Beating Broke

Realized Benefits of Emergency Funds

April 10, 2009 By Shane Ede 3 Comments

Here and on other PF blogs, you’ll hear us all talking about the need for a well stocked emergency fund. And, unless you have one, you likely don’t know that we aren’t just saying that because we think we should. They really do have the benefits that we claim they do. These last couple of weeks, my wife and I realized those benefits.

Early on March 26th, my then pregnant wife told me that I should probably stay home from work as it was appearing very likely that we would be having a baby that day. Less than two hours later, we were checking in to the hospital to do just that. If you’ve been there, I don’t have to tell you that it was incredibly exciting.

The excitement waned as we waited for the labor to progress and then quickly disappeared altogether when the baby began having decelerations in it’s heart rate. The doctor began making preparations and the birth was expedited. Rather than wait for the labor to progress as it would normally, my wife was instructed to push with all she had to get that baby out. Quickly afterwards, the baby (a girl!) was born, and just as quickly was taken to a warming table to be intubated and have her lungs and stomach suctioned and checked.

It turns out that sometime in the weeks leading up to her birth, she had *ahem* pooed in her amniotic sac. To the medical world, it’s called Meconium. And it’s pretty bad. It affects the lungs in that it acts as a stopper for the little sacs that do the oxygen intake. It also acts as an irritant to the lungs that can lead to infections. It can be very serious, and can take days, or weeks, or months to completely clear out.

In our case, luckily or not, our little girl was able to kick it in a week. Pretty average recovery time we’re told. Now, she’s home and all is well. There won’t be any lasting effects and we shouldn’t be able to tell the difference.

Here’s where the benefits of an emergency fund come in. For that week that our little girl was in the hospital, the last thing we wanted to think about was bills, work, or anything not related to the well-being of that precious baby. We had friends watch our dogs, and my wife’s mother came up for a couple of days to watch our son. And we spent as much time as we could watching our little girl fight the fight in an incubator.

We didn’t have time to balance our check book, or check our budget to make sure we were within bounds on something. And now that it’s all over, I can honestly say that if we hadn’t had an emergency fund, it would have been much, much worse.

One of the touted benefits of an emergency fund is the peace of mind that it affords you. When you know that you have that money to fall back on in an emergency, your mind is free to worry about the things that it should be. In this case, it was our daughter. Maybe it would be the car you just wrecked or the house that just burned down. No matter what the emergency is, you know that you’ve got that extra cushion of money to help pay any bills or expenses that might come up.

I cannot tell you how wonderful it was to not have to worry about that during the week that she was in the hospital. We certainly didn’t expect to have any problems, but we did. You may not expect any problems, but they can happen. If you’ve been putting off the funding of your own emergency fund, don’t wait any longer. We’re glad we didn’t. You never know when you’ll need it.

Photo Credit: forwardcom @ sxc.hu

Using 0% Interest Rate Credit Cards

April 9, 2009 By Shane Ede 2 Comments

The introductory and balance transfer 0% interest rates on some credit cards can be a very enticing benefit. The fact that we see it offered so often proves that it works as a marketing ploy for the credit card companies. Some people take advantage of the offers and do what they call “0% rate arbitrage”. They take the CC company up on their offer and then pull the money out as cash and dump it into a interest bearing account where they can make several percent on the money. It’s like free money. But are the offers worth using if you’re like me and just want to be debt free and live a financially responsible life?

The answer is not a straight yes or no answer. In fact, it isn’t really even a straight “maybe” answer. Much like most financial products, it is very dependent on your personal situation. Make no bones about it, I dislike credit cards. If I can, I will be credit card free some day and use only my debit cards. However, until that day happens, I’m stuck with them. I don’t use them, but merely pay them off. Until they are paid off, I’ve still got a few.

