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?
After three years, you may be sick of listening to me – besides, by now, you should be $2 million or $3 million into your own $7 million 7 year journey, so what can I teach you? – so, here is some really important advice from Darwin Deason, a self-made billionaire entrepreneur:
Forbes Magazine: You have $100,000–where do you put it?
Darwin Deason: It depends on age and goals–but if I was young, I’d put all of it in a company that a) I could directly influence or control, and b) that I loved.
If you have your own financial advice, or feel that summarizing somebody else’s ‘personal finance system’ into “just one page” would be fun – and useful – then I have 5 x $100 Apple Gift cards to give away!
Just check out this post to join the action: http://7million7years.com/2010/10/28/just-one-page/
But, hurry … the giveaway finishes on Thursday November 11th (the last day for submissions) and the entries are already starting to come in!
Winners announced Monday, November 15.
In my last post I shared a lesson from Henry Hazlitt (from his book Economics in One Lesson called “The Broken Window”); in summary:
Some yahoo breaks the window of a bakery. Did he create employment by causing $250 in repairs, thus giving the window repair man more money to go and spend in a kind of economic ‘mini stimulus package’?
Well, no, as many of my readers were quick to point out …
Hazlitt identifies the missing pieces:
What is missing from the thought experiment of the gathered crowd is the fact that the baker was going to buy a suit with that $250 but he can no longer do that since he is $250 poorer. The suit he was going to buy can no longer come into being since the tailor is not going to get that $250 to make the suit. So in this community, the window repair man and all of the merchants he would spend the money with make out but the tailor and all of the people he would spend his money with lose out. So, was there really any net loss or gain? Other than for the baker, no. Instead of having a window and a suit, he just has a window and is now $250 poorer.
But, “the main reason why no one typically considers the tailor and the merchants he would buy from is that, since the suit never came into being and was not readily visible, it never entered into anyone’s thoughts. The window, however, is quite visible and it does not take much to reason through who would benefit from the broken window.”
This issue of visibility is central to the way that most people manage their finances: the money goes where the need is most visible … now!
PS Before you point it out, I know that the image, above, isn’t the Hazlitt Maneuver … it’s the Heineken Maneuver, of course 😛
Here is a short piece by Henry Hazlitt from his book Economics in One Lesson called “The Broken Window” Maneuver :
A young hoodlum breaks the window of a bakery and the gathered crowd begins to philosophize about whether the hoodlum really harmed anyone at all since he, after all, created employment.
He created employment by having to force the baker to pay the $250 it costs to fix the window to the window repair man. The window repair man will then have an extra $250 to spend with other merchants and those merchants will have more money to spend elsewhere. This line of thinking can continue on forever.
If it weren’t for the broken window then the window repair man would have less money and employment and so would the merchants he would spend the money with and so on.
So, what do you think? Should we stimulate the US (indeed, world) economy, simply by arming our population with rocks and asking them to all go break windows?