwise, carry on paying off your debt and skip the interest.

The one part of Simple Dollar's rebuttal that would agree with is that trying to build an 8-month emergency fund is a little too much.

But I think it's dangerous advice for them to say "don't worry so much about your emergency fund, because things will be in 2010." The way things are going, I wouldn't plce any bets on any economic indicators right now.

I also think it's absolutely useless to say, "well, you should have been doing this two years ago." Great. But people weren't, so now it's a good idea to build up an emergency fund and just pay the minimums.

Yes, you'll end up paying a bit more interest in the long run - consider it the cost of insurance and the cost of not doing this before now. Maybe things will be fine in 2010 - great, you'll easily be able to pay off that extra interest. But consider the flipside - you paid you cards down, then lose your job, find your available credit slashed in half (or more) by your CC company, and you have no way of paying your mortgage.

Clark Howard for years has been saying that when times are tough, your house/etc comes before credit cards. Because it's better to rack up interest than to end up homeless.

@Thanatos: Well arnt you special??? too bad having zero credit is as bad as all those people who racked up tons of debt... Youre both in the same boat... But for some reason, the gov't tends to help people with too much debt vs those who are responsible...

JeanStork

You should always consider yourself as a "bill." Pay yourself a bill that you wont touch... I usually do 10-12% of my paycheck after taxes... Your personal bill should be more important than any other bill... What i also started doing, I put all my coins in small containers... But i also put $5 bills in there as well... So $1, $10 and $20s are okay to spend, but the minute i get a $5 or some coins, they go straight into the jar...

JeanStork

@KarateMedia: Wow, that is full of typos. "because things will be *better* in 2010," just to start with. I need an edit button today, for sure.

@Thanatos:
Or, you could just get a credit card and use it responsibly to build up credit. Credit cards themselves are not evil. Carrying balances (and paying interest) on them is. Just get any old credit card with a ridiculous interest rate, charge a few things on it that you'd normally pay cash for, and then pay off the full balance when the bill comes. Now, you have credit and you don't pay a dime of interest. It's really not that hard. I use rewards cards for everything that I can. I figure getting roughly 2% back on all of my purchases is a pretty sweet deal.

g33k

@JeanStork: And just to add to this, i didnt start with paying myself 10-12% I started with 7% and slowly added a little at a time...

JeanStork

Blanket advice is worthless. Everyone has a different circumstance that demands a different route.

gerrrg

Suze Orman? Isn't she the one always telling you that your FICO score is important? And she's paid by Fair Isaac CO to say so?

NuncioStevenson

I have no big debts (except student loans) but no extra money to allocate to an emergency fund either. Hurray for living paycheck to paycheck.

If I did have the luxury (or burden) of balancing debt and savings, I would probably focus on paying off my debt while keeping a little bit of savings. If all goes well, I would be able to still maintain some buying power with credit while being able to make the minimum payments.

This is just my thoughts, as I really don't like the idea of letting interest inflate my debts. To me, this just seems like a waste of money. If I do lose my income, I will use credit to sustain myself, but have enough money to prevent defaulting.

ku1185

@AudreyLubob: I am so tired of smug BS like this whenever there is a posting on debt. It's like telling someone who is looking for advice on how to quit smoking that the best strategy would have been to not start in the first place. Congratulations.

If someone is investigating ways to get out of debt they probably already figured out that they shouldn't have become so indebted in the first place. Rubbing their nose in it doesn't help. We can't all be perfect debt-free smugasses like you.

ChromeSishi

But I'm a Lifehacker reader and I always pay off my credit card balance EVERY MONTH!

This new information is incompatible!

