Emergency Fund: The Perfect 'Murphy' Repellant
Dear Dave,
My mom makes $20,000 a year, and without telling me she took out a Parent PLUS Loan for $16,000 to help me with college. Shes saying she cant pay the loan, and its been in deferment. Now, she wants me to pay it. Ill be making good money a few years after I graduate, but I dont have the money to pay the loan now. What should I do?
Jill
Dear Jill,
A Parent PLUS Loan would not have your name on it, so you have no legal obligation to pay this bill. The real question is this: How much do you want to help your mom after she screwed up big time?
Shes obviously done a horrible job communicating with you and managing her own situation. Under the circumstances, Im sure that leaves you torn between your loyalty to her and being angry that she messed up. In these cases, I think the best thing is probably to sit down and have a good heart-to-heart talk with her about what shes done and how to fix things in her own financial world. I know you love your mom, but shes done a really dumb thing here and gotten herself into a mess. Now, shes trying to lay a guilt trip on you. Thats not cool.
To be honest, I wouldnt feel a lot of guilt if I were in your position. If you get yourself in a good financial situation after college and want to pick up part of the tab, just to say thanks, then that would be fine. But dont get dragged into some kind of dysfunctional family drama and end up paying something out of guilt thats not your responsibility!
-Dave
Dear Dave,
Ive just started listening to you and trying to clean up my finances. Who exactly is this Murphy you always talk about?
-Jennifer
Dear Jennifer,
The Murphy I talk about isnt an actual person, or even a real family. Theres an old adage called Murphys Law, and it goes something like this: If anything can go wrong, it will go wrong. In other words, if youre alive and walking around, bad stuff will happen to you sooner or later. Its not even about being pessimistic or negative, its just a fact. Sooner or later its going to rain, and thats why you need an umbrella.
I tell people all the time that having an emergency fund of three to six months worth of expenses saved up is great Murphy Repellant. Think about it. A lot of your big problems seem to leave when you have $10,000 to $15,000 sitting around. An emergency fund can turn a disaster into nothing more than a minor inconvenience.
So, its just a saying. But theres still a whole lot of truth in that little saying, Jennifer. If youre properly prepared, you can keep Murphy away from your door!
-Dave