Q&A: Your earthquake kit should include cash. But how much?

Dear Liz: In these uncertain times, I decided I need to have cash on hand. I withdrew $500 in small bills from the bank and put it in a fireproof pouch. Is there a recommended amount of cash one should have available for emergencies?

Answer: The appropriate amount depends on how much you spend and how paranoid you are.

Many financial planners recommend storing a few hundred dollars somewhere safe in your home in case a widespread electrical outage — after an earthquake, for instance — affects ATMs and point-of-sale devices. The idea is that you’ll want enough cash to cover spending for a few days until the power comes back on. Smaller denominations are better than larger ones because you may have trouble finding anyone to give change for $50 or $100 bills.

Emergency preparedness sites tend to recommend storing even larger amounts — $1,000 to $3,000, or whatever you would need — in case access to ATMs and credit cards was affected for a few weeks.

Obviously, storing cash has its perils. The money could be lost, stolen or destroyed in a disaster. You’ll have to weigh those risks against the possibility of needing the cash, and make your own call.

Thursday’s need-to-know money news

Today’s top story: What to do if your kid’s emergency fund is you? Also in the news: Frequently asked questions about Coronavirus unemployment, how 3D home tours are allowing buyers to keep their distance, and why you should make a COVID-19 backup plan before returning to your office.

What to do if your kid’s emergency fund is you?
The Bank of Mom and Dad.

Frequently asked questions about Coronavirus unemployment
Over 42 million Americans have filed for unemployment since March.

How 3D home tours are allowing buyers to keep their distance
Staying safe while shopping for a new home.

Why you should make a COVID-19 backup plan before returning to your office
It’s a whole new working world.

Tuesday’s need-to-know money news

Today’s top story: Dodge dealership dread with online used car sellers. Also in the news: What first-time home buyers should know about fixer-uppers, how to save for the future when it’s uncertain, and how long it takes for paid debt to be reported to credit bureaus.

Dodge Dealership Dread With Online Used Car Sellers
Car shop from your couch.

What First-Time Home Buyers Should Know About Fixer-Uppers
Don’t get trapped in a money pit.

How to save for the future when it’s uncertain
An emergency fund is crucial.

Here’s How Long It Takes for Paid Debt to Be Reported to Credit Bureaus
Be patient.

Tuesday’s need-to-know money news

Today’s top story: Straightforward answers to your Roth IRA questions. Also in the news: Disney vacation pros share budgeting tips for trips, how to jumpstart your financial plan by ditching this phrase, and what to ask yourself before dipping into your emergency fund.

7 Straightforward Answers to Your Roth IRA Questions
Everything you need to know.

Disney Vacation Pros Dish Up Budgeting Tips for Trips
More money for mouse ears.

Ditch This Phrase and Jump-Start Your Financial Plan
No more dwelling on the past.

What to Ask Yourself Before Dipping Into Your Emergency Fund
Is it really an emergency?

Q&A: Building an emergency fund beats out building credit

Dear Liz: I am trying to raise my credit scores, which are very low. I have one negative mark on my account from a paid collection and I just got my first secured credit card. I have a bit of extra money right now and I’m wondering what’s the best way to use it to raise my scores. Should I get another secured credit card from a different issuer, get a secured 12-month loan through my financial institution or something else?

Answer: People rebuilding their credit often overlook the importance of an emergency fund. Having even a small amount of savings can keep a financial setback, such as a decrease in income or an unexpected expense, from causing you to miss a payment and undoing all your efforts to boost your scores. You can start with just a few hundred dollars and slowly build the fund over time.

Adding an installment loan can assist with building credit as well, but a secured loan may not be the best option if money is tight. The cash you deposit with the lender as collateral for the loan won’t be available again until you pay off the loan. Consider instead a credit-builder loan, in which the money you borrow is placed in a savings account or certificate of deposit to be claimed when you’ve finished making the monthly payments, typically after one year. That means you can keep the cash you already have for emergencies. Credit-builder loans are available from some credit unions and Self Lender, an online company.

You’ll want to make sure both the credit card issuer and the installment loan lender are reporting your payments to the three credit bureaus. If your accounts don’t show up on your credit reports, they’re not helping to build your scores.

In addition to making payments on time, you’ll want to avoid using too much of the available credit on the card. There’s no bright line for how much to charge, but typically 30% or less is good, 20% or less is better and 10% or less is best. Use the card lightly but regularly and pay it off in full every month because there’s no advantage to carrying a balance.

When your emergency fund runs out

You’ve cut spending to the bone, sold excess stuff and hustled every side gig imaginable. But your emergency fund, if it ever existed, is on fumes.

What you do next may determine how fast — or even whether — you recover from the setback of losing your job.

In my latest for the Associated Press, how to survive a lack of emergency funds without making things worse.

Monday’s need-to-know money news

Today’s top story: What retirement savers need to know about Trump’s action on the advisor rule. Also in the news: Using your emergency fund to pay off debt, breaking up with your bank, and what to do if the IRS breaks the rules.

What Trump’s Action on Advisor Rule Means for Retirement Savers
The fiduciary rule is now in question.

Emergency Funds: Should You Use Yours to Pay Down Debt?
Making a tough decision.

Sean Talks Money: Don’t Cling to a Bank You Don’t Love
Breaking up with your bank.

Know your rights if the IRS breaks the rules
Taxpayers have rights, too.

Thursday’s need-to-know money news

phone-scammerToday’s top story: Protecting yourself from debt collection scams. Also in the news: Building a small emergency fund while living paycheck to paycheck, how Millennials can save for retirement, and how to stop wasting your frequent flier miles.

Spot Debt Collection Scams and Protect Your Money
Defending yourself from scams.

Saving $1,000 When You’re Living Paycheck to Paycheck
Building a small emergency fund.

Deck is stacked against Millennial savers: Here’s how to succeed
How to save and invest for retirement.

How to stop wasting your frequent flier miles
Don’t leave any miles unused.

Wednesday’s need-to-know money news

emergency-fund-1940x900_36282Today’s top story: Debunking emergency fund myths. Also in the news: How filing separately could give some couples a lower tax bill, the financial benefits of living with less, and how much down payment you should have to buy a home.

Debunking 5 Emergency Fund Myths
Separating fact from financial fiction.

Filing Separately Could Give Some Couples a Lower Tax Bill
Splitting up your tax returns could save you money.

The Financial Benefits of Living With Less
Downsizing your way out of debt.

How Much Down Payment Do You Need to Buy a Home?
How much do you really need?

Monday’s need-to-know money news

file_161555_0_tax refundToday’s top story: Smart things to do with your tax refund. Also in the news: New options for payday loan borrowers, how to build an emergency fund on a low income, and how to decide when to claim Social Security.

Smart Things To Do With Your Tax Refund
Putting your refund to good use.

A New Option for Payday Loan Borrowers
Borrowers in California and Texas may have better options.

Build Your Emergency Fund On a Low Income With a Simple Bill Tweak
A slight tweak in how you pay your bills could save the day.

3 fast facts that can help you decide when to claim Social Security
Making the best decision for your retirement.