Rant: Realized my "emergency fund" was a joke after a talk with my neighbor

I used to think having $500 tucked away was solid. My neighbor Carol, who's a CPA in Austin, told me she keeps 6 months of expenses liquid after her furnace died in 2022. She dropped the number $8,000 and I nearly choked. That conversation made me bump my own goal up to $5,000, and now I'm working on it a paycheck at a time. Has anyone else had a target number that seemed impossible until you actually started saving for it?

2 comments

2 Comments

sagey692d ago

You mentioned "you can always tap a 401k loan or a 0% credit card for big stuff" and honestly that used to be my exact thinking too. I figured why tie up money when you could borrow cheap or use plastic. But then my cousin lost his job right when the market took a crap, his 401k was down like 30% and taking a loan against it would've locked in those losses. And those 0% cards? They work till they don't. My buddy got two cards cancelled on him during 2020 just for missing one payment. I mean maybe it's just me but having that cash sitting there feels different when you actually need it fast and without strings. The interest lost feels a lot smaller than the panic of not having options.

the_zara2d ago

Hold up though. That $8,000 she dropped is sitting in a savings account earning maybe 0.5% while she could have paid off a car loan or thrown it at a credit card charging 22%. My neighbor Sal lost his job in 2020 and burned through his whole "6 month" fund in 3 months anyway because his wife got sick and the insurance deductible ate half of it. A couple thousand bucks in cash for true emergencies like a busted water heater makes sense, but locking up that much money doing nothing is just a security blanket that costs you real money over time. Plus you can always tap a 401k loan or a 0% credit card for big stuff, that's what they're there for.