Comments on: Is Suze Right? Do Emergency Funds Now Trump Debt Repayment?

By: Sue

Sue — Sun, 03 Oct 2010 17:35:26 +0000

I’ve compared Dave Ramsey and Suzie Orman’s principles–have found that dave needs to revamp his outdated ideas–I’ve followed Suze’s for years–mainly due to the fact she pretty much saved my life several times–not only is putting money aside for yourself or as she puts it “paying yourself first” the smartest thing a married or single woman can do–if you are unexpectedly unemployed and have to wait for unemployment to kick in–you can still take care yourself and your family while looking for work. Women should never rely on their husbands to support them–this is and should be your first responsiblity to yourself and your family. My husband says this also alleviates stress on him as a sole supporter of the family as well. Someone asked me the other day what’s the secret to 25 yrs of marriage–so easy–compromise. Also, if you can’t afford it, don’t by it and don’t buy the big car/house just to impress others. Build a retirement now–today’s reality check–no one is going to support you but yourself.

By: anita

anita — Mon, 26 Jul 2010 05:44:55 +0000

I think Suze Orman was right. The economists that thought there would be improvement in 2010 were and are delusional. There will not be any improvement ever. This is the new normal.

By: Tim

Tim — Mon, 12 Jul 2010 03:56:29 +0000

Well, it’s July 2010- has the economy rebounded yet?
Seems less “short term” than you had claimed.

Unemployment is about even still. Maybe that 8 month Emergency Fund wasn’t a bad idea. Especially in states where unemployment is so high- 1 month’s worth, or Dave Ramsey’s $1,000 just wouldn’t cover it.

I would love to see this site take a look at it’s past advice to people and how it measured up.

By: Deb- Social Work Programs

Deb- Social Work Programs — Sun, 02 May 2010 02:21:12 +0000

I think that it is wise to have the 8 month fund or at least 6 months because the time it can take to find new work as well as unexpected situations. For instance, you can need to go to ER, repair your car, have dental work or so many contigencies that can require a few thousand dollars. Of course, covering bills itself can be a challenge.

By: J.P. Haeg

J.P. Haeg — Sun, 07 Feb 2010 15:18:06 +0000

Trent,
A related comment/opinion:
Instead of building a large emergency fund in cash, I personally would slowly increase my Roth IRA contributions. I consider money tied up in a Roth IRA account equivalent to an emergency fund, because the initial investment can be cashed out at any time without penalty, and I’m less likely to cash this out. Note: I invest my Roth in a conservative no load balanced mutual fund with a low expense ratio, but it could be invested in a money market.

I also agree with Trent that 8 months of cash is extreme. I would aim for about 1 month of cash, and then start paying off the credit card debt.

By: deRuiter

deRuiter — Fri, 09 Oct 2009 10:07:03 +0000

“The rate of job loss is slowing down across the country and in some areas is already beginning to rebound.” Folks, the job loss rate is slowing because all the superflouous and marginal workers have been let go. Businesses are down to a bare bones staff with people having to do more tasks than before the economy tanked. Businesses have FEWER employees now to do the same amount of work. Businesses now struggle to accomplish their basic function with fewer employees. The reason the job losses are slowing is that we are now down to the core employees, and if they are let go, the business must fold, which is happening in many cases. A “jobless” recovery can not be a recovery because there are fewer customers with less money to buy. When your stocks get back to what you paid, or a bit higher, consider selling them! The next recession is just around the corner.

By: Ashley

Ashley — Sun, 14 Jun 2009 15:08:01 +0000

An interesting thread. I don’t particularly care for Suze, but her revisions to reflect saving more at the the expense of paying less on credit cards has some merit.

I like the concept on living on exactly half of what you do now. It will, of course, require deep, deep cuts in the household budget. It will also cushion the fall, financially and psychologically, of a total job loss.

We are working towards this objective. We ditched the second car. We sold the dryer on Craigslist. We don’t have cell phones, cable or high speed internet. No dishwasher. No microwave. Beans & rice. Heat with wood.

