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Establish an emergency fund

Establish an emergency fund
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Establish an emergency fund

What really saves cash is cash itself. Having an emergency fund eliminates the cost of borrowing in a financial crisis.

When people want to get their hands on a quick $2,000, two popular sources include:

Withdrawing from the 401(k), which has a big long-term impact, says Ted Sarenski, a CPA and member of the National CPA Financial Literacy Commission. To cover taxes and penalties, you would have to take out $3,000, he says. Over 30 years at 7 percent, that sum would be worth $24,300. Having cash, instead of withdrawing from the 401(k), saves $22,300 over 30 years.

That could pay for the down payment on a house, a new car, or two years of tuition at a state college, according to The College Board.

Taking a credit card advance, which often includes a 3 percent upfront charge, plus 16 to 20 percent interest, says Sarenski. The cost over two years of repayment: $421 to $516.

That $421 could buy more than three months' worth of power bills, 128 gallons of gas or four months of premium cable.


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