Now suppose you lose your job in Month 10. The TV-less person will continue not having a TV, and use those funds for emergency day-to-day living expenses as he (or she) gets his life back in order. You can even dip into your credit card credit line for an emergency.
But the person who bought the TV on interest is in debt, has less credit to live off of, and only a TV to show for it.
-----------
In either case, saving up a pile of 6-months of expenses cash-on-hand is a good strategy. If you have 6-months of expenses saved up, you simply buy the TV with that money, and then in a year you put money back into your cash account.
Look, now you have the benefits of all strategies! Saving up money for emergencies, or even large expenses (LONG before you even think about those expenses) is the way to go.
There’s a ton of comments on this article that I think are much more nutso. But this is the comment I’m going to reply to, cause people who keep emergency funds are probably open changing their mind via reason.
Touching your 6 months emergency expenses fund is completely against the point. The reason you have this cash is for out of the blue, hit by bus kind of events. You need it when you least expect it
If you take your TV out of it you no longer have it - and this fund becomes nothing more than a general savings account. The kind of thing that drops low right after you buy a TV, or a car, which from my personal experience is exactly when bad things happen. And often bad things require cash on the barrelhead, not just credit cards.
So don’t do this. Either save in a slush fund for your TVº, or put it on a credit card, but don’t take it out of your emergency fund and still call it an emergency fund - 'cause it’s not going to be there for you in an emergency.
º or my personal favorite: a throw away, but named, savings account. (Like CapOne360, née Ing Direct, offers.)
A typial 6-month Emergency fund is somewhere on the order of $15k, depending on where you live. This is more money than the typical American 40 year old has saved up their entire life (including retirement accounts)
If you manage to have $15k, and you are making a big purchase, do use it before you start using a credit card. Now of course, if you have $15k "Emergency use only" PLUS $5k "discretionary", then yeah, spend the money from your discretionary account first.
> This is more money than the typical American 40 year old has saved up their entire life (including retirement accounts)
Seriously? I feel like an old man. I had that much money saved in less than a year from starting my first part time coding job.
In fact the whole not saving money thing seems a bit strange to me. My monthly cost have remained relatively stable for almost a decade while my salary keeps going up.
I wouldn't use that emergency fund money for something like a TV, because it's not really a necessity. Dipping into the emergency fund for indulgences leads to a depleted emergency fund.
Now if your heater breaks and requires replacement, that might be a reason to tap into savings.
I think that's a valid point. TV is quite a luxury item, I spent more than half of last year building up my emergency fund without a TV or couch (still missing couch: I'll get that soon).
But I recognize that I personally like to live on low expenses, lower than other people. For the spenders out there, even just saving up enough for an emergency fund is a big deal.
The important thing is that piles of money are a tool, as is credit (including credit cards). Use the tools as you see fit, but there are definitely "best practices". If you have a large pile of money (ex: Emergency Fund), it makes more sense to buy using that money rather than to dip into credit.
After all, you could always use your credit card in an emergency. Spending available cash first will be cheaper in the long run (as long as your spending habits remain in check)
But the person who bought the TV on interest is in debt, has less credit to live off of, and only a TV to show for it.
-----------
In either case, saving up a pile of 6-months of expenses cash-on-hand is a good strategy. If you have 6-months of expenses saved up, you simply buy the TV with that money, and then in a year you put money back into your cash account.
Look, now you have the benefits of all strategies! Saving up money for emergencies, or even large expenses (LONG before you even think about those expenses) is the way to go.