While I don't really like the cult of personality Suze has built around herself, I do agree with this advice (in general...it's certainly not for EVERYONE). Layoffs are rampant right now and savings are the best defense against them. If you already have $5K saved (or whatever is appropriate for you) , then pay your debts.
However, I only have 3 loans right now. 1st Mortgage, 2nd Mortgage and HELOC. I don't keep balances on CCs, if they are not paying me something is wrong. The HELOC is (sort of) a car loan, which I could actually make into a car loan, except that 3.5% beats the pants off any used car loan I've seen. I have *some* emergency savings and I'm paying down the last 2 loans. There is no magic bullet financial advice in this economic environment, but not saving and/or paying down debt is dangerous in any economy.

jonathan19

i'd agree, though i would still try to pay debt at a bit more than the minimum, and make sure you are strict at not dipping into the emergency fund. but if you have a mortgage and loose your job and don't have enough saved to keep paying that mortgage for a while because you paid off all your credit card bills, you still loose your house. If however your creditcards don't get paid off, and you saved and are able to keep paying your mortgage, you keep your house, and watch your credit card balance stay the same (or if you can't even pay the interest amount, grow some).. still better than losing your house.

klumsy

ragging on people now for what they should have done back then, is not only a douche move but it's totally counter-productive as well.

expecting people to behave differently than we expect companies to behave is unrealistic. when a company faces a credit crunch it always tries to preserve capital by adding to it's reserves while attempting to refinance its current debt and obtain new financing elsewhere. for individuals this translates to increasing the emergency fund at the expense of current debt payments, and if necessary filing for bankruptcy in order to further preserve remaining assets.

morality flies out the window when the bank forecloses on your house and your children need food...the time to act is before this happens. not acquiring debt would be the ideal, but needs must.

gmerin

Car, credit cards, student loans.. all paid off. Now I'm dumping cash into the house.. maybe I should throttle back on that and increase savings.
I think my job is safe but, I thought a lot of things just 7 months ago

Denver80203

Save that emergency fund first, (at least $1000) so when Murphy strikes you can handle it and not have another debt crisis. Having that money rat-holed will make you feel so good that it will give you new enthusiam to paying off the debts so you can save more. (Pay off the smallest to largest regardless of interest rates.) Also, with an emergency fund there is no reason to keep the credit card is there? Cut it up and get on the road to independence and wealth!

deanes

@deanes: Everyone should have at least one credit card. Things like hotel reservations and car rentals are excessively difficult without one, but you can still avoid carrying a balance on it.

@mykie:
Not really... just stop putting anything on the card in the first place and redirect spending into savings. If you can pay it off, you shouldn't use it in the first place.

It's debatable if using a credit card helps your credit rate at all. If you just have a card with X amount of credit open, I think you have as much gain out of that credit rating sector as you can get.

Question is what are you spending on in the first place and do you really needed it?

Denver80203

Everyone, IMHO, should take into account all of this advice and tweak it to benefit your specific situation. That being said, I'd like to hear some advice about how much one should have in an emergency fund. Any ideas besides 8 months worth (that seems like a lot, but maybe not if you can't find a job) or "a couple thousand dollars"?

@Pro8678:

I would think it would depend on circumstances. E.g. if you own a car or house you will want more because you might have to pay for repairs, etc. I think I heard somewhere that you should have 2-3 months salary but I could be making that up.

ChromeSishi

@Gepeto:

It's not "duh". When people who fancy themselves naive or just new to personal finance have been told over and over to pay down debt, it is a huge insight to understand in times like now, paying down your debt isn't necessarily the best thing to do. Not everyone would realize that credit companies are likely to reduce their credit lines when they pay down their debts.

I happened to see the episode of Oprah when Suze gave this advice and the audience was astounded to here her say this.

jupiterthunder

@Troy F.: 100% agree... These articles used to make me so flippin angy as I KNEW they were steering people down an extremely dangerous path. Recession or not you need a safety net first.

@Follower46: Well done, this was something I had a hard time getting my wife to understand.

@SpudDude: $1000?! What's that for beer?

I like your list, but I would say trash #1 and move #3 to #1 unless you like praying to god someone will loan you a few k to make it through a big jam.

@Troy F.:

If you did all that AND you have the money to pay off your debts while maintaining an emergency fund, THEN the advice if not for you.

If paying off your debt would sap your emergency fun, the advice is to not drain the fund.

It's really simple if we take to time to understand what is being said. If you have $5000 stored away in the event something goes wrong and something does in fact go wrong, don't give your $5000 to the credit company because right now, you have credit and money. If you do that, you will have no money and likely have little credit.

jupiterthunder

@UnderLoK: Same for me. She was against it at first (and I was worried it wouldn't be the best for us). But it all worked out well in the end.

