Timeline for What emergencies could justify a highly liquid emergency fund?
Current License: CC BY-SA 4.0
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| Apr 4 at 13:19 | history | edited | D Stanley | CC BY-SA 4.0 |
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| Aug 11, 2017 at 22:49 | comment | added | Stephen | Ooooh, that makes sense. Yeah I could see myself having trouble with that. That might be the best argument for a separate emergency fund I've seen here. | |
| Aug 11, 2017 at 22:39 | comment | added | D Stanley | @Stephen many people have a hard time "selling low" so there might be temptation to borrow (charge) the expense and paying it off when the investment recovers rather then liquidating an investment | |
| Aug 11, 2017 at 22:25 | comment | added | Stephen | I don't understand this part of the bullet point: "What if the market is in a down cycle - will you be so quick to sell those investments knowing that they're worth less that they could be?" Do you mean that there's a risk I would not sell the investments? If so then I must not have a true emergency, because I am able to make that choice. | |
| Aug 8, 2017 at 13:52 | comment | added | Steve Jessop | ... and even then, it might just turn out that people who use cash spend 5% less for the simple reason that 10% of the time they don't have much cash on hand and can't be bothered to walk to the ATM, so they go to the cheaper restaurant instread of the nicer one, then tip less because they empty their pockets and stop. Which may or may not be the ideal outcome for someone who's hoping to cut their expenditure by switching to cash ;-) Some clever micro-economist needs to think of a clever experiment. | |
| Aug 8, 2017 at 13:48 | comment | added | Steve Jessop | @pojo-guy: I don't think it does, because it's a self-selecting sample. It might just be that heavy spenders tend to get a credit card. I think Joe is looking for as close as possible to a randomly-assigned trial. Ideally take 1000 homes, watch what they spend for a year, confiscate the credit cards of half of them (leave them an ATM card of course), watch what they spend in the next year, and compare the two groups' mean increase/decrease. Sadly a double-blind randomised trial is impossible. | |
| Aug 8, 2017 at 13:19 | comment | added | JTP - Apologise to Monica♦ | @DStanley - We are not able to pick and choose the comments moved to chat. Our choices are (a) delete a number of comments, (b) kill all comments, (c) move all comments to chat. It's your answer, D, I'll defer to your choice on this, apologies that I highjacked with comments. I'm inclined to craft a question just on the paper/plastic topic. | |
| Aug 8, 2017 at 13:07 | comment | added | Ogre Psalm33 | @JoeTaxpayer Apparently at some point there has been confusion between dnb.com and dnb.nl? That's my best guess. But it's interesting that the study appears to contain the exact content I've heard described from multiple sources. However, I can see D Stanley's earlier point about the dispute, because I recognize that in human nature, it is hard for people "wired" one way to see the viewpoint of people wired another way ("well why don't they just control their spending??") Therefore, I'll delete my comments of contention. | |
| Aug 8, 2017 at 13:01 | comment | added | JTP - Apologise to Monica♦ | @OgrePsalm33 D&B = Dun and Bradstreet, DNB = DeNederlandscheBank. Just saying | |
| Aug 7, 2017 at 22:22 | comment | added | D Stanley | @Kevin yes, essentially any unborrowed, completely liquid funds. | |
| Aug 7, 2017 at 20:50 | comment | added | Kevin | Terminology question: By "cash", do you mean actual paper money, or debit cards, checks, and other non-credit liquid instruments? | |
| Aug 7, 2017 at 20:47 | history | edited | D Stanley | CC BY-SA 3.0 |
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| Aug 7, 2017 at 19:55 | comment | added | D Stanley | I have removed the implication that "people spend more when using cards" since it's in dispute and not the main point of the answer - can we move comments regarding that point to chat? | |
| Aug 7, 2017 at 19:53 | history | edited | D Stanley | CC BY-SA 3.0 |
