Emergency fund is important when 401(k) matches dry up
It seems that every day companies are retreating from their 401(k) commitments. More than 120 companies have announced a suspension of their match within the past nine months, according to the Pension Rights Center.
"Since the fall, a whole slew of corporations have suspended their 401(k) match," said Dan Muldoon, a research associate for the Center for Retirement Research at Boston College. "We experienced the same situation during the last recession between 2000 and 2002. It's a way to trim the budget without having to lay people off, so it's seen as a lesser of two evils."
When times are good and the stock market is high, the match allows us to buy overpriced stocks.
When times are bad and the stock market is low, the missing match allows us to avoid buying underpriced stocks.
Corporate America is always looking for new ways to make us prosper.
His advice? Direct new savings first into an emergency fund.
In today's economy, with layoffs rampant and your employer signaling financial vulnerability, every household should have three to six months' worth of living expenses set aside in a liquid, interest-bearing account such as a money-market fund.
In today's economy, new savings should apparently be directed towards the safety of relatively low rates of interest. There's no need to buy underpriced stocks.
This implies that we were supposed to do something different in yesterday's economy. I can only assume that with layoffs not rampant and employers not signaling financial vulnerability, households were supposed to buy overpriced stocks and avoid safety even as banks paid relatively high rates of interest.
Perhaps the best time to create an emergency fund is actually during the good times? That way the emergency fund could actually be used during the bad times? I know. It sounds like a really crazy theory.
As a side note, any idea what would happen to our economy if every household suddenly decided to stockpile three to six months' worth of living expenses?
April 4, 2007
Living paycheck to paycheck
Four-in-ten workers (41 percent) say they often or always live paycheck to paycheck, according to CareerBuilder.com's latest survey.
We're told that our society should save more.
Because workers' paychecks are often spent before they even hit the bank, saving is often not an option.
Then I guess we're in big trouble, but we kind of already knew that.
Corporate America is always looking for new ways to make us prosper.
ReplyDeletePerhaps it's time for a fund of funds emergency fund. In theory, the more you slice and dice, the further your funds will go.
Stag,
ReplyDeleteFour-in-ten workers (41 percent) say they often or always live paycheck to paycheck
I worked with a happy-go-lucky type many years ago. One day, the boss chastised him for living paycheck to paycheck. Mr. happy-go-lucky quickly corrected the boss that he did NOT live week to week as accused. He informed us all that he lived "day by day!"
I lost touch with that guy shortly thereafter. I imagine he is a former owner of multiple homes.
I got bad news for carrerbuilder
ReplyDeletemore then 7 in 10 workers don't have any clue as to who they are and what they do.
I cut paychecks to unionized construction workers. They get into a complete panic attack if the checks don't get to the job site by lunch. If they don't get it by lunch they will have bounced checks by 1:00.
Hey Mark, Did you oil the bearings on the wheelbarrow? I think it might be a good idea.
ReplyDeleteKevin
mab,
ReplyDeletePerhaps it's time for a fund of funds emergency fund.
Great idea! Let's make a pyramid of fund of funds emergency funds though. I think that scheme should build the appearance of solid stability.
He informed us all that he lived "day by day!"
At our current rate of decline, at some point we're going to need a stopwatch to catch all the nuances of our long-term planning play out.
I'm Not POTUS,
ReplyDeleteThey get into a complete panic attack if the checks don't get to the job site by lunch. If they don't get it by lunch they will have bounced checks by 1:00.
Haven't they been listening to the advice? They need to save more. They also need to use more credit. Oh yeah, and they need to work harder and smarter.
I figure if the average construction worker worked harder and smarter than the average construction worker then... no, wait, that doesn't work. Ignoring the obvious logic flaw, they would have finished building houses even faster and the bubble would have simply imploded sooner. Nevermind.
Kevin,
ReplyDeleteHey Mark, Did you oil the bearings on the wheelbarrow? I think it might be a good idea.
The wheelbarrow is in the shop. I'm trying to work harder and smarter. In other words, I've been watching the Mad Max movies again and I've decided to install a nitrous oxide system on that wheelbarrow so that I can get to the grocery store before others do. Once Ben Bernanke's helicopter cash starts arriving in our backyards, I figure I'll need some sort of competitive advantage.