@ku1185: If you don't have a net you pay the interest on your debt every month, nothing more.

Change of strategy??? I ... don't ... think ... so.

Per the Dave Ramsey schtick, we put $1000 in an emergency fund before we started paying off credit cards. Now we are 2 to 3 pay periods away from paying off the last credit card. Sorry Suze, we're not stopping now.

If we both lose our jobs tomorrow, I guess we'll take the $1000 and buy 8 months worth of ramen... problem solved.

keeblerelf

@KarateMedia: Dno't wory aobut it. No hram doen.

@SpudDude: OK, there has to be an iPhone on the list somewhere. #12? Give me some hope!

Unless some of the bill payments goes to credit that I can definitely use in case of an emergency, then I always go for creating an emergency fund over repayment. Because you never know when you may need the money that you drained into interest only payments.

I think this advice comes out of the idea if you suddenly loose your job. Then you start to eat at your credit cards even further making the whole thing the same big mess as before and maybe worse. If you have a healthy emergency fund then you may even be able to continue to make your minimums but you won't be going further into debt.

quesadillaap

@jupiterthunder: I'm sure not a whole lot of stuff is "duh" to people who rack up $50k on a 18% credit card.

@AudreyLubob:

Some of us don't have tons of credit card debt. 99% of mine is student loans. And I barely make enough to cover the payments on those, the rent and other bills. So where am I going to get money for an emergency fund from?

And don't say cut anything out, because I'm down to the bare-bones.

-Adam

@NuncioStevenson: I think she honestly is trying to help Americans get out of debt. She has written several books and several times she's allowed them to be distributed for free online. That's a very generous thing to do, where she could be getting continued profit off of people's desperation and an Oprah endorsement, she offers that information for free and even tells you to send that copy to everyone you know.

quesadillaap

@g33k: Thats true but the cards ive looked at for people with zero credit have crazy APRs.

@JeanStork: Did i hit a nerve or something?

@UnMicD: Agreed... plus, if you are financially responsible, you can make some credit cards work for you. I use Amex Blue Cash and last year got $300 cash back for accumulated purchases that I would have made anyway (gas and groceries). Those, and occasional dining out purchases, are the only things I put on that card. Everything else goes through a debit card (so I don't have to carry cash) so it hits the checking account right away.

fritzk3

@UnderLoK:

You can actually work on #2 and #3 at the same time. It would actually be advisable to adjust both of those to your particular circumstances.

The 1k is to make sure you can put a tire back on the car if it falls off; or pay a deductible (or repairs) on an automobile collision; etc.

sumobear

@UnMicD:

Debit cards work fine when run as a credit card. You get the benefits of credit style protection when run as a credit transaction and the benefit of debit usability when used as a debit card (it ends up processing much like an ATM cash withdrawl transaction).

You don't need a credit card.

sumobear

@Pro8678:

The amount of the fund is going to be catered to your needs and desired comfort level. Is eight months too much? Maybe. Is it too little? Maybe.

Generally you want about 1 - 3 months sitting in an easily-accessible account (it's for emergencies, you need it within a few days when you need it). Anything 3 - 12 months can probably be put into a mutual fund account (or rotating CDs or such, depending on how much work you want to put into managing it). You need the money in a long-term emergency (like job loss while job hunting). But you don't generally need it immediately (as long as you have 1 - 3 months immediately available).

Anything beyond can be put into better return funds. Then if you ever need to draw from these funds, you obviously want to replace them as soon as possible.

Personally, I don't think even a year worth of expenses is too much to have readily available. You just never know what is going to happen.

sumobear

6 or 8 months of emergency money is excessive, if you've got high interest debt. I would put a little bit aside, but then pay down the debt first, and save a lot of interest.

MadelineKepel

@SpudDude: I'm a HUGE fan of Dave as well. Cleaned up $42k of debt in 10 months following his plan.

csterno

Well, you may want to pay a little more than the *minimum* on your credit cards. The card companies have it structured so that if you only pay the minimum, you're essentially getting nowhere, and if you use the card a little each month you may actually be going backwards.

