Emergency Funds

It is only recently that I have been able to learn the difference between using a credit card account or a savings account for emergencies.  And the fact that this piece of info is so recent means quite frankly that I still think of the former when I have an emergency.  Take the other day as an example.  My VHS/DVD recorder went down.  I was actually in the room and heard it slowly wind down and then suddenly stop.  I looked up.  All the lights were off.  I unplugged it and followed the manual’s revival directions but I knew it was dead and that I had myself a small emergency.

The next day I hit my local Costco.  First thing I noticed was there were not many (make that one) choices for a replacement.  I knew that the VHS was on its way out but this made my small emergency much larger.  $300 and no other choice.  On top of this I had formed a habit I know many Costco shoppers have.  I count on them to be my warranty but while I was reading up on the machine’s characteristics I  noticed a sign informing the customers that the Costco return policy was now a 90 day return one and you only got cash back with a receipt.

So off to the cash register I went, box under my arm, and yes, credit card at the ready.  And here is where fate took a hand.  Costco only accepts American Express.  I only use Visa.  Like a slap in the face, I suddenly realized what I was about to do.  By putting it on a card, even temporarily, I was falling back into the old credit card mentality.  So what if I didn’t manage to pay off the balance within the month?  I could afford a few dollars in interest (19.3%) couldn’t I?  Not.

Actually, I did have an ulterior motive.  Now that we have a real emergency fund set aside, when we use a CC, the reason is because we know we can pay off the charge immediately and earn those reward points too.

But no AmerEx so no charge, so the ten second rule took over.  Did I really need to spend $300 without even shopping around?  Heck no.  It wasn’t that big of an emergency.


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