Archive for the Personal Finance Category

5 Reasons to use cash in an emergency

Have you ever thought about what it would be like to use CA$H in an emergency instead of a credit card?

Do you have butterflies every time something unexpected comes up, as you reach for your credit card?

There are many reasons to have cash built up:

  loss of a job

  major car repair

  major home repair


  travel for funeral etc.

Those are REAL emergencies and there are many more that we can’t always think of.

These are not emergencies:



  car maintenance



  phone upgrade

  I need, I need, I need

Imagine what it would feel like if you had 6 months of household monthly expenses in a savings account. Think about that. Wouldn’t that be comforting? Dave Ramsey calls it our “security gland”; when he says this he’s referring to women, but I’m sure men have the same type of feeling when it comes to money in the bank.

Here are 5 reasons to have CA$H for emergencies:

1)      If you’re debt-free with no emergency fund, you are just inviting debt back in. It is imperative to have a backup plan for emergencies, or you’ll get backed into a corner when the unexpected happens. But remember, you don’t build a fully-funded emergency fund until you’re out of debt.

2)      ‘Financial Peace’. This is Dave Ramsey’s phrase for being out of debt with a fully funded emergency fund. This is also the name of his 9-week course on how to handle money. Have you ever used the word ‘peace’ in describing your finances?

3)      You don’t go into debt when you use cash! You pay yourself back, by replenishing your EFund. Emergencies are not easy or fun. But you handle it more sensibly when you can just reach into that fund and get on with your life. A properly funded account will take so much stress out of any situation. It will still hurt to hand over the cash (much more than with a credit card), but the reward is so much bigger.

4)      The emergency won’t follow you around for the next 3 years. If you use a credit card, then it’s like you’re paying for that emergency month after month, year after year! The debt gets bigger and bigger and pretty soon you don’t even remember what emergency (real or imagined) you’re paying for.

5)      If you don’t have an emergency fund you’re inviting Murphy into your life

and he’ll bring his brothers,

broke, desperate and stupid.

I love this thought by Dave Ramsey. It is so true.

One caveat to remember in handling this hopefully large amount of money is –DO NOT TOUCH IT — except in real emergencies. If you use it as a ‘slush fund’ type of savings account then you are defeating the purpose. When we first paid off and got rid of my last credit card, the one I always used, I was attached to, I used for emergencies and was my own little spending account, we had our $1,000 in a different checking account. After about 6 months with this account, I realized I was doing just that. I would use it for stuff and say I was going to transfer money back in. I wasn’t doing that transfer back in. I was using it  ‘AS MY OWN LITTLE SLUSH FUND’, just like it was my old credit card! Boy was that an awakening! I had to be deliberate in my actions from then on. I broke that BAD habit and now we both buy less and only spend what we are willing to take out of our regular spending account if it’s in the budget.

The best practice for your emergency fund is to ‘Fund it and Forget it’. Also, in a REAL emergency USE IT! It’s there for you. IT IS YOUR MONEY. Call it what you want, but don’t be so afraid to use it that your family struggles in a real emergency.

Credit Cards – The un-common theory

How many credit cards do you have in your wallet?

We have been conditioned (brainwashed) into thinking credit cards are a good idea. “Oh I only use it for emergencies,” is a common expression. Isn’t an emergency the worst time to go into debt? If you’re using a credit card in an emergency, that means you don’t have the cash, which means you’ll go into debt for this emergency. This is a downward spiral for many people. 38% of people with credit cards carry a balance from month to month, incurring hundreds or thousands of dollars of interest. I’d be willing to bet that most of THOSE are the very people who cannot afford it! The spiral goes on and on, as the debt piles up and up.

Somewhere along the way, we started using OPM (other people’s money) for the basic necessities and anything we ever just had to have. Whatever happened to ‘living within our means’? Being in debt our whole lives has become normal. It is so pervasive in our society that laws had to be passed to keep college kids from being overrun with credit card offers. Kids are told to get a credit card to start building their credit. Credit cards seem to be a status symbol. Though we don’t know the story behind everyone’s credit card history, you can be sure that over a third of those using credit cards (as opposed to debit cards) are going into debt for whatever they are buying with that ‘swipe.’

