In a recent article on her website, Suze Orman discusses a change in her recommended credit card strategy. This is one of the things I like about Suze Orman – her suggestions change based on the economic situation, and she understands that financial advice varies person to person. The meat of her article is about how people with high credit card debt and not much savings shouldn’t work on paying off the debt and instead should pay the minimum and make it “top priority” to build up as much savings as possible. Why? Because the credit card companies don’t care about you, and with unemployment rising, it’s important that you have a way to protect yourself. You could get your card paid off, and then the company could close your account for no reason. Should you then lose your job, you suddenly don’t have a way to pay your bills.
Megan is a 40-something government employee in the Washington, DC area. She got interested in Personal Finance when she got out of college and realized that her paycheck wasn’t going to go as far as she had hoped. Since starting this blog, she has managed to buy a house and make a solid start on her retirement goals, and hopes to help others do the same. Here is her story:
In 2007, I was a gainfully employed 20-something with no debt but not a lot of knowledge about personal finance. It was a co-worker’s comment about Roth IRAs that sent me to the internet, searching for information. It was then that I realized that I really didn’t know a whole lot about personal finance and that my current financial situation was due a lot to inherent frugal tendencies, generous family members, a fear of debt, and good luck. While that was working for me, clearly I needed a better plan.
While I had no debt, I was also pretty much living paycheck to paycheck and not worrying about going over budget (I say this as if I had a real budget) because I had an emergency fund set aside to cover any overages.
Except that’s not what an emergency fund is for.
So I did a lot of research, read a lot of blogs, and decided that I needed a plan. I needed to budget. I needed to know what I was spending my money on. I needed to prepare for the future.
I decided to create a blog not only to make myself accountable to others but also to share the knowledge that I gained along the way. I’ve learned so much from my fellow bloggers, and I hope that my readers can find something useful in what I have to share as well.
Currently only 6 mo (ignoring health insurance, but also unemployment). But i’m moving in june/july and then my expenses will go down making it 9 or more months.
It took me about 2 full years to consider my emergency fund large enough that it wasn’t my top priority.
Well … if my unemployment insurance money doesn’t start rolling in pretty soon, I’m going to get a chance to see how long my EF will really last. Theoretically, I have at least 6 months of expenses saved in the EF. In other savings, I probably have another 3 – 4 months worth. Of course, this isn’t covering Cobra. With my former employer, I didn’t have to pay for medical insurance, so Cobra is a new expense for me. I’ll probably only keep that for the first 9 months (until the 65% subsidy runs out) then try and see if I can find private insurance for a similar cost (or less.) Or, maybe I’ll have found a job again by then.
With the way the job market is looking to me, I’m not so sure if all my savings will be *enough*. So, no, 8 months in the EF is not a whole lot to me.
I think that’s a good point you bring up. It’s one thing to try to figure out how much to save. It’s another thing to decide what’s enough when you’re actually in the position to use it. From that point of view, no amount is big enough. Good luck! I’ll be following your blog to see how things go for you.
Mine’s at about 7 right now, but maybe closer to 9 if we talk bare bones. If I cash in savings bonds and company stock (at today’s close), it’s up around 15 months. Seems like a lot, but not when you figure how long I’ve been working!