DIY - Financial Wellness At Work, Chapter 4

 

Photo Credit: Benold Financial Planning

Recently, I set up a Slack channel at work described thusly:

"An information and learning commons to jointly develop the financial acumen we fear we don't have." 

 I did it because the issue of not knowing where to start had emerged as a theme in both random discussions and on our annual employee survey.  After a lifetime spent managing the financial affairs of small businesses and nonprofits, I figured I've learned enough to lead self-help discussions. I don't think of myself as a financial expert, just a knowledgeable amateur.

Monday, March 7, 2022 - Rainy Day and Emergency Funds

 Today's subject is actually a post I meant to write last week. I've been doom-scrolling, reading, and listening to the news non-stop since Russia invaded the Ukraine on February 24. By comparison, financial wellness seemed like a pretty low priority. But, as F. Scott Fitzgerald famously said, “The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function. One should, for example, be able to see that things are hopeless yet be determined to make them otherwise.” 

Photo Credit: First Republic Bank

 

So...let's talk about rainy day funds.

First the basics: What is a rainy day fund? Is it the same as an emergency fund?  Surprisingly, it is not. Here is a helpful dive into the definitions, similarities, and differences--delivered in the British accent I don't have. More concise, if considerably less chipper, is the  nuts and bolts overview provided by First Republic.  

 

Enlightening (for me, anyway) was the idea that you should start your rainy day fund before your emergency fund. I would have suggested the opposite. Unsurprising is this advice: Develop clear lines as to what each can be used for and don't deviate.

 

The first rule of thumb for either/both is to establish a separate holding account that is not commingled with your regular operating cash. Otherwise, it's just extra money in your checking account that will dribble away over time. But...once the amount you've set aside reaches any kind of critical mass, shouldn't you be thinking about something other than the bottom of the sock drawer? Yes, you should.

 

 Ann Carns put out a  good overview of the various options and how the imminent rise in interest rates might affect one's thinking about them. From her I learned about  the "I (for inflation) bond. These savings bonds pay interest that combines a base rate that’s fixed for the life of the bond with a variable rate, based on inflation, that resets every six months. Currently, the bonds are paying an overall rate of 7.12 percent." Because they are issued by the U.S. Treasury, they are backed by the full faith and credit of the government.

 

 In troubled times, safety and  how to create it are top of mind for everyone. 

 

I was talking with a friend recently about financial safety nets--how we create them, what the risks of  different vehicles and strategies are (there are always risks), and what steps each of us has taken, wished we had taken, or are afraid to take. One thing we talked about--because we are both fortunate enough to own our homes (or portions of them)--was the advantages of having a Home Equity Line of Credit (HELOC) as a part of our safety net. Thinking about that brought me to this round up of pros and cons. 

 

Should a person, company, or nonprofit count the availability of a line of credit as part of its financial safety net? For me, the answer--both professionally and personally--is yes. In neither case do I ever wish to use the credit, but in each of them, I sleep easier knowing I have it. Perhaps that is because I graduated college in 1974, the same year that the Equal Credit Opportunity Act passed. 

Photo Credit: PYMNTS.com

 

Before that moment, women were routinely denied credit, credit cards, and loans...even if they had had all of the above before they were widowed or divorced.  If a single woman had a bank account, it was routinely joined with her husband's when she married. Until the Supreme Court handed down its decision in Kirchberg v. Feenstra in 1981, husbands were permitted to take out second mortgages on jointly owned homes without even telling their wives. When the Supreme Court ruled on Kirchberg, it struck down the Louisiana Head and Master law. That law gave sole control of marital property to the husband and indicated the husband's dominance over the wife in the marriage.

 

Who led the charge for equal access to credit? A young attorney named Ruth Bader Ginsburg.