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Don't Waste Your Rainy Day Fund At The Beach


This is TELL ME MORE from NPR News. I'm Michel Martin. Later, if you have little people in the house, even not so little, then you know Halloween is coming up later this week and you might be having a debate in your household about Halloween costumes - what's harmless fun, and what's just plain wrong? We'll have that conversation with our group of parents in just a few minutes.

But first, you want to talk about scary? This month's government shutdown put the fear into a lot of people, and not just government workers, but also people who rely on the money that those workers generate. Hundreds of thousands of people who thought that they had very secure jobs with the federal government suddenly found themselves locked out of work and cut off from their paychecks. So that got us wondering, are there financial lessons in all of this? To have this conversation, we called Marilyn Geewax, a senior business editor for NPR, and she's back with us in our D.C. studios. Welcome back, Marilyn.


MARTIN: We just finished talking about how this is the anniversary of Superstorm Sandy, and we're still moving past the government shutdown. You were telling us that there's a similar lesson in both of those events.

GEEWAX: Yes, I think October is a pretty scary month if you look back on it. First, the federal workers lose their paychecks, the contractors, the people related to that. But we also have this reminder about Sandy. And, you know, earlier this month, you could think, well, I don't live near a coast, what do I have to worry about? But if you lived in Boulder, you got hit with a flood, and if you worked at Rocky Mountain National Park, you also lost your paycheck. So you really can't plan carefully for the future. Anything can happen. Your paycheck can be disrupted for all sorts of reasons. That's why you need a plan B, and plan B involves having some cash.

MARTIN: So how much are we talking about? Because we've often talked about - and you've often talked about the fact that workers aren't saving enough for retirement.

GEEWAX: Right.

MARTIN: And you can hear people saying to themselves, well, what do you want me to do here? If you want me to put as much away as possible for the long term, now you're telling me I need to put stuff away for the short term, too?

GEEWAX: Exactly. You really do. You have to be able to - have money deducted from your paycheck is really the best way to do it for your long-term savings. But that money that goes to retirement, if you take it out early, you're going to get hit with penalties. You'll get hit with taxes. There are fees associated with that. It's just not a good idea. So what you need for emergencies is to have a rainy day fund, and most experts will say that's at least three months of expenses. So can you pay your rent to keep your car? Whatever you need to do to keep yourself going for three months without having your life fall apart, and, in fact, a lot of people say six months in the rainy day is the better way to go.

MARTIN: How do you go about accumulating that kind of cash because we've all been talking about how wages in real terms have been flat, really, for a decade now. But you're telling us that even people who have relatively high salaries were struggling...

GEEWAX: Right.

MARTIN: ...As a result of the government shutdown, which lasted, you know, only two weeks. So how do you go about accumulating three months' worth of savings and continue to save for the long term, for retirement and, presumably, if you have children, for their college educations? What do you do?

GEEWAX: We're lucky these days that you actually have an awful lot of resources online. AARP has a lot of good hints, consumer reports. Go to reliable sources to help you think about how to do it for yourself. But really, there are resources at your credit union, your bank. It's not hard to get help to help you think through these things. What's hard is giving yourself the self-discipline to go out and do it.

MARTIN: One of the tips, though, that you were offering is - something that many people might not think about - is trip insurance.

GEEWAX: Well, if you're planning a vacation, it's great to think about your vacation, but you also have to think about things could go wrong. Remember again, that Rocky Mountain National Park, where they got hit with a flood and a government shutdown. What if you've been saving all year to go on that trip to there and it all falls apart? It really helps if you have trip insurance. And also, though, you've got to keep in the back of your mind, sometimes things will just go wrong with a vacation - someone in your family dies, something happens, somebody gets sick, you break your leg.

When you put aside money for vacation, you also have to understand that that's sort of mad money. I mean, it's not something that you need to pay your doctor bills, your rent. So when you take a vacation, expect to have fun and 99 percent of the time you will, but if things go wrong, it's great to have trip insurance or to be able to afford it if it does go wrong.

MARTIN: What is the one thing you would want people to think about starting today from our conversation - if you thought to yourself, OK, Marilyn, I get it. You know, what should I do right now, today?

GEEWAX: Well, I'd look over at Capitol Hill and take a little lesson from our lawmakers who've provided us with an excellent example this month of what happens when you don't take your budgeting seriously. If you wait until the last minute, you get past deadlines, you make everything worse.

People become angry with each other. You know, the fundamental problem with Congress was that over a long period of time - I'm not talking about specifically during the recession, but just decade after decade, year after year - we under tax and overspend. We're not matching up. The money that comes in and the money that goes out, over a long period of time, has been out of balance. Now we either need to raise the revenues or cut the spending. Now let's think about our homes. Same lesson, people. Don't wait until the last minute. Make sure that the revenues coming in and the money going out matchup, or you get into these terrible battles and things go wrong. And every problem just becomes worse if you don't look ahead and plan a little.

MARTIN: Marilyn Geewax is a senior business editor for NPR. She was kind enough to join us in our Washington, D.C. studios. Marilyn, thank you as always.

GEEWAX: Great to be with you. Transcript provided by NPR, Copyright NPR.

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