Where is your “emergency savings” sitting? The answers we’ve heard shocked us:

One gentleman told us the money sitting in utility stocks was his emergency money. Good grief.
Some folks have a few measly bucks socked away in a bank account, just in case.
Some have confided they consider the 401k at work to be their “emergency money.”
We’ve even heard a few individuals tell us they have “$10,000 available on a credit card, for emergencies!”*

The right answer is to have at least three months (and better, six months) of your fixed expenses sitting untouched in a savings account. Some people remark, “that’s not smart, leaving money sitting there uninvested!” But we disagree. That is exactly where it should be – saving for an emergency. We discussed this in a recent video on budgeting habits, here.

Maybe you’ve heard the term, “betting the rent.” Sadly, this *still* happens today. People are out there playing (but calling it investing, or day-trading) without a safety net. We call it by a different term: reckless behavior.

Our work is “part education, part discovery” when beginning with potential new clients. We want to see where the emergency savings is located, before we can proceed. It’s the right thing to do. And better for us to turn away a potential client than bring on someone who will be calling for money every few months. It’s like planting bushes and ripping one out by the roots each time you are in need. Investments take time, just like plants need water, sun…and time. Despite what some think, there’s a huge difference between “ready cash” and “investments.”

So we were not surprised when Bankrate recently published results from a survey showing just 44% of households have more money in emergency savings than what they owe on a credit card. Bankrate also tells the average credit card balance is approximately $5900, which means folks are pretty light on savings. And in the same survey, we learned 29% of those surveyed have more credit card debt than emergency savings.

If we meet with someone and see they have an emergency stash, we’re happy. But if they also have credit card debt, we’re going to urge them to consider knocking down that debt. Better to have them tackle that, than continue to build an emergency savings, or even consider investing. One of the better “investment” decisions you can make would be to eliminate a balance on a credit card, whether the rate is 9%, or 14% (or higher). But here is the part nearly everyone overlooks – do not carry a balance like that again.

There seems to be a refusal to carry much cash any more. Which is too bad. Something triggers inside our brains when we have to reach into our pockets and pay in cash. We are far more mindful of the transaction, and more aware of the cost. Writing a check can sometimes have a similar effect. But many times, we’ve found the “cost” of a transaction has not even registered in our brain when we swipe a card. It’s only weeks later – when we get the bill – do we see how much things actually cost. That is, if we actually look at the bill and review the expenses.

By then it is too late.

Discussing cash flow has become a bigger part of our business at Mullooly Asset. We recently had a potential client tell us, “I won’t make a budget!” Ehh, OK. Putting clients on a budget is not our focus. The reason why we go through this exercise is we get an excellent reading on how much risk an investor SHOULD take with their investments by building cash flow projections and a balance sheet. The numbers don’t lie.

*Regarding credit cards – you know the banks will cut your available credit when you need it the most, right? That is not real money to draw on.