UnThreaded | Threaded | Whole Thread (5) | Ignore Thread Prev | Next
Author: Patzer Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308881  
Subject: Re: Awakening Date: 8/12/2002 9:10 AM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 3
I go back and forth on an e-fund. We had a cash windfall last month, and have used that to convert our operations to a cash basis, rather than charging operating expenses and paying in full, which is how we've done it for years. That feels like a big step! I'm having a hard time imaging that putting 100/month aside will matter more than paying the debt down.

There has been a lot of debate on the subject of creating an e-fund versus just paying as much as you can on the debt. As I understand the arguments made, for and against an e-fund:

Against: The debt is at a higher interest rate than the savings. Paying more on the debt avoids more interest expense than putting the money in the e-fund will earn. If you have an emergency, you just create more debt.

For: You may not be able to create more debt on as favorable terms as you have now. Creating the efund allows you to support your cash basis lifestyle, because the inevitable emergency then does not require creating more debt. In effect, you create your own "cash windfall" over time, to be used when it is truly needed. Most importantly, you get in the habit of putting money in savings. Once you see how hard it is to build up savings, you learn not to spend on things that aren't worth that much effort.

IMO, the psychological factors dominate. I will always favor having the e-fund. This is not necessarily the best idea for everyone, but I really like it for people with a lot of financial uncertainty in their lives.

Patzer
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (5) | Ignore Thread Prev | Next

Announcements

TMF Credit Center
The Motley Fool Credit Center arms you with real tools and simple messages, that will help you in every credit situation.
Foolanthropy 2014!
By working with young, first-time moms, Nurse-Family Partnership is able to truly change lives – for generations to come.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Post of the Day:
Dividend Growth Investing

Good Time for Dividend Champions?
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement