This month, the Money Blog Network is having a group writing project about emergency funds. There are many many good post about this topic and you should definitely check it out. But I felt that when one is thinking about emergency funds, you should also be thinking about the following :

1. having additional access to funds (line of credit in the commercial world).

2. having access to emergency income

3. Protecting your emergency funds

While having an emergency funds is important, it is also vital to have access to funds outside of your emergency funds in your bank account. Most companies have “lines of credit” with banks. Warren Buffet used to say that you should borrow money when you can, not when you need to. Below are several sources of funds that should be set up when times are good.

1. Credit Cards Line of Credit – While credit cards can be abused and lead people into debt, they are useful to the prudent person because the credit limit you are given on your credit cards is like a line of credit. You can call upon it when you really need cash.

2. Loan Margin Account – If you have a brokerage account, you can sign up your account for a loan margin account. This means that in the event that you need cash, you can always borrow against your securities. Typically, you are allowed to borrow 50% the value of your portfolio.

3. Home Equity Line of Credit – You can actually apply for a home equity line of credit without actually drawing on it. It is a good thing to have in place just in case you need it. Presently, variable rates on HELOC are at about 4.75%.

While it is important to have emergency cash, it would be great if you had an emergency income. This could come in various forms. For example, you may get monthly cash flow from your rental real estate. Or perhaps you are making some money from your blog. If you lose your job, these emergency income will often be more handy than your emergency fund.

Dual Income Spouse – When both couples are working, this provides an even cushion in the event when one partner loses his or her income.

While an emergency fund is great when you lose your job, it cannot protect you in the event of a critical illness or disability or if you need long term care (yes, it could happen to you if you are in your forties). Hence, I feel that insurance is a vital component in your emergency fund strategy.

Disability Insurance – According to statistics, you are more likely to get temporarily disabled that die. If you should be temporarily disabled due to an accident, you can drain your emergency fund pretty quickly

Critical Health Insurance – You may have health insurance coverage through your company (or maybe not). But it is vitally important to have critical illness insurance because it is these unfortunate events that could drain away your emergency funds pretty quickly.

Well, these conclude my thoughts on additional stuff to think about when thinking about emergency funds.

This entry was posted on Saturday, April 19th, 2008 at 03:28 and is filed under Debt Reduction FAQ. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.