I will admit that on our journey to become debt free; I was nervous when I paid off my last credit card. I will also admit that I was the one with credit cards. I would no longer have that card to fall back on. I made a big deal about shredding it because I was so attached to it. I had had that card the longest, and at first, it was for emergencies. Then it became the ‘go to’ card for the things we needed to spend, things that were not emergencies. Sometimes it was MY splurge money. Here we are 1 ½ years later … and we’re still standing! We have had emergencies that we had to ‘cash flow’ (pay cash for), and with our little emergency fund, we have handled MOST things that have come our way. Murphy loves to come on in when you think you’re making progress. A roof (impending emergency) and truck engine disaster handed us one last debt, but we were able to pay half of that off in a couple of months. That is the last time we will EVER borrow money. (Except maybe a mortgage)

When we use a credit card, we DO spend more because we don’t pay attention to the cost. It doesn’t hurt to hand over a credit card. It hurts (me) to hand over cold hard cash. I think it is more mindful to use actual money. I have to count it. I hand it over. I see how much less is in my wallet.

So what about those who pay it off every month? Congratulations, you still paid more for everything. Have you ever had to pay interest? That hurts. You could get sick before you’re able to pay the bill at the end of the month. (I have a feeling that those who pay them off every month, could actually afford NOT to use them, and they only use them for convenience and security. IMHO) They will never be convinced. That makes me sad.

A debit card is just as convenient and just as secure. Using a debit card as a credit card (not using PIN#) has all of the protection of a credit card. I do admit that it is more hassle when a debit card gets hacked. Your card will be closed, and the money won’t be available while they investigate. If this is your daily card, it is a hassle. Here is my take on it: most of the time your card is not going to get hacked at a local store, though it does happen. My hubby had his hacked, and he thinks it was at a ‘shady’ gas station. So we go to a ‘shady’ gas station to what (?), save a few cents on gas? My card has not been hacked through my everyday spending. What has been hacked was my credit card from online purchases.

Here is what I do for online purchases and vacations: I have a separate checking account with a different debit card. I keep $1,000 in it for a kind of ‘clearing account’ (and a mini emergency fund). By clearing account I mean, let’s say I spend $50 online, using the 2nd checking account. Then I transfer $50 from my daily account into the 2nd checking account. That ‘clears’ the amount, and I still have $1,000. You could also have a line item in your regular checking account for buying things online, add each purchase to it and make only one transfer a month. For vacations I deposit the amount that I want to spend, plus a little buffer, into the second checking account. That way, the vacation ‘hangover’ (debt) does not follow us home.

Sure there is a little more thinking and work involved, but steering clear of debts products (including credit cards especially) brings peace of mind. Because right now, we only have two payments that go to debt right now. We have a tremendous amount that goes to extra principal each month. If an emergency comes up, we use that money. When we have a fully funded emergency fund, that will be our ‘credit card’ if you will – other people would just use a credit card. The difference (?), we will never have to pay someone else back for the money we used.

My goal here is to get people thinking about credit cards and how much they spend, the risk of getting into debt, and maybe start to think about living without debt products.

Credit cards are a tool for THE BANKS. Some of us think of them as tools for us, but BANKS get the lion-share of the positive outcomes!

Get your financial house in order first

Before you do anything, make sure these areas are taken care of:  Food, Utilities, Mortgage/Rent, Transportation. If you are behind on any of these, then don’t pay ANYTHING else until these BASIC NECESSITIES are current. Here is an outline of a very first, very basic budget, or spending plan:

  • Income
    • Paycheck(s)
    • Other income
  • Expenses
    • Food
    • Electric
    • Gas
    • Water
    • Mortgage/Rent
    • Car payment
    • Car insurance
    • Car fuel
    • Phone

If you have money left over, hurray, you can start your journey. If there is no money left over, you may want to ditch an expensive car, try to lower your car insurance, move, get a better job or another job. YOU MUST DO SOMETHING TO CHANGE THIS, YOUR HOUSE IS ON FIRE!! (a saying by DR to drill home the severity of your problem). If you are behind in some of these areas also, negotiate a repayment plan. Other creditors will not be happy, but they can wait. They will threaten you, send nasty letters and whine a lot, but you HAVE to eat, have a dwelling, lights, heat, hot water, and a way to get to a job.

There is hope if you start being mindful and don’t stay stuck. Write down everything you spend money on and you may find something that you forgot about that you don’t need. You have to be brutal and realistic. Most important is that you cannot ignore it and go on being broke. You might want to look for a better or another job. Is there something you can do in your neighborhood to earn extra money? Maybe there is some stuff in your house that you can sell. Is your rent or mortgage more than 25% of your monthly take-home pay? That IS a problem. How much is your car payment? Maybe your car is ‘eating your lunch’, literally. The point here is to get in the game and DO SOMETHING. You can do THIS!