A couple of weeks ago, I shared my thoughts on how – and why – to set up an emergency fund with just $0. For a start, it doesn’t take much cash 😉
I suggested using a HELOC, or tapping your 401k in case of a true emergency. Some of our readers had other suggestions:
– Trainee Investor suggested selling stocks (they can be liquidated pretty quickly), or taking an unsecured overdraft.
– Evan suggested adding the “Cash value portion of a whole life insurance policy to the list. You can have the cash in your account within a day or two”
– Investor junkie says that you can avoid selling your stocks by taking a margin loan [AJC: just beware of the dreaded ‘margin call’ which can force you to sell your stocks – possibly at a loss – if there’s a drop in market price]
And, Yahoo Finance provides their view of the The Best (and Worst) Ways to Raise Fast Cash; check it out. Then let me know if you’ve changed tack with your own emergency fund, or if you still prefer to fund it with cash?
I think it depends on the emergency. You should always have cash on hand for immediate emergencies like car repairs, medical bills, etc. up to say $5,000.
But for long term emergencies like loss of job, huge medical bills, etc. cash is obviously best to have but if you don’t have any then the options mentioned are okay.
However I think tapping into HELOC for small emergencies is a bit unneccessary, if you can’t afford to save for small emergencies you’re likely not able to afford paying it back. For major things, do it if you have to but if you’re not careful you’ll get further into debt and if you run out of equity you risk losing your house.
I like the 401k route, my 401k allows me to borrow up to 50% of what I have and pay it back with interest, the interest really just goes back into my account, the only risk is if I don’t pay it back I just end up paying taxes and fees without losing anything.
My 401k fell under $3000, and they just sent me the cash back. After five years or more of investment with a value of around 18000. Screw 401k and the financial markets as they function now. It is only a transfer of money from the middle class to the rich and the powerfull, without the rich doing anything to earn this money. I mean, the rich got only richer, from me anyway.
@ User – You do know that I’m rich, right? 😉
I have a little cash in my purse always but use credit cards first and pay back in full by the due date by dipping into my contingency fund/medical fund/ transportation fund etc. kept in FDs paying upwards of 10%pa.
@ keerthikasingaravel – “paying upwards of 10% p.a.” is an awesome return, and counts as an investment fund that is liquid enough to dip into. Any thoughts as to how somebody in the USA could emulate that?