We adopted a “if you don’t want the bill, don’t use the service” mentality. It isn’t easy, but it is empowering.

We apply the savings towards debt and savings.

By: Kellygirl

Kellygirl — Sat, 13 Jun 2009 04:33:30 +0000

I’m amazed by how down many folks are on Suze’s idea. Until very recently I basically had an empty savings account and was living paycheck to paycheck. I survived a mass layoff of over 1000 people at work last year, and our economic situation remains tight–no more 401k matches, salary freeze, etc. I started taking Suze’s advice and have found lots more ways to save funds that are now sitting in my savings account. And I just recently paid off all my credit card debt too. But if I had thrown a ton of funds at credit card debt and didn’t worry about trying to build up some savings, and then got layed off, I’d be in a world of hurt. And yeah, 8 months of savings does sound like a lot, but when you do find ways to cut other expenses and wants rather than needs, it adds up fast–got almost 7K stashed just from this year. Suze works for me. We are in uncertain times, and Suze is playing it safe with a larger emergency savings fund which can help folks remain fluid and in control should they meet financial adversity. I feel much more comfortable knowing I have something to fall back on. And 8 months of savings should not be a long term goal–our retirement should be a long term goal. We have been very poor savers overall in the US, so this is a fine opportunity for all of us to course correct.

By: Sandy

Sandy — Thu, 28 May 2009 20:26:47 +0000

This has been really interesting reading…it’s almost 2 months after Trent wrote this, and jobs are still being lost, with GM’s and Chrysler’s bankruptcies leading the way. I really think it will take a long time to get out of this situation, and yes, for me, cash is definately king.
I appreciate all the authors and financial gurus and their comments above, but my financial guru came in the form of something I read in the Little House series that I read as a child, and read to my daughters. It’s this: Make hay while the sun shines. A hundred years ago, it meant literally that (if you are a farmer, it still does mean that!). Today, it means, to me: If you are making good money at any point in your life, THAT is the time to SAVE,SAVE,SAVE. Recognize that times might not always be so good, and put money away for those days…unfortunately, we all are likely to have a rainy day.
For my family, we’ve tried to be as frugal as possible for years, and sock money away, and carry no debt.(outside of house and car mortgage, and college loans). Getthem paid off ASAP.
For my girls college savings, which we don’t count in emergency funds, about 2/3 of their savings is in cash equivelants, with the thought that if we have an incredible rainy day, we can easily tap into that cash, too. For EF, we have about 11 months of living expenses in the bank, and if we had to use their college, another 8-9 months.
I’m with Suze…if you have no money saved, let me tell you…it’s a great feeling to know that cash is there if we need it. Credit cards are not savings accounts.

By: Carol

Carol — Sat, 11 Apr 2009 17:03:37 +0000

I had not heard of a creditor arbitrarily cancelling your account after it is paid in full (mentioned in some postings above). How odd is that? I would think they would love to have your business if you are good pay. I think you could always get another credit card in a blink of an eye. If that’s what you’d want to do. Anyway, my vote goes to pay off debt first.

By: Ash

Ash — Sat, 11 Apr 2009 01:51:00 +0000

Eight months? We’re on our way to a twelve month — yes, twelve month — emergency fund. I know most people will think we’re nuts! My husband works in investment management at a bank — a bank that is laying off 5000+ people over the next couple years. He is *supposed* to get a year’s severance if he gets laid off. But I’m not counting my chickens until they hatch. If he doesn’t get laid off, great. But if he does, we will be able to live for a while. We have two young children and, for my own peace of mind, I have to know that we have enough saved up to support ourselves and pay the mortgage. We have no credit card, debt, though, so I don’t know how much this adds to the Suze debate.

By: Kevin in CO

Kevin in CO — Fri, 10 Apr 2009 21:58:35 +0000

I was laid off from a position and wasn’t able to find a replacement position for 18 months. I don’t normally have a difficult time finding work as I’m highly skilled, though at that time, the market was flooded and I admittedly could have done better if I knew more.

