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No. of Recommendations: 5

<<<Let's say you woke up today and were debt-free, but had no savings or efund. Let's assume you have a stable job, stable health, and a life--however you define those. Would you borrow money to stash it into an efund?

If so, at what interest rate would you NOT borrow the money?>>>

"Funny thing--at the end of February, 2004 I was facing a choice very much like that. I came out of divorce court with an obligation to pay the ex a settlement that would eat up substantially all of my cash reserves. The original plan would have been to build the e-fund over time, having spent the e-fund on the Mother of All Emergencies.

. . .

Now, here's the funny psychological thing: I borrowed at 5.2% to buy a car so I wouldn't be in the position of having absolutely no e-fund. From a financial analysis perspective, this is pretty much the same as borrowing at 5.2% to create an e-fund. But there's no way I would have borrowed at 5.2% just to put cash in savings. I would have tried to build the e-fund out of monthly cash flow, and only borrowed if an emergency bigger than the e-fund came up to justify it."

Your post hit upon the intriguing issue.

I wonder how many of the folks who say they would never borrow to fund the e-fund suggest a mini-e-fund of $1000 to the folks who come to this board with massive credit card debts. I find the two positions contradictory.

I suggest that anyone who is holding a true e-fund (as opposed to savings for know, upcoming expenes) and who has any debt is in fact borrowing to maintain his/her e-fund. To be consitent with the no borrow policy, all debt should be paid first.

Regards, JAFO

PS - this point has been previously discussed WRT to home mortgages on the threads regardnig pre-pay or invest questions, when someone asks whether those who own homes without a mortgage should obtain a mortgage in order tohave funds to invest. The same kind of dissonance was generated then, too.

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