What About That Rainy Day?

I believe money - including lotto winnings - is meant to be shared around and kept in motion. You do this by spending or investing.

But what if you have an emergency? A major car repair, an accident around your home, costly renovations you didn't expect... all this can make a serious dent in your cash flow.

Most financial planners say you should be putting money away regularly to cover these "rainy day" problems.

But I don't agree. Let me tell you about my contrary viewpoint...

To me, savings just doesn't make sense. You spend a great deal of your working life putting money into the bank just to get a small amount of interest back. You might convince yourself that this money will act as a security barrier against any problems, but to me it's just a waste.

You see, this lump of money doesn't do anything except represent a period of earning in your life that is gone forever. Only when you use the sum does it become valuable. Otherwise it's useless.

So what's the alternative?

Here's a technique that is not very well known, but that solves the problem very neatly.

You must build several lines of credit and never use them.

For example, if you think that $20,000 would keep you going for six months in an emergency, instead of saving up that amount, find a way to get it in credit.

You can do it by:

• - getting a new credit card or two and never using them. Put them in a safety deposit box if you ever think you'll be tempted to use them. Pay the annual fees and consider the $30 or $40 a year as a bonus for having that amount of money available to you on call.
  
  
• - extending a line of credit on your mortgage. Don't touch it though. If you haven't revalued your house in the last few years, you might be surprised at how much it's gone up. I have a friend who did this just recently. Their house was revalued at over $1 million, and they extended a line of credit for $100,000 - which they'll probably never use. But it's there as security against anything happening to them.

Now you've got the security of an emergency buffer - without sacrificing a couple of years of your life to save for it.

(The only downside is that having unused credit may affect your rating on any future loan you take out. It changes the balance of your assets. I'm not a qualified financial expert, so you should see one if you think it might affect you).


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