Comments on: Preparing an Emergency Financial Plan

By: Nancy

Nancy — Fri, 23 Jan 2009 00:36:07 +0000

I’m WAY more concerned about a financial meltdown than the avian flu. That seemed rather blown out of proportion…

By: MasterPo

MasterPo — Thu, 22 Jan 2009 05:00:02 +0000

Kitty – I only mentioned bund funds because it’s simple. Most people can’t manage to pick individual bonds, don’t have the money to buy individual bonds, and can’t manage a ladder of maturities. But if you can do all that go for it.

TML – That’s why I specifically mentioned munis.

By: Mr. ToughMoneyLove

Mr. ToughMoneyLove — Wed, 21 Jan 2009 04:46:36 +0000

MasterPo: Having an alternative income stream is an excellent emergency fund but that is hard to achieve for most people. It is also a potential excessive tax liability.

Kitty: I agree that holding invividual bonds is smarter if you are planning to hold until maturity and are satisfied with the yield based on your purchase price and interest rate.

By: kitty

kitty — Tue, 20 Jan 2009 17:19:18 +0000

#MasterPo: “I’d rather have some good bond funds (preferably munis) to generate a cash flow.”
Personally, I much prefer individual bonds to bond funds, at least outside of 401K. With individual bonds, you have a “promise” to get the face value of the bond back at maturity. So even if the value of the bond falls between now and maturity, you can sit back, collect interest, and wait until the maturity date. With bond funds you have no maturity date, no promise to get back your original investment, and the value of individual bonds in the funds can drop. When the interest rates start going up – and they certainly cannot go down any more – the value of all bonds will drop. Maybe now the bond values are still a bit lower than what one expects for these interest rates and the yields are higher, so the values can still go up. But eventually the interest rates will start going up, and the value of all bonds will drop.

By: MasterPo

MasterPo — Tue, 20 Jan 2009 02:54:56 +0000

After 9/11 I was one of the thousands of IT people in NYC out of work. I ran out of my usual 6 months of UEI and was only 3 weeks from the end of the 3 month extension. I finally took a crappy “life boat” job. At least it paid more than min wage at Starbucks. But in that case, if I had held out for an IT job I probably would have been out of work for well over year.

Therefore I agree. In this economy there is no such thing as enough of an emergency fund. I’d rather have some good bond funds (preferably munis) to generate a cash flow.

By: kitty

kitty — Sun, 18 Jan 2009 23:03:50 +0000

” Moreover, I am very concerned that in our present economy, 3-6 months may not be enough.”

I don’t think this is ever enough, and certainly not in present economy. Many software engineers and programmers who lost their jobs after the internet bubble burst took over a year, sometimes 2 years to find a new job. Some jobs – those for application programmers hired to deal with Y2K – never came back.

Also, when people think about “emergency fund” they think about losing a job. But what about a medical emergency? Medical expenses can easily run in 5 digits in just out-of-pocket expenses. In some cases they may even be in 6 digits – if the insurance refuses to pay for something. To me this is a far greater concern than just a job loss, but then I can live for a long time on my savings. Not to mention that given the history of past layoffs in my company, I am likely to have a severance equal to 6 months of my salary.

Personally, I don’t designate a part of my savings as an “emergency fund”. What I do have is savings in cash and CDs. All of my cash/CD savings can be used in an emergency. Even my investments can be cashed out if needed, although I’d hate to sell at current prices. I don’t see a need for a detailed plan of which expenses to cut either – if it becomes necessary any expense other than food, roof over one’s head and heat is a fair game. How much time does one really need to sit down, look at the expenses and decide what to cut first?