Instead of Emergency Savings, Think of It as an ‘Oh, Crap!' Fund

The emergency fund is a bust.Millions of Americans don't have one, and some of those who do resist tapping what they've saved. I'd like to propose an alternative for both sets of people: The "oh, crap!" fund, a savings account for not-quite-emergency expenses.One of the reasons people don't have emergency funds is misplaced optimism. People think that if they're healthy, they'll stay healthy. If they're employed, ditto. The car will keep running, the roof will never need to be replaced and, since everybody's a better-than-average driver, there won't be any accidents. Behavioral scientists call that "recency bias," which is the delusion that whatever happened in the recent past will continue into the indefinite future.Everyone, though, has experienced "oh, crap!" moments: the no-parking sign they didn't see, the crown the dentist says they need, the smartphone dropped in the toilet. A relatively small amount in such a fund can keep people from turning to expensive credit cards or payday loans."The power of just a few hundred dollars of savings can really help reduce the use of short-term, high-cost lending," says John Thompson, chief program officer for the Center for Financial Services Innovation, a nonprofit that promotes financial health.Having a cushion is particularly important if you're a homeowner. In a recent Harris Poll survey commissioned by NerdWallet, nearly two-thirds of homeowners say they've experienced anxiety about their home, with unexpected home repair costs the top cause of anxiety.  Continue reading...

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