This is a repost of a post from last year. I’ve been in all day meetings in Philadelphia, commuting back and forth, so if you are reading this, I haven’t had time to write a new post, and this one has appeared through the magic of post scheduling. We’ll be back to our normal programming next Friday.
I saw a post on a blog a couple of days ago from a self proclaimed expert explaining the need for an ‘Emergency Fund’, and I thought a post might be in order.
In plain language: if you have any consumer debt (credit cards, car loans, etc), you should not have an Emergency Fund if your goal is to increase your net worth. There is no reason to pay interest to save money.
Lets say you have $10k in credit card debt, and you are paying 20% interest on that debt. You decide you need 6 months after tax in the bank as an emergency fund, in case you get laid off, or hit by a bus, or mauled by a dog, whatever. You make $60k a year, so you need about $20k in the bank.
Think about that for a minute. How long would it take you to save $20K? And you want to not pay off your credit cards for that long? A significant “EF” is a huge mistake if your goal is to increase your net worth. (more…)