In the USA, it’s pretty much OK to be broke. Oh, yeah, some of you are going to say, “You don’t understand, it really sucks to be poor!”
And yes, I will agree with you on that. But I will also say,there are darn few people in the USA who really have any idea of what it means to be _really_ poor.
The very fact that you are sitting there reading this on a computer screen is proof that you ain’t that poor .. even if you are reading it in your public library on their computer.
You won’t find little American niceties like free clinics, food stamps, school lunch programs, school buses, utility programs that keep your lights on even when you can’t pay your bill, Medicare, Medicaid and especially, one of the most amazing things the US has, 99 weeks of unemployment insurance … cash just flowing in while you sit around wishing the Democrats will get you a job, or that those bums get thrown out and the kind-hearted Republicans will get you a job. Or, you just “wish”.
It’s lot different here in the Philippines. Those of you who come here on search phrases like “Can I live in the Philippines for $770 a month” and other such queries had better do a little realistic thinking.
Eleven if you have an income that you think will be steady and sufficient to your needs here in the Philippines … or back there in the USA while you make plans for coming to the Philip[pines in the future ... I'm going to give you some more of my famous, straight from the shoulder, no BS, Philly advice.
Put on your glasses if you need them so you can read the fine print below:
YOU NEED AN EMERGENCY FUND
Yes, you. Not someone else reading this blog, but you ... the one whose face you last saw in the bathroom mirror when you brushed your teeth.
Now many of you are going to agree with me on this. But also, many of you are going to try to weasel out with the excuse of, "But, Philly, don't you see, things are tough right now, I just can't mange to do any saving at the moment."
I guess what got me going on this was one such message I received on this subject just recently. Know what caught my attention? At the bottom of the tale of woe, after all the litany of excuses and rambling reasons why things were so tough for this fellow and his family, you know what the email ended with? (maybe you can guess)
Sent From My iPad!
Folks, as I said, the definition and actual experience of "being poor" can vary greatly from person to person. In Internet terms we say, YMMV. But one thing is for sure. If you are reading this on your iPad, you CAN save money for an emergency fund. Your real problem is, you just can't figure out the difference between CAN'T and WON'T.
The establishment of an emergency fund is one of the first recommendations you’ll hear from any recognized personal finance “expert”. While you will hear a range of opinions on how much you should stash away for a rainy day fund, the underlying reason for the recommendation is the same.
An emergency fund, or a rainy day fund, is savings you have accumulated to protect yourself and your family from a catastrophe such as losing your job or having to unexpectedly face large expenses such as medical bills. It is an attempt to move away from being one pay check from broke.
How much you should save for a rainy day is debatable and mostly dependent on your own risk appetite. But for the most part you will hear people say that you should have at least six months worth of your expenses saved in an emergency fund.
Six months is a good place to start, and in my opinion should be increased in tough economic times when corporations are downsizing. You can always release some of the cash from your emergency fund when things start to look hunky dory again.
But I Can't Save Six Months Worth of Expenses.
The answer to that, by and large, is bullshit! In almost any circumstances conceivable, you CAN. The operative factor is whether or not you WILL.
I didn't say it would be easy, and I didn't say it would be fast. But it absolutely CAN be done if you have the will to do so.
One statistic I read not long ago really disturbed me. The source claimed that less than 10% of Americans can actually put there hands on $2,000 USD, in cash ... at least without going and getting a cash advance on a credit card or, even worse, buying into some crappy pay day loan scheme.
In most cases I am pretty sure that $2,000 is not enough for a six-month "cushion" for most of you. In many cases, that wouldn't even be enough for one month, let alone six.
But that fact doesn't change the other fact that you ought to take this up as a goal .. a real New Year's resolution, if you will.
And something else to consider. If you are very interested in moving to the Philippines (as, of course, most of you reading this are), having a "cash cushion" is even more important.
Not only will you spend money to move here and get set up ... more than you think, and especially more than your girlfriend says you will need ... no matter how thrifty you are, life is life and, as they say, "Shit Happens".
But why six months? There is really no good reason except one financial expert heard another say it and repeated it and soon the message spread across the industry. Realistically, this number should be whatever it needs to be to give you the comfort and peace of mind you need.
OK, I can hear some of you saying, but what about retirement. Don't those same experts all say I have to save for retirement as well.
Yep, they do, and they are certainly not wrong there.
So what if I told you there was a vehicle with which you could do both?
Think About a Roth IRA
I got into learning about Roth IRA’s a few months ago when I was having a conversation with my son about savings in general, and in particular about saving for his annual taxes and homeowner’s insurance bills.
You see he recently paid off his home, 100%, so there is now no bank or mortgage company to “impound” or collect his property tax payments and annual homeowners’ insurance payments.
My son was chatting with me about different types of specialized savings accounts so he could just keep putting savings in them every month and then withdraw insurance or property tax payments when required.
It’s a good idea, but many savings accounts are paying very low rates … any savings are better than no savings, but at the rates many banks are offering it hardly seems worth the while.
Enter The Roth IRA
Now most of you know that a standard IRA. although an excellent vehicle for funding retirement, has a very difficult “gotcha’ involved for those under 59 1/2 years of age. You can take out money from the IRA any time you want to, but you’ll have to pay a non-trivial penalty, as well as taxes at your current rate. Needless to say, getting money out of your conventional IRA before retirement age is a very unattractive option.
But the Roth IRA operates sort of in reverse to the conventional IRA. Money that you put into your Roth IRA is taxed .. just as the money you put into a savings account, money fund account or stock market broker’s plan would be.
This make it less attractive at the front end.
But it becomes infinitely m0re attractive at the ‘back end”. reason? You can take out any amount of the money you have contributed to the Roth IRA at any time, at any age, without penalty.
Just look at a real world example.
Joe wants to save money for his retirement, so he puts $200 a month into his traditional IRA. $2400 a year. Joe wants to build his emergency fund, so he scrapes and scrimps and finagles and manages to find another $100 a month to put into an Emergency Fund savings account. $1200 a year.
So end of the year he takes out $1,000 from the Emergency funds becuase his taxes are due. No problem, it’s for a good cause.
But on his way home from the bank he hits a patch of black ice … winter, yeah I remember that crap … distantly … and hits curb and cuts two ties and mangles two wheels. Call it $500 in damages to get the car back on the road after all is said and done.
All the money from the emergency fund and then $300 more on the credit cards, which he ha been trying so hard to pay down.
Some days it seems like you just can’t get ahead.
Had Joe been putting $300 a month into a Roth IRA, he’d have $3600 in there, plus whatever interest it earned during the year. He can withdraw, without penalty, $1500 and he has no additional credit card debt,and still has $2100 plus earnings in his Roth IRA to start 2013 with.
Note: You do have to pay tax and penalties on money you withdraw over and above the post-tax contributions you have made, but in Joe’s case he’d be able to take out the full amount of his contributions, $3500, if he really felt the need. As always, this is my opinion only, get qualified advice from a qualified professional before charting your own course.
So, what do you think? Anyone out there thought of using a Roth IRA for their Emergency Fund while they wait to build up enough cash to move and start living in the Philippines?