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Emergency Funds Part B: The dark side of emergency funds
By Mr. Stupid | April 15, 2008
Walkin’ around with 28 large in the bank makes me feel like a huge swingin’ dick. A nice wad builds confidence, pride, and a sense of security.
But there are downsides to having an emergency fund. Sides that are as dirty and insidious as any family secret.
Desensitized to windfalls
I have been waiting for our tax refund (about $3,200) since we filed in late February. According to my accountant, I should have gotten the check within 4 weeks of filing. So I went to the IRS’s Where’s My Refund? website and found out: the $3,200 had been deposited in my account almost a month ago, way back on March 14… and I didn’t notice. Turns out that the refund accounted for a third of my March change in net worth, and I didn’t even realize it. Next year, I am not getting a direct deposit. There’s just no joy in it. I want to get my check in the mail. And next time, it won’t go unnoticed.
Oh, and the tax rebate stimulus will arrive soon. Ours will be $2,100. That’ll hardly move the needle. Ask me what I am going to do with it… nothing. If I needed $2,100 for something, I would have spent it already. I’ll use it when I use it.
Spousal abuse
Mrs. Stupid doesn’t know what we’ve got or even what kinds of accounts we have. She worries over small-ish things (like the $200 we recently spent to fix the water heater). And I like it that way. Just the other day, I told her about a little extra bonus money I was getting. You could see the gears in her head spin as she figured out how to spend it. “Hey, what do you think of this chair at Pier 1?” she asked.
I can only imagine what she would buy if she knew we were sittin’ on a nice nut. Or the vitriol she would spew if she thought about her engagement ring. She’s no mathematician, but I’m sure she’d wonder about the correlation between the number of zeros and the number carets.
I’d miss the guilt I could no longer make her feel… I can hear it now, “We’ve got thirty thousand in the bank and you complain when I spend twenty bucks on a salad?”
Lack of empathy
In the movie Michael Clayton, the eponymous lead needs $75K to appease mob lenders. The audience infers that Michael will meet a very undesireable end if he doesn’t get the money within a week or two.
$75K? Are you kidding me? He doesn’t have an IRA he could tap? Or a Rolex collection he cold pawn? They should have made it $750K. $75K just doesn’t provide enough tension for me.
Temptation to overspend
I know that just because I can afford something, doesn’t mean it’s OK to buy it. But I sometimes find myself overspending on everyday items. It’s just a drop in the bucket, I justify to myself. Those little drops add up to a big cup of piss if you’re not careful.
For example, I bought some cheeses a couple weeks ago. No, not an array of Cracker Barrel blocks from Stop & Shop. No, I went to a cheese shop and got imported Brie, a sublime Dorset cheddar, and a half dozen other selections. I spent $108 on cheese… Maybe you didn’t hear me. I said, I spent $108 on cheese. On cheese. A sane man would have said to the fromagerista (woo hoo, I made up a word!), “Sorry, this is a bit much. Let’s forget about the Greuyer; I don’t care which cave in Switzerland it was aged in.” Holy shit, I can pay $20 a pound for Greuyer, and I can’t even spell it.
And now I am looking at cars. I am looking at the difference between a used Civic (about $10K) and a new one (about $16K). The difference is only $6 grand. There’s that voice again… I have that. I can spend it…
Take on more risk
Excluding my primary emergency fund, my non-retirement accounts include about $100K of individual stocks, ETFs, and mutual funds. This is probably medium or short term money and it’s in securities it has no business being in. I really should be into munis or balanced funds, but because of the emergency fund, I figure I can take more risk.
Taxes
My least favorite 5-letter word: “taxes”. Well, that and “natch”. I really hate the word “natch”, but I hate “taxes” more.
Because of the nature of an emergency fund, it’s not in a tax advantaged account. Instead it gathers simple interest, which is taxed at the highest possible rate. If I didn’t need an emergency fund, then I would probably own individual stocks or funds, and I would just ride the appreciation and reinvest the dividends, forestalling cap gains while building assets. The emergency fund feels like it takes two steps forward and one step back when I pay taxes on the interest.
Hubris
I know I’m one of the fortunate few who have managed to not live paycheck to paycheck, and sometimes I want people to know it. Maybe I need approval from my friends and family; maybe I want admiration; maybe I want to experience Schadenfreude, or shame others into saving their own nut. Whatever the reason, excessive pride is an ugly thing and I sometimes have to catch myself before I act like a pompous ass. This blog notwithstanding.
… A lender be
No, I am not the kind of person to donate my money to faceless charities. I am not writing a check to Obama or the North Shore Animal League. And I am sure as shit not handing $1 to a bell-ringer in front of WalMart (aside: Thank you Target for keeping them away!).
But what I am likely to do is offer loans to friends when they need it. I recently had a convesation with a guy who needs about $2K. I couldn’t help but think that there was a subtle, meta-conversation going on between us, where he was really asking me to lend him the money. In this case, I resisted, but other times I’ve lent money freely.
If Jay needed a new car, and asked me, I’d peel a few K off the emergency fund to help a brutha out. Last time I did that, it took him 18 months to pay me back, and I felt like a douche for asking him for it. But I’d still lend him the money. It’s just a drop in the bucket, after all. And I can probably collect it the next time there’s a stimulus rebate.
Losing the eye of the tiger
Back before I had any signficant savings, I was a financial hawk. No deal went undone. No savings went unsaved. I took great pride in being Stupid with money. My fists were so tight I could squeeze coal from crapola.
But now my Stupid habits are borne of laziness rather than hunger. I don’t make my own soap, or change my own oil, or even both to fill out a few forms to get ING Direct bonus money. I just jot down prices, roll my own, and drop deuces at work to build the family fortune.
Maybe I am losing my edge. Maybe I am just not hungry enough. I need that back, I think, if I want to take it to the next level (the million dollar level, that is).
Topics: peace of mind |
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