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emergency fund

Something to be proud of

September 16, 2013 By Liz Weston

As you may know by now, I won’t be writing for MSN after Sept. 30, when the site pulls the plug on original content. (Translated: instead of paying writers, MSN will be getting its articles for free from other sites.)

I don’t know what’s next, but I’m kind of excited by the possibilities that are presenting themselves. Expanding this site, doing more on the radio, writing for long-admired outlets that are doing great work, delving deeper into the worlds of sustainability, alternate consumerism and zero waste….mmmmm. Tasty, tasty possibilities.

I feel incredibly grateful that our family is in good financial shape (although as one friend said, “If YOU aren’t in a good position to handle this, what hope do the REST of us have?”). Hubby is gainfully employed and his sideline business is taking off. We have a fat emergency fund. We’ve had to cancel the remodel of our 1980s kitchen (stifled sob), but honestly, everything works and looks fine and I’m embarrassed I even care, given what so many families are up against these days.

Before I can move on to other things, though, I have to finish my last columns for MSN. A friend and I were laughing about how ridiculously hard it is to make yourself sit down and write when you know it doesn’t matter.

I’m having a flashback to the last time I was laid off, which was more than 20 years ago. Our leaders at the Anchorage Times informed us in an early-afternoon meeting that the last press run would be that night, and that venerable paper would be no more.

Everybody else filed their last stories and headed off for the bar. But my beat was the city, and there was a city council meeting that night (up there it’s known as the “municipal assembly”). So while my colleagues and friends were drowning their sorrows, I had to try to pay attention to this motion and that notice. As the meeting dragged on, I got more and more sullen, desperate for it to just end already so I could join my shell-shocked buddies at the bar.

Then Mark Begich, who was the youngest Assembly member at the time (and who’s now a U.S. Senator), brought up the news that the Times was closing. I half expected him to lead a cheer, as he was a pretty progressive lawmaker and the Times’ editorial stance was decidedly conservative. Instead, he asked the chamber to join him in a round of applause–for me. I forget exactly what he said, but I remember it was flattering, and had something to do with being fair and maintaining high standards. The whole Assembly, which included a few members who were not always happy with my nosy (and sometimes stupid) questions, joined in.

I filed my story. I tried to make it as good as I could. The editors and copyeditors and pressmen who also had to stay late did their jobs as well as they could, too. Everyone who was at the bar streamed back to watch that final press run, and thought about how, for a while there, we’d created something to be proud of. Then we scattered into the night and into the rest of our lives.

So please watch for my last couple of MSN columns. I’ll make them as good as I can. The editors and copy editors who are still there will do their jobs as well as they can, too. For a while, we created something to be proud of. And now we’ll scatter into what’s next.

Filed Under: Liz's Blog Tagged With: Anchorage Times, emergency fund, layoff, MSN

“Permanent” employment? No such animal

June 3, 2013 By Liz Weston

Dear Liz: My spouse has tenure at a university. Given that one of us will always be employed, should we change the way we look at the amount of money we keep in an emergency fund or our risk tolerance for investments?

Answer: Even tenured professors can get fired or laid off. Tenure was designed to protect academic freedom, but professors can lose their jobs because of serious misconduct, incompetence or economic cutbacks, such as when a department is eliminated or a whole university is closed. About 2% of tenured faculty are dismissed in a typical year, according to the National Education Assn.’s Higher Education Department.

That’s more job security than in most occupations, of course. Your spouse also may have access to a defined benefit pension, which would give him or her a guaranteed income stream in retirement. Those factors mean you reasonably can take more risk with your other investments.

As for your emergency fund, you may be fine with savings equal to three months of expenses. But consider that if your spouse were to be dismissed, he or she probably would have a tough time finding an equivalent position. If the institution starts having financial difficulties or if there is any reason to suspect that he or she could be dismissed, a fatter fund could come in handy.

Filed Under: Budgeting, Investing, Q&A, Saving Money Tagged With: emergency fund, Investing, investment risk

How much cash should you keep on hand?