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| Aug 7, 2017 at 19:00 | comment | added | JTP - Apologise to Monica♦ | @OgrePsalm33 - "Nobody I know has been able to track down this mythical Dun and Bradstreet study. Even Dun and Bradstreet themselves have been unable to locate it. GRS reader Nicole (with the assistance of her trusty librarian Wendi) contacted the company and received this response: “After doing some research with D&B, it turns out that someone made up the statement, and also made up the part where D&B actually said that.” " << From another web site. When something is repeated often enough, it takes on a life of its own. The D&B report is a MYTH. | |
| Aug 7, 2017 at 18:58 | history | edited | NL - SE listen to your users | CC BY-SA 3.0 |
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| Aug 7, 2017 at 17:56 | comment | added | pojo-guy | @JoeTaxpayer Re "People tend to spend less when using cash" When I was first working at Sears in sales, this was the first thing they drummed into our heads. People using cards spent 25% more per purchase on average, and were more likely to be repeat customers (i.e. they bought more frequently). This is on a store chain basis, not a family basis, so I'm not sure if it meets the criterion you asked for. | |
| Aug 7, 2017 at 16:56 | comment | added | D Stanley | @reirab I'm thinking of low/promotional rates (<5%), not typical 18%+ rates. But there's a lot of volatility - returns could range anywhere from -20% to +30%. That's the problem. | |
| Aug 7, 2017 at 16:51 | comment | added | reirab | "What if you decide to keep your investments because they earn more than the interest you're paying on the card?" - What kind of investments typically earn more than typical CC interest? I'd like to move some money there. :) And if you have a low CC interest rate (e.g. a promotional rate,) why is it a problem to keep that balance for the duration of the promo rate if you're earning more than that in investments? | |
| Aug 7, 2017 at 15:39 | history | edited | D Stanley | CC BY-SA 3.0 |
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| Aug 7, 2017 at 15:12 | comment | added | D Stanley | @JoeTaxpayer I see what you're saying - I doubt it applies to payment of monthly bills (which would be paid by check/EBT otherwise). I would posit that it applies more to retail spending (where cash is an option). | |
| Aug 7, 2017 at 14:44 | comment | added | JTP - Apologise to Monica♦ | I am talking about the annual budget. Those who profess that it's a fact that card users spend 10% more, and if I say I spent $50K last year on cards, I must have wasted/overspent $5K. In reality, 90% of the spending was on non-discretionary. Home, car, life insurance, medical bills, gas, cable, phone, etc. No study jumps to that level. The level of "What fraction of your budget is 'fixed'?" | |
| Aug 7, 2017 at 14:39 | comment | added | D Stanley | @JoeTaxpayer For macro, if we have $200 left in the cash "dining out" budget, it makes me choose my options more carefully. Maybe I take my lunch a few days a week instead of drive-thru when I know that I won't be able to take my family out to dinner on Friday. I also used to drive to the cheapest gas, but realized that I was only saving a few bucks, which was not worth the effort. | |
| Aug 7, 2017 at 14:38 | history | edited | D Stanley | CC BY-SA 3.0 |
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| Aug 7, 2017 at 14:32 | comment | added | D Stanley | @JoeTaxpayer Thanks. I have not seen extensive study, but I know from personal experience that I spend less when using cash, both macro and micro. It's harder to go to a store and buy something with cash then to just "one-click" buy it on my phone. For larger items, if I only have $500 in cash to spend, that's my limit. I'm less tempted to go one or two models higher, spending an extra $200 for a few bells and whistles. | |
| Aug 7, 2017 at 14:28 | comment | added | JTP - Apologise to Monica♦ | +1 for (as always) a well articulated answer. On the "People tend to spend less when using cash" - Have you ever seen a study on this that was not contrived? Not a one time experiment at the micro level, but a true study of a family sized budget? The sentiment feels true, but I continue to feel it confuses correlation with causation. Those who are in awful CC debt by definition have been avid card users. The real data would separate the pay-in-full vs the balance carriers. | |
| Aug 7, 2017 at 14:22 | history | edited | JTP - Apologise to Monica♦ | CC BY-SA 3.0 |
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| Aug 7, 2017 at 13:57 | history | answered | D Stanley | CC BY-SA 3.0 |