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from the there's-always-the-day-*after*-tomorrow dept.
Economists say this is the Minimum Amount of Money you Need in an Emergency Fund:
Money experts generally encourage you to set aside three to six months' worth of living expenses in an emergency fund. Some even want you to stash away a year's worth.
After all, life doesn't usually go as planned: There could be another recession, you could lose your job, have a medical emergency or have to deal with a car breaking down. That's why, when it comes to emergency savings, "more is always better," personal finance author David Bach says.
But economists Emily Gallagher and Jorge Sabat challenge the oft-cited savings rules in their 2019 report, "Rules of Thumb in Household Savings Decisions." "People are usually given really high savings thresholds, like you should be saving six months' worth of income or you should have $15,000 squirreled away," Gallagher tells CNBC Make It. But those numbers aren't "based on much," she adds.
After crunching the numbers, Gallagher and Sabat found a more realistic amount for low-income households, specifically, to aim for: $2,467. If you have that much saved, your probability of falling into financial hardship (not being able to pay rent, bills or medical care) is low.
To get to that number, Gallagher and Sabat, who are also assistant professors of finance, used data from the Survey of Income and Program Participation (SIPP) to graph the relationship between falling into hardship in the next six months and how much you have saved as a buffer. They looked at financial information on more than 70,000 lower-income households, which the report defines as those earning under 200% of the poverty line. To put that into context, that's up to about $30,000 a year for a family of four, says Gallagher. This group represents "about 30% of the U.S. working-age population," she adds.
They found that if you have very little saved — say $200 to $500 — each additional dollar you set aside dramatically reduces your likelihood of falling into financial hardship. But once you have at least $2,467, "all of a sudden, saving an additional dollar didn't seem to be that helpful anymore," says Gallagher. "It still reduced your probability of falling into hardship a little bit, but it wasn't nearly as effective as when you were at low levels of savings."
(Score: 3, Insightful) by The Mighty Buzzard on Tuesday October 22 2019, @04:34PM (2 children)
People struggling to hit a credit score shouldn't be. If it's difficult to get, they can't afford to use it on anything it's necessary for.
My rights don't end where your fear begins.
(Score: 1) by Jay on Tuesday October 22 2019, @05:14PM (1 child)
That is blatantly incorrect.
A house is a damn good investment for most people. My mortgage is hundreds of dollars less in rent for a place around 2.5 bigger than I could rent for those hundreds of dollars more. Even if my house loses value, when I sell it will get some of that "rent" back. Best case scenario is that it goes up in value, and I make far more back than what I paid in interest. The best financial decision of my life so far (outside of too much education) was to buy instead of rent. I lived in a small condo for 6 years, paid less than renting, and sold it for 50% more than I bought it for.
It's easy to struggle to hit a high credit score, especially for young people with a limited financial history. They may have a college degree and a solid job, but that doesn't matter when it comes to credit. What matters are your loan histories, length of open credit lines, number of late payments within the last few years, etc. All things that younger folks won't have. And all things that fiscally responsible people might not have! If you saved up and bought your cars with cash, that doesn't help your credit score when you want to buy a house. If you were flat broke and took out an auto loan and managed to pay it on time most of the time, that helps your credit score.
Struggling to get a high credit score can mean that you defaulted or were late on payments, but it can also mean that you just haven't used much credit. Being fiscally responsible and keeping an emergency fund is one of the ways people avoid using credit, so that's a negative on the credit score. That absolutely doesn't mean that someone can't afford to pay a loan - it means pretty much the opposite.
(Score: 2) by The Mighty Buzzard on Tuesday October 22 2019, @09:30PM
Owning a house is not an investment lately. It's only a way to keep from losing quite as much unrecoverable money on rent. In the past that was true but not today outside select areas.
My rights don't end where your fear begins.