May 20, 2013 By Liz Weston

Dear Liz: A few years ago I finished paying off my debt and now am in the very low-risk credit category. I have savings equal to about three months’ worth of bills and am working to get that to six months’ worth. I’m wondering, though, about an emergency that may require me to pay in cash (such as a major power outage that disables debit or credit card systems, or the more likely event that I forget the ATM or credit card at home). How much cash should a person have on hand? Is there a magic number?

Answer: There’s no magic number. You’ll have to weigh the likelihood you’ll need the green, and the consequences of not having it when you need it, against the risk of loss or theft.

Many people find it’s a good idea to tuck a spare $20 into their wallet for emergencies, and perhaps another $20 in their cars if they’re in the habit of forgetting their wallets or their plastic.

Cash for a disaster is another matter. Power could go out for a week or more, or you may need to evacuate and pay for transportation and shelter at a time when card processing systems are disabled. A few hundred bucks in cash probably would be the minimum prudent reserve you’d want to keep in a secure place in your home. You may decide that you need more.

Filed Under: Banking, Budgeting, Q&A, Saving Money, The Basics Tagged With: emergency fund, emergency preparedness, emergency savings

Use windfall to boost retirement savings

April 8, 2013 By Liz Weston

Dear Liz: What would you suggest that someone do with $20,000 if the someone is closer to 40 than 30, single, with $100,000 of student loan debt and a $250,000 mortgage? My salary is around $100,000 a year. I have an emergency fund equal to six months of expenses and I make an annual IRA contribution since my employer doesn’t offer a 401(k) plan. Should I accelerate my student loan payments, since the interest isn’t tax deductible for me because my income is too high? Or should I invest instead? If I invest, should I put it all in a total market stock index fund or is that too risky?

Answer: Even if you’re making the maximum annual IRA contribution of $5,500 (people 50 and older can contribute an additional $1,000), you’re probably not saving enough for retirement. You can check the numbers using a retirement calculator (AARP offers a good one at its website, http://www.aarp.org). If indeed you’re coming up short, then consider opening a taxable brokerage account and earmarking it for retirement. You can use a chunk of your $20,000 windfall to get started, but also set up regular ongoing contributions.

The bulk of your retirement money should be invested in stocks, since that’s the only asset class that consistently outperforms inflation over time. If you try to play it too safe and avoid stocks, your purchasing power is likely to decline over the years instead of growing. A total market index fund with low expenses is a good bet for delivering diversification at low cost. But leaven your portfolio with bonds and cash as well, since these assets can cushion market downturns. All the returns that stocks give you in good markets won’t be much help if you panic and sell in a bad market. People who try to time the market that way often miss the subsequent rally, so they wind up selling low and buying high — not a winning way to invest.

If you don’t want to try to figure out an asset allocation, look for a low-cost target date fund. If you plan to retire in about 25 years, you’d want to look for a “Retirement 2040” fund.

Once you get your retirement savings on track, then you can start paying down that student loan debt. Target private loans first, if you have any, since they’re less flexible and have fewer consumer protections than federal student loan debt.

Filed Under: Q&A, Retirement, The Basics Tagged With: emergency fund, federal student loans, financial priorities, Retirement, retirement savings, student loan debt, Student Loans, windfall

Why you need an emergency fund for your parents

April 2, 2013 By Liz Weston

Old Woman Hand on CaneWe recently lost my wonderful mother-in-law to complications from a stroke following a diagnosis of cancer. As we prepare for her memorial service, I’ve been thinking about what a blessing it’s been to be able to help care for parents in their final days—and to do so without having to worry excessively about expensive plane tickets, time off work and other potential financial burdens.