I was just laid off again last week as a result of my former company cutting 40% of its workforce. How long will I be out of work? No clue. Am I paying down debt right now? Yeah – right… I am doing what I can to keep my expenses as low as possible so the $1 over minimum is great for credit but that’s all I can afford.

My confidence level is still high about finding a replacement position, but I have little doubt that my next position will be a good 20% less than my prior position in today’s market. How big is my emergency fund now? Three months. Do I feel confident with that much in reserve? No.

Evaluating Suzie’s advice, I agree with the essence of what she was saying. Any time you’re in a position where there’s a high probability of an extended time out of income, there needs to be a real cash reserve to fall back on. Relying on credit as an emergency fund is about as bad as relying on a job to provide income – you don’t always control its availability.

How much savings should a person keep in an emergency fund? That depends on the individual and that person’s needs along with the needs of those that depend on him/her. Everyone talks about having an emergency fund for when you’re out of work. What about for when you’re “under-employed?” Under employment can be worse in some ways than being out of a job because you’re not making enough to sustain a lifestyle you’re used to while expecting to be able to find a replacement position soon that will pick up the slack. The problem is – the longer you’re under-employed, the harder it is to find employment at the level you’re accustomed to. In the meantime, you’re burning up your emergency fund maintaining a lifestyle your income doesn’t support – hence, you’re outspending your income.

I agree with Trent in many ways, but I believe the essence of what Suzie was saying is this – the old idea of having three to six months of income stored up in ready reserve is no longer enough. With the current economic situation, we should reconsider having larger reserves if possible. She’s not saying stop paying down debt, but asking us to make sure our reserve pool is large enough to support us should we loose some or all of our income for an extended period of time.

The best advice continues to remain the same – spend less than you make and save or invest what you don’t spend. The reason for having an emergency fund is so you have something that will replace lost income temporarily and so we don’t have to tap into investment for retirement.

My favorite financial advisor – Robert Kiyosaki (Rich Dad, Poor Dad) talks about this too. Paraphrasing, He underscores that an emergency fund isn’t there to keep up with inflation or make us money. An emergency fund is there like a safety net like that of a trapeze artist. It’s there to prevent financial injury. The size and strength of the net depends on the area of risk and the potential height of fall. The same is true of an emergency fund – the bigger the area of risk (how long will the fund be expected to last) as well as the strength of that net (how high of an income can it replace for that period) should be how we determine the size of our emergency fund.

We’ve all heard – it’s not the jump that hurts, it’s the sudden stop at the end. An emergency fund takes out some of the sudden in that stop.

By: Bill in NC

Bill in NC — Fri, 10 Apr 2009 14:40:59 +0000

Cash is king.

Jobs are iffy.

And many creditors are about to find out exactly what “unsecured” means.

In this economic crisis, tens or even hundreds of billions of dollars in unsecured debt will soon disappear without the lender receiving one thin dime.

No matter how many calls the collection agencies make.

By: AJC @ 7Million7Years

AJC @ 7Million7Years — Fri, 10 Apr 2009 06:13:29 +0000

If you’re seriously thinking about trading debt (paying off) for equity (building up cash in an emergency fund) then just refi your current home (if you have equity in it); lock in the lower interest rates.

If the economy improves in 12 months, you can pay down some of your mortgage (better yet, more expensive credit card debt) or, even better, put the money towards a long-term investment.

The total ‘cost’ of this peace of mind is just 12 to 24 months interest on 8 months living expenses … a lot easier/quicker than saving it up (and, what happens if you lose your job before you do manage to save all that money?) …

By: luvleftovers

luvleftovers — Fri, 10 Apr 2009 03:10:56 +0000

About a year and a half ago, I suddenly got a ‘bad feeling’ about finances. I had been attacking my debt with a vengance for about a year before that. Something made me cut back a bit on the debt payments to put more money in savings. I’m so glad I did. On Jan 30, I was laid off along with 300 coworkers. I had just about 4 months of take-home pay in the bank, and then added my severance.

