MENU

Is a credit card a good replacement for an emergency fund?

One of the most important things about personal finance is having the right foundations to build on for the rest of your money.

Most personal finance experts would agree that an emergency fund is a very useful thing to have. Living on the edge with your money is not a good idea – living from pay check to pay check can be very precarious if you have an emergency.

Therefore, having at least $1,000 set aside is a good idea. Maybe it’s a good idea to have three months of living expenses set aside, which might be $6,000, $10,000 or more.

But, cash is one of the worst investments over the long-term. So imagine how much wealth you might be giving up if it’s sitting in cash rather than compounding at higher rates with assets like shares or perhaps property.

Of course there’s nothing like having the safety of cash. It might help you sleep at night and for at least 90% of the population I think having the cash set aside is a good idea.

But, what about a credit card instead of an emergency fund? Commonwealth Bank of Australia (ASX: CBA) and Australia and New Zealand Banking Group (ASX: ANZ) would certainly prefer you to have a credit card!

If you could have a credit limit there to utilise instead, but only use it for emergencies, then your cash could be used for other sources. If you had an emergency fund and had an emergency then you’d rebuild the fund as soon as possible. The same could be said with an emergency funded by a credit card – you’d pay that down as soon as possible.

Ultimately, I don’t think relying on a bank to provide your funding in an emergency is the right way to go, even if it looks better on a spreadsheet. I’d personally rather have cash in the bank.

The best way to fund your life could actually be to invest in quality ASX shares like these that pay out great dividends year after year.

Our Best 3 Dividend Shares for 2019 – NOW AVAILABLE!

Want to earn even more FULLY FRANKED DIVIDENDS in 2019? Get yourself in gear now with The Motley Fool’s valuable new report, 3 Top Dividend Shares for 2019... now available for FREE!

Discover 2 fully vetted companies paying fat, fully franked dividends. Plus a REIT that could set you up for a stream of rental income for years to come, without any of the hassles of being a landlord. These are our experts favourite bets for your investment cash today.

To scoop up your FREE copy, simply click the link below right now. But you will want to hurry – this free report is available for a LIMITED TIME ONLY!

Simply CLICK HERE FOR YOUR FREE REPORT!

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…

Including:

The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!