If you have parents who are elderly or in poor health, consider opening a savings account dedicated to making their lives, and yours, a little easier. That fund can pay for:

Getting there. In the five years my mom battled cancer, I spent a small fortune on plane tickets getting from my home (which was then in Anchorage) to hers in Washington state. Sometimes, these were pretty routine visits where I could plan ahead and score reasonable fares. Other times, I’d get the call that there was a crisis and that I needed to get there fast, grabbing whatever seat I could. Because I didn’t carry credit card debt and had a fat emergency fund, I was able to buy airfares without triggering a financial crisis.

Some other tips: Sometimes reward seats open up at the last minute, so if you have frequent flyer miles you can use, check out that option. If you’re within driving distance, consider buying a $50 or $100 gas card and setting that aside for use in emergencies.

Being there. About three years into her fight, Mom had a serious setback. Dad was providing most of her care and he was overwhelmed. I was able to take a two-month unpaid leave from work to help out—again, thanks to my emergency fund and to the flexibility of my employer, which held my job for me. (This was before the passage of the Family and Medical Leave Act of 1993, which allows covered employees to take unpaid, job-protected leaves to care for a spouse, child or parent with a serious health condition.) Two months with no paychecks took a serious bite out of that savings account, but I’ll never regret the cost. I was able to take another month off a couple of years later, at the end of her life, and was again so grateful to be able to be there.

Getting help. A few years ago, my father had a massive stroke while visiting a relative in Florida. We couldn’t fly him home, since he was too ill to travel. To help us manage his care long distance, we hired a geriatric care manager who was worth her weight in gold. She not only translated the medical-ese that baffled us, but helped us find a good nursing home for him and a friendly companion who could keep him company in between my frequent visits. Families are often left on their own to figure out how to care for an incapacitated relative, and she hooked us up with resources we might never have found otherwise. None of this was cheap—we spent about $10,000 on the care manager alone over four months—but she dramatically shortened our learning curve and ensured my dad got good care at the end of his life. Whenever friends are dealing with an ill or declining parent and don’t live nearby, I encourage them to hire a geriatric care manager to help them assess the situation and find solutions. A session with a care manager can even help when you live locally, since these folks live and breathe elder care, which is a new world to most of the rest of us.

It’s impossible to know in advance how much money you might need, but anything you can set aside will help ease the financial burden when the time comes to help your folks.

Filed Under: Liz's Blog Tagged With: elder care, elderly, emergency fund, emergency savings, Savings, savings account

Emergency funds: How much is enough?

February 19, 2013 By Liz Weston

Dear Liz: A lot of financial advice sites say you should have an emergency fund equal to three to six months of living expenses. What would be considered living expenses? Should you use three to six months of your net take-home pay or a smaller number? Is three to six months really enough?

Answer: Let’s tackle your last question first. The answer: No one knows.

It’s impossible to predict what financial setbacks you may face. You may not lose your job — or you may get laid off and be unemployed for many months. You may stay healthy — or you may get sick and your only hope might be experimental treatments your insurance doesn’t cover. Nothing may go wrong in your life, or many things could go wrong all at once, depleting even a fat emergency fund.

Having a prudent reserve of cash can help you survive the more likely (and less catastrophic) setbacks. Financial planners suggest that your first goal be three months’ worth of living expenses, typically defined as the bills that can’t be put off without serious consequences. That would include shelter, utilities, food, transportation, insurance, minimum loan payments and child care. Any expense that you easily could cut or postpone wouldn’t be included.

If you work in a risky industry or simply want a little more security, you can build your fund to equal six months of essential living expenses, or more. (The median duration of unemployment after the recent recession peaked at around five months, although many people were out of work for far longer.)

It can take many months, if not years, to build up even a three-month reserve. In the meantime, it can be prudent to have access to various sources of credit, including space on your credit cards or a home equity line of credit.

No matter how eager you are to have a fat emergency fund, you shouldn’t sacrifice retirement savings. For most people, saving for retirement needs to be the financial priority, with saving for other purposes fit in as you can.

Filed Under: Q&A, Saving Money, The Basics Tagged With: emergency fund, emergency savings, financial priorities

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