Monday, November 2, 2009

Feeling broke is good

Last month, I did two things that I haven't done for a while. I paid off one my credit cards (Yeah!) and by doing so put my bank balance to nearly zero. Before, even with a huge debt, I left certain amount in my bank account as a safety net. The basic rational for this emergency fund (or balance) was to have enough cash on hand for emergencies. Financial experts recommend emergency fund to avoid more credit card debt or payday loan. However, by leaving a certain amount in your bank, you don't feel broke and consequently lose a sense of urgency to repay your debts. 

This month, having a few dollars in my bank account reminded me of my financial situation at times when I wanted to splurge for a latte or buy that DSLR camera. I did have certain credit limit left on my bank account for real emergencies. But by looking at my bank account, I did not want to use it for things I don't desperately need. In my view, setting up emergency fund without paying your debt is bad in two aspects. First, you are paying extra interest in your debt and more importantly, not feeling broke decreases your drive to be financially responsible. Emergency fund is great idea (and highly recommended) for people who have debts payed off and are in saving mode but for with big debt, it may be counter productive (It was for me).


  1. Having a psychological incentive to pay off your debt is always a good idea. I funnel my extra cash into stocks so I don't feel tempted to spend it elsewhere.

  2. hey man can i use your picture please