Having said that, I agree that having some money in the bank (if you have none) is more important than paying off a credit card. Suck it up, get a savings balance of $1,000 or so, and then go back to plan A.

olsmeister

If you're counting on using your freshly-paid-down credit cards AS your emergency fund, you might be shooting yourself in the foot. More and more credit card companies are slashing credit limits, so if you aren't stashing money into an emergency fund, you might find yourself without the cash you sent to the credit card company, and without the available credit you thought you were going to have.

ShubhaViper

I would say this advice is only applicable if you are in a more volatile industry or fear that your job might be in danger in the next 6-12 months. If that's the case, then yes, it would make sense to build up an emergency fund instead of paying off debt. But if your job is fairly secure it would be foolish to rack up more debt on the interest of your credit cards etc.

Another idea is to consolidate the credit card debt on 1 card that's offering 0% interest for 1 year, and then save all the extra, but I guess if you have lots of debt you probably don't qualify anyway...

It's shocking that so many people don't have emergency funds AND have a mountain of debt! Yikes!

Emergency funds and savings in general are a great idea, particularly if you aren't expecting a ridiculous amount of inflation. Where are all the tinfoil hats when you need them?

QuinbyBabblerash

@sumobear: Right, forgot that debit works that way in the U.S. In Canada most debit cards can't be substituted for a credit card (though some cc/bank partnerships are now offering that sort of functionality on their enhanced cards). So you can debit groceries (subtracts immediately from your bank balance), but anything that uses it as a delayed charge, like a hotel room or car rental where they want to charge you a variable/conditional amount won't work on the standard bank-issued debit card.

Interesting. I may have to start making that switch myself. I had thought about it a couple times, but this is the first time I've heard that advice solid and clear from an expert.

I think I'll start splitting my "use this to pay off the cc" money - half into savings, half down on the cc. I really do want to get my cc paid off. It'll only take me a few months (I've never had to pay interest until recently when I had to put a large purchase on it), and I want it to be done with.

I disagree with many of Suze's recommendations, but I'm not nationally known and my personal situation almost NEVER matches those of people she is trying to help.

Chances are that your situation is just a little different too. That means, read/listen to her recommendation, understand the reasons for it, then follow or disregard it as YOUR situation dictates. If you don't understand, ask someone you trust and who has financial knowledge in the subject. Then ask someone else.

$1,000 in "savings" isn't anything unless you're in college. A trivial auto accident will wipe that out. My emergency fund was around $40K when I started living off it. I've been debt free for years (no mortgage either), so our household spend is only $2K per month or so assuming we don't change any spending habits or cancel any planned travels.

Your emergency fund needs to handle
- Transportation needs (used car, taxi, bus, train)
- Health care - copay, Walmart clinic
- Business clothing
- Food
- Utilities
- Mortgage
Basically, all your living expenses for the household should any of the workers lose their jobs for as long as it takes to find another. That could be 6+ months.

Or you could move home to Mom and Dad and mooch off them.

TheFu

@AudreyLubob: I bet you go to people whose houses have burned down and shout, "WELL MAYBE YOU SHOULDN'T HAVE LEFT THE STOVE ON", don't you?

HeartBurnKid uses Linux: the taint of OS's

@quesadillaap: But she is a paid endorser of Fair Isaac.

MPGraber

@sumobear: Hear, hear! We paid off $65k in 13 months following the steps above, now we have $25k in the bank for a big, beefy emergency fund. And NO debt! We followed the steps in order. Only having $1000 does make you work harder towards getting out of debt, and you tread very lightly to avoid the big jam that UnderLok is worried about.

MPGraber

@Gepeto:

Maybe. I don't think I need to identify all the assumptions in that statement. But as has been said, that's not necessarily what we're talking about here. In fact, in the specific example -- the person whose question Orman was answering when she gave this advice, the woman had only $6000 in credit card debt.

