Over the weekend Coffeecents had a meeting of the minds with the good folks at Compass Fellows (http://www.compassfellows.org/) who are going to help redesign the CoffeeCents website and provide some technologly support, seeing as I grew up in the MySpace generation, not the twitter / youtube generation. We briefly talked about the concepts we’d want to cover under the SMART strategy.
Todd mentioned that his girlfriend, who is a college student supported by her parents, has a large amount of cash lying fallow in a checking account, doing nothing. He wanted to put this to better use. I mentioned why I have a substantial amount of cash sitting in a checking account – for an emergency fund (it is a high yield account but the yield is small right now). For his girlfriend, she’s already got a safety net and isn’t working, so she doesn’t have an income to replace. For her, leaving this money is letting it lie fallow rather than working for her. She’d probably be better off moving half of it into a tIRA indexed to a general fund, but also still maintain the emergency fund for good habit formation. For myself, it’s a different story as we work, have a house, and have a significant number of assets that could have unexpected expenses.
Case in point: This Sunday after studying, my friend Jason stepped onto our stoop, and the stoop promptly collapsed. As much as I would love to blame Jason for adding a few Christmas pounds, the stoop was 50 years old and we had 2 feet of snow recently. It was just old (And yes, Jason is just fine, despite dropping 5 feet). It’s a good thing we have an emergency fund, because now we need to replace the stoop much sooner than anticipated, and that will cost thousands.
One of the easiest ways to start down a cycle of credit card debt is to not have an emergency fund established to pay for the unexpected. Because we do, we’re able to respond to such a problem quickly and without debt. The emergency fund, is a major piece of the foundation of the SMART strategy.