Some Financial Solutions Can Do Double Duty
How easily could you handle an unexpected financial expense? Suppose a mechanic listens to your car’s “thump” and quotes $750 for new front struts. Or your child’s broken arm produces an emergency room bill of $2,000.
Nearly six in ten Americans don’t have enough savings to cover an unplanned expense of $1,000 or even $500. Often, they rely on credit cards for rescue. But with rates that range from 11% to 36%, that can become pricey if you’re slow paying off the balance.
Instead, consider the possibility of creating an emergency reserve that does double duty by tackling another financial goal, too. For example:
Roth IRA = investing for independence + emergency cash reserve.
The great thing about a Roth IRA is that its earnings can compound tax-free. Yet in case of need, you can withdraw some or all of your annual contributions anytime with no tax or penalty.*
Equity line = credit for crucial financing + emergency cash reserve.
A Home Equity Line of Credit (HELOC) is a revolving line, which means the available credit is renewed as you repay. If you itemize, interest is usually tax-deductible.* HELOCs are popular for home renovation, college costs, and other family priorities.
Financial planners advise everyone to have an emergency fund in case of a job loss or other setback. But when money is tight, saving enough to cover three to six months’ worth of living expenses can seem as unlikely as winning the lottery.
*As always, we recommend consulting a tax professional about tax-related issues.
Bankrate statistic: Kathryn Vasel in “6 in 10 Americans don’t have $500 in savings,” CNN Money, 1/12/17 (http://money.cnn.com/2017/01/12/pf/americans-lack-of-savings/)