Even if you're dealing with smaller balances, the reality of the economy and job status for many means needing to consider this.

jupiterthunder

I don't know why people would listen to Suze Orman. What she's now telling her listeners is what Dave Ramsey has been saying from the start always have that emergency stash. Imitation is really the sincerest form of flattery.

lilwhitey7

@gerrrg: blanket advice is not worthless. It gives financially clueless people a starting place and more financially savvy people a pause to stop and reassess their plan (not that their plan needs to be changed, but it's good to reassess every now and again.)

EricEscardadente

Suze does well to give new, updated advice- and even to acknowledge directly that her past advice does not apply. Arguably she has come to this tidbit a bit late, but the suggestion may still direct many of her followers into a safer choice.

It makes pretty clear sense, of course- even if all of your debt is paid off, a sudden and prolonged loss of work could just leave you stumbling into more debt if you don't have a cushion. Actually, I don't see why this advice only applies in the current economic climate- shouldn't an emergency savings always be important?

Erika Price

@Thanatos: That exactly what g33k was saying though. Don't worry about the APR. It only affects you when you don't pay off your balance at the end of the month. I've got three credit cards, and to be honest I'm not sure where the APR is on them (I think it's roughly 14%). It doesn't matter though because I've never spent a dime on interest on any of them.

Nakamura2828

I think Suze should give advise based on different situations people are in, her advise definitely does not make sense for everybody.

YardanNoppit

@lilwhitey7: Wrong. Dave advocates you only put $1,000 in savings before tackling all your debt. You don't build up an emergency fund in line with what Suze's talking about here until after you've paid off all your debt--credit card, student loans, etc. Suze's change of heart is in direct opposition to "what Dave's been saying all along."

SuchitraWren

As someone who paid off a lot of CC debt, I think I can offer some good advice: if you have enough available credit and aren't bordering on having your cards canceled unexpectedly, then continue focusing on paying down the debt and don't worry too much about emergency savings. Your available credit acts as your emergency fund. Face it, the most common financial emergency is likely to be charged anyway (if you have the available credit), such as a huge vehicle repair bill or a hospital visit.

If you can split it, then you should definitely be focusing on having six months of BASIC expenses (rent, insurance, food, gas money) in the bank -- at least six months of rent saved up. But I don't consider that an "emergency fund." That's just what I would call "savings" and it helps to have that financial buffer to cover cash expenses that you may not be able to charge (like rent).

But as far as an "emergency fund," which I define as extraneous and unexpected expenses (hospital bill, car wreck, etc.)

So to summarize:

#1.) Build some savings, at least six months rent, but don't even think about viewing that as an "emergency fund" that's just a saving account with money in it. If you have zero savings, then perhaps you should pay minimum payments only until you have about six months worth of rent saved up. But after that:

#2.) Focus on debt! Every billing cycle you spend owing money is costing you money you don't have. The more you pay off, the more credit you have for...

#3.) An emergency line of credit for unexpected and extraneous expenses.

Basically, my answer is a combination of factors. Focus on savings if you don't have any savings, but switch to focusing on credit long before you actually have a viable emergency fund.

Look at it this way, if you focus on your debt, then your also freeing up credit and improving your score. If you don't total your car or get diagnosed with cancer (forcing you into using your credit card) in 12 months, you will have saved a considerable amount of money (by reduced fees because your debt is being whittled down) and increased your credit that can be used ONLY FOR AN EMERGENCY. If you last another 12 months without being totaling your car or being diagnosed with cancer, your will save EVEN MORE MONEY than the year before (because, again, the fees go down further and faster).

I also do not agree that you shoudl cut up your credit cards. You should actually use them periodically (but only for charges you have planned and money for, which you should basically pay in advance by adding it to whatever regualr amount you pay monthly for your credit card bills). The reasoning is if you stop using your cards altogether, they could be canceled, and your credit history will basically go into limbo. If you are in a psychological state that you cannot control your spending without cutting up credit cards. . . well, that says a lot about the need for a highly regulated credit industry because you shoudl never have gotten anything more than a card with a $500 limit in the first place. You should simply choose to change your ways and keep your cards active.

olegna

Oh and of course: NEVER pay late. Never.

olegna

@HeartBurnKid uses Linux: the taint of OS's: Very nice. I was going to use Katrina victims since I'm from there.

