Thursday, January 10, 2008

Something Going Wrong? BORROW!

Know what's fun? Fun is finding an article in this past weekend's Parade magazine that has a chunk of advice so tremendously bad, you wonder if they didn't throw it in as a joke.

Here's the deal: The article was titled "Feel Secure About Your Money," and written by Lynn Brenner. The basic premise sought to outline a few actions folks could take in order to "recession-proof" their finances.

The first two headings of advice ("Stay Job-Ready" and "Check Your Mortgage") I was okay with. Number three, however ... well, I'll just quote it here:

Prepare for an Emergency

If you don't have a home equity line of credit, you many [sic] want to set one up to use only in an emergency. "Some lenders charge an annual non-usage fee of about $50," says [Vice-President of a mortgage-research firm Keith] Gumbinger. "But it's still cheap insurance. You can borrow about 90% of the value of your house, so if you have a 70% mortgage, you may get a credit line of another 10% to 20%."

Here's a novel idea: INSTEAD OF PLANNING TO BORROW LATER, SAVE MONEY NOW! I'll refer to a quote from Dave Ramsey that nicely sums up how I view this situation: "The absolute worst time to borrow is when there's an emergency."

Nowhere in the article — not one place — is saving money mentioned. In a story that's supposed to help readers prepare for "uncertain economic times," and suggests that it "never hurts to be prepared," how ridiculous is that?

Wow. Have so many of us just given up altogether on the idea of stashing cash? For Brenner's part, the closest we get is this:

Make sure your longer-term investments are well-diversified. ...And don't keep more than 10% of your investments in the stock of your company or industry. It's risky to keep your paycheck and your nest egg in the same basket.

And will someone please tell me when we're in "certain" economic times?

Because, like, that would be really helpful to know.

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— Posted by Michael @ 7:43 AM


I read that too and just shook my head. Unfortunately the HELOC instead of emergency fund advice is all over the place right now. What bad advice!!


Not real sure what people are thinking sometimes. I would not want to put my house on the line in the event of an emergency, especially the way home values are falling.


Actually this sounds like good advice to me. Establishing a home equity line of credit provides immediate access to funds in an emergency. The author of the article doesn't say you should draw on the line; just have it in case of unforeseen difficulties. One disaster strikes (i.e. job loss), it may prove more difficult to obtain the home equity credit line.


Having the HELOC "just in case" is fine, I think, so long as you have no problem paying the annual fees for non-use (if there are any).

My problem with the article is this: "Having the HELOC" is presented as what the reader needs to fall back on if times get tough. No, the reader needs to have cash savings, and fall back on those first.

I'd suggest that the HELOC is fine -- but only so long as it's a backup to an already-fully-funded Emergency Fund.

And you're correct about obtaining the HELOC. It'd most certainly be harder to get once the job loss (or whatever) comes along.

** Comments Closed on this Post **

Thoughts on my personal finances, goals, experiences, motivations, and accomplishments (or lack thereof).

My financial life began turning around when I took responsibility for it.
— Dave Ramsey


Start (2005-12): ~$21,900
Currently: $0
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Savings Goal: $15,000
Currently: ~$15,115
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