While I have no intention of ever trying the arbitrage that some people try, I have and will use the 0% offers to help with my debt repayment. It’s a free loan. Sure, the rate is temporary, and the rate on expiration is likely just as bad as the card I transferred from. But, for that introductory period, I pay no interest, and every penny that I send as a payment goes towards paying off that balance. Essentially, I’m making 8%, 9%, and in some cases 20+% on my money. The offers can be a great tool while you are repaying your debt.

Once you are done repaying your debt, however, credit cards have little to no use to you. The concept is that a credit card is a way for you to have a open line of credit whereby you can access your “credit” anytime you want from virtually anywhere. However, if you are a financially responsible person and maintain a debt free lifestyle, you’ll likely want to pay cash for nearly everything. Obviously, a debit card or good ol’ cold hard cash is your tool of choice.

One exception that could be argued for is reward cards. These are cards that give you rewards based on the amount of money you spend using your card. If you are responsible and pay off your balance within your grace period, you can make a pretty good argument for the use of a reward card for the sake of the rewards. And some of the rewards can be quite tempting. Airline miles, gas discounts, gift cards, and even cars are among the lists of rewards.

Some folks (like Ramit of I will teach you to be Rich) think that the reward cards are a horrible thing. The possibility of missing a payment or letting your spending get out of control is always there and one slip up can cost you well more than any reward you might get. And unnecessary risk is something you don’t want in your financial life.

Back to the 0% cards though. The bottom line is that if you are already using some self control and not using your cards, transferring the balance to a 0% offer can save you quite a bit of money over those few months that the rate is that low. If you can’t manage the cards you have, though, forget it. The risk of causing more harm to yourself is too great to add more accounts to your portfolio. Also, don’t let a great introductory/transfer rate buffalo you into signing up for what would otherwise be a horrible card. Do your due diligence and read the fine print for annual fees, grace period, other fees, and most importantly the normal rate. I’ve seen several of these offers that are great, until the offer is over and then you’re hit with a 29.99% rate. Obviously, the extra savings of the low rate wouldn’t outweigh the normal rate if you’re transferring a balance from a card that only had a 8.9% rate!

Be careful. Learn what you can and make as educated of a choice as you possibly can. I don’t condone using credit cards because I know first hand the damage they can do to a persons financial life, but I recognize that these offers can be a very valuable tool for the responsible few who have learned to handle their money properly.

Do You Shop Your Insurance?

March 27, 2009 By Shane Ede 2 Comments

My wife and I are thinking of selling our house and buying something a bit bigger. The house we are in is a little small for our expanding family. It could be done, but not very comfortably. In that process, we started our research by visiting with a loan officer to run some numbers and make sure that we were shopping in a price range that we could afford.

One of the subjects that came up in the process is the subject of home owners insurance. As we discussed it, I mentioned what we were currently paying. And then the discussion really started. Turns out, our loan officer thinks that we are over paying by quite a bit. By about 40% if the loan officer is even close to correct. Ouch.

When we bought our house, the insurance was the last thing on my mind. When the day came to sign all the paperwork, the loan officer that we were using at the time (not the same one we saw the other day) asked for the proof of insurance. Which I did not have, because I had not gotten the insurance yet. I didn’t see the purpose in insuring a house that I didn’t technically own yet. I was wrong. I couldn’t take ownership without proof of insurance. Two very quick trips to the insurance agent that has our car insurance account later, I had my home owners insurance, and was able to sign the paperwork and take ownership.

In my haste, I took what I could get and what the agent suggested. Because our house loan has an escrow account, I never really see the bill for the insurance. It never really got brought up, and it just continued on it’s merry way. I fell prey to a common personal financial mistake. I didn’t shop around. And I didn’t revisit my policies to check for pricing and coverage.

Committing that mistake may only be costing me a few hundred dollars a year. I say only, because it could certainly be much worse. Now, as we begin shopping for a new house, we’ll also be shopping for insurance. Depending on what we find, we may be changing agents. We may even change agents for the auto coverage as well since we’ll be shopping that around as well. It doesn’t hurt to look, right?

I know I’m not the only one to ever fall victim to this error. If you’d like to share your story, you can in the comments below.