@jupiterthunder: When I was paying off my $8K debt and reading that I should also have an emergency fund, I could never figure out where the money for the emergency fund was supposed to come from. After all, the way I got into debt in the first place was not having enough money to pay for my bills. So, if I had cut back to the bare bones and was giving everything to the bills and the credit cards, where was this extra money I was supposed to be putting into an emergency fund?

Even now, every time I have to replace my roof, buy a new furnace, repair my car, my emergency fund is completely wiped out.

Suze or some guy with a blog, who's credible? Hmm...

aeronaut

@AudreyLubob: Before making such statements, you really should consider the following: student loans, medical emergencies (especially those which require five digits' worth of surgery), dental work (anything more than routine cleanings is barely covered by insurance anymore), and vehicular failures (which can sometimes incur costs up in the thousands of dollars). Running up huge debts can just as easily be the result of misfortune and happensatance as it can irresponsibility. Don't conflate the two.

TamarAgamedes

I keep wondering when someone will mention that this "emergency fund" is not some theoretical once-in-a-lifetime affair. I am working on perhaps my fourth "emergency fund" of my adult... because when you're a freelancer or artist, this is just the normal career curve. You go from boom to bust and you can't control it except thru squirreling away and requisite hysteria.

The only thing that's new is that because of the economy, everyone is now sharing the freelancer's rollercoaster ride of thrills and surprises. I would really like to see one... anyone?... who's written something on this topic of the "permanent emergency fund" saga.

What most artists live on is that one day they will make such a bonanza, with the right album or the right book or the right film, that they will finally get ahead of the ball. But threading that needle is so rare it's cruel to even bring it up.

Susie Bright

@JLynne: I'm with you. A few months ago I started a very aggressive plan to pay off $12k in debt in 2 years. I have no room in my budget to save for an emergency fund.

ZaredFlop

@NuncioStevenson:

Err yeah, your FICO *is* important. It determines if you can get a house, car, and more and more employers are using your credit score to determine if you can get a job. In addition it determines your interest rates for everything. I don't agree with it at all, but them's the facts.

Saboth

I have been using http://DesktopBudget.com to manage my personal finances for a few months now. Its the easiest to use free, offline personal finance manager I have seen so far.

NicoRabbit

If everyone does this (stops paying their credit cards off), then the impending credit card crunch (the thing that's been touted as a lot worse than the mortgage crisis) is gonna be a lot harder.

Personally, I think the best advice is to look at the interest rates and then decide. If you're sitting on CC debt with a lot of interest, saving up money is stupid. Pay off and get the interest rates dropped, then start saving.

Good advice here. If personal finance discussion is your kind of party, I'd highly recommend reading around the forums at [www.wesabe.com]
They have some good threads on exactly where to keep your emergency fund savings as well, such as Direct savings accounts or Certificate of Deposits. My CU had a good deal on an 11mo. CD, so I stuck my 3-6 mo. emergency buffer fund in there, knowing that I only give up a few months' worth of interest in the unlikely chance that I have to tap into it prematurely, and I'm not at all likely to touch it for non-emergencies.

However, none of this really beats creating your own spreadsheet to make transaction-by-transaction account balance predictions, or even making your own monthly budget where you try to tally up your average income and known expenses and figure out what's left.

Rowin Andruscavage

@Saboth: Yeah, you're right that it probably is important. My point is that she says it's more important than all of the other credit scores, and she's paid to make those claims. Maybe that's a service for which people are happy. By I'm more inclined to admire someone like Elizabeth Warren, who, when she gets on the radio, talks about how ridiculously unfair it is that the factors that go in to determining our credit scores are kept secret from us.

OlinPhoenix

I'm with Trent on this. Suze sounds a bit shrill and unrealistic here.

Craig720

This advice depends on your credit score. I lost my job but have a 780 credit score. My card limits still went up even in these tough economic times and the interest rates dropped. With what i bring in consulting i pay down debt (student loans and a small CC balance). The emergency fund is gambling that you will have a problem before the debt is paid off.

Lost job, increased lines of credit, payed down debt at the same time. FICO determines if this is good advice for you.

qixx