I am fairly relaxed about my financial situation. All my bills are paid on time and I pay just barely about the minimum on my debts. It’s a bit dissapointing not to see the balances falling like the did last year, but they are not rising either. I am collecting UI, and with my emergency fund, I know that I could survive at least a year or more without a job. And the sad truth is that it could take that long (or longer) to find one. The peace of mind is priceless.

In this economy, it’s crucial to have cash in reserve. It’s different for each person’s situation, so they will have to figure out their comfort zone on their own.

By: Marcus Murphy

Marcus Murphy — Fri, 10 Apr 2009 02:36:40 +0000

I think the key that we all need to remember here is that everyone needs to find the balance of debt and emergency fund. Me personally, I am fine with only a few thousand in an emergency fund, and would rather pay off the high interest debt I have. But I am comfortable with this for 2 reasons. #1 I am a single male who lives alone with no dependents. #2 Trent’s post not too long back about the Jack-of-All-Trades fits me quite well. I have many marketable skills in many areas, many that make me more self sufficient and able to draw money in from many areas. So a job loss won’t really hurt me too much compared to other people. The key is to find the right balance in YOUR life.

Good luck everyone =)

By: GREENI$BLACK

GREENI$BLACK — Fri, 10 Apr 2009 01:23:42 +0000

I always loved Suze’s advice EXCEPT her point of 8 months expenses for emergency funds. I don’t know when I will ever have that kind of money sitting around JUST IN CASE! Similarly I always followed her advice and paid my credit card debt as much as I could. I have been in the practice of building up my EF to about 1K and then taking $500 to put towards my CC debt, so the money is there for a time, just in case, and then when I am OK for another month, I take it away. Seems to be working for me, because I think if right now I stopped paying my CC’s and saved up a bunch of money, I would feel so discouraged about getting rid of CC debt, which many say is the NEXT CRISIS to come!!

great post :)

By: Melaniesd

Melaniesd — Thu, 09 Apr 2009 19:03:46 +0000

I have to agree with Kitty & Sherry.
Last year I started saving $30/pay into an ING act towards a future purchase. Now, 15 months later I have almost $1000 saved! I don’t miss that money. I don’t touch it either.
My husband & I have about $11,000 in debt outside of our mortgage & car loan. I could have put that towards the debt, but now my husband will be laid off as of the end of May. I am grateful I have that $1000 saved! It won’t get us far, but atleast it will pay the mortgage for a month if we need to use it.
I have to agree with Suze’s advice. We all still need to pay our debts but we need to save to. It feels so good to watch my savings grow. I am trying hard to avoid further CCRD debt and focus on savings AND re-pymts.
I currently work 27 hours/wk and will return to full time hours once DH is laid off. If we are fortunate enough for him to return to work in the next year, I will continue to work full time and put the extra income towards both debt repymt & savings. I can’t wait to get rid of my car pymt!!

By: Sandy E.

Sandy E. — Thu, 09 Apr 2009 18:38:23 +0000

I was really surprised to read an article today at msnbc.com entitled “Economy leaves millions of drivers uninsured — 1 in 6 won’t be covered by the end of the year.” And it falls in line with what S. Orman was suggesting re paying your minimum on credit card payments right now. Apparently, and this is shocking, millions are cutting back or dropping their auto ins. to save money during the recession. They can’t afford their monthly premiums – even the minimum liability coverage required under State law. Food and rent are more immediate concerns. Suze was addressing people on the show who were about to lose their homes to just pay the minimum on credit cards. Apparently, many already had dropped their auto insurance!!

By: Sandy E.

Sandy E. — Thu, 09 Apr 2009 18:19:43 +0000

I was really surprised to read an article today at http://www.msnbc.com entitled “Economy leaves millions of drivers uninsured — 1 in 6 won’t be covered by the end of the year). And it falls in line with what S. Orman was suggesting re paying your minimum on credit card payments right now. Apparently, and this is shocking, millions are cutting back or dropping their auto ins. to ssve money during the recession. They can’t afford their monthly premiums – even the minimum liability coverage required under State law. Food and rent are more immediate concerns. Suze was addressing people on the show who were about to lose their homes to just pay the minimum on credit cards. Apparently, many already had dropped their auto insurance!!