Here are a few of the reasons why Fun with Dick and Jane deserves a Bennie Award:
- Emergency Fund: While the couple had good income and a nice sized investment fund, they only had enough cash in savings to get them by without income for about two months one the financial walls came crashing down. First of all, we need to differentiate savings from investments. Savings are liquid accounts (easily accessible cash or easily convertible into cash) that should generally be held in low-risk accounts that safe from market fluctuations. Stock, real estate, and precious metals accounts do not generally meet this definition. Emergency savings accounts have a different goal from investment accounts. They are not meant to earn significant interest or a sweet return on investment. They are meant to be there for short-term needs and emergencies.
But how much is enough? The rule of thumb should be based upon the potential need for the money. If you were to lose your income (job), how long would it generally take to replace that income? Before the Great Recession, human resource professionals suggested that for every $10,000 a year you were making, it would take a month to find a similar-paying job. So if you earned $50,000 a year, it would typically take you 5 months to find another job. During and after the Great Recession, that time frame seemed doubled. It has certainly improved, but we also need to keep in mind that each industry is different. Someone in computer programming may only be out of work a few days while other high paying jobs but with low demand might take years to replace if ever.
One other question to answer about an emergency fund is where to keep it. A standard checking account is one option. Rotating Certificates of Deposits would be another option. Money market accounts are generally good options as well. That much cash on hand is a bit too risky for my tastes for a number of reasons.
- Relationships and Money: As Dollar Engineer pointed out, the couple’s communication about money needs real help. Dick is unaware of the dwindling savings account and Jane quits her job without discussing such a financially impactful move with her spouse. The American Psychological Association notes that 31% of American couples report that money is a major source of conflict in their marriage. Other studies indicate that more than 80% of couples argue frequently about money. Such figures are hard to ignore, just don’t blame money for breakups or divorce. That’s akin to blaming the hammer if the shed you built came crashing down. Money is a tool.
We just need to talk opening about money. But how?! Establishing common financial goals (things both spouses want out of life that will require short-term savings and long-term investments) is the best move, though certainly no guarantee, to eliminating financial contention. Whether it’s preparing to buy a home, identifying a geographic location for retirement, or even a special vacation both spouses want to go on, the fact of establishing a common goal puts the spouses on the same team rather than making them adversaries fighting for the same limited resource.
- Diversification: Dollar Engineer made the important point that employees should be extremely wary of having all of their investment eggs in one basket. When Dick’s employer goes bankruptcy, he loses his entire retirement fund. Ever heard of mutual funds? Index funds? Not a bad place to start.
- Giving: Generosity First is one of my favorite mottos. How might giving money away have helped Dick and Jane financially? I believe that by staying connected to the needs of others in our communities through donations, tithing, or other forms of giving, we not only manage our own money better (since we have a better grasp on the difference between human wants and needs), but we are also better aware of the resources and service organizations available in our communities.
There you go! Bennie Award #2. Congratulations, Fun with Dick and Jane and Columbia Pictures! I am not condoning Dick and Jane’s crime sprees, but it would be a crime to ignore your contribution to personal finance lessons from Hollywood.