Money Monday Tip # 2

Emergency Fund. What emergency fund?

In a previous post, I briefly wrote about how I am not a fan of credit cards because I feel it encourages debt and I hate debt. One day I shredded all 16 of my credit cards, only one had a balance because of an invention that never came to fruition and I’m still paying it off. When I told my family that I would no longer be using credit cards, they didn’t quite understand.

“What if you have an emergency?”

“I have an emergency fund.”

“Well just get one. You don’t have to use it, just hold on to it in case you have an emergency.”

“I have an emergency fund. Cash.”

Now my emergency fund is nowhere near what it should be, so don’t get it twisted, I’m not sitting on a lump of cash, but it’s enough to keep me from using credit cards. Some have suggested of putting at least $1,000 into a savings account to handle the little emergencies that may pop up. If you don’t have $1,000, then start with $500. I will say that ever since I have started my emergency fund, I have not had any real emergencies. When you are financially unprepared, everything is an emergency!

One commentator on my blog said “the sooner people learn how to deal with credit the better”. This sounds good on paper, but we don’t live on paper.* The problem is that some people only care about the amount of the monthly payment. No one is taking the time to learn about credit until something goes wrong and they can’t buy something. When I ask people questions about money and credit, they don’t know and they don’t want to know.

Sure some people can use credit cards to their advantage, but that’s not what the statistics are showing. Statistics are showing that people are in debt because of using their credit cards and not having the money to pay it in full each month. I don’t know a single person in counseling because they have too much cash, but I know several people who need to be in credit card counseling because of too much debt.

The Motley Fool’s Credit Center features several mind-blowing statistics:

· Total consumer credit: $1.7 trillion.
· Credit card debt carried by the average American: $8,562.
· Total finance charges Americans paid in 2001: $50 billion.
· U.S. households deemed credit worthy by the lending industry: 78%.
· Number of credit card holders who declared bankruptcy last year: 1.3 million.

If you want to use credit cards and you think you can beat them at their own game, then fine, just make sure you can back up your credit card use up with a cash emergency fund and not a Visa emergency fund. Statistics show me that the credit card companies are winning and we are the ones losing.

So for whatever reason, stuff happens, we lose our job, we get sick and sometimes we may have to use credit, but if you are in a position to start building an emergency fund, just do it, you have nothing to lose, but debt!

*I love this quote, but I didn’t think of it, can’t remember where I read it.

Money Monday Tip #3 - Next Week!

Read Money Monday Tip #1