While I have an emergency fund which is more for my personal finances, it is only reserved for an emergency where I no longer have a primary income stream to maintain my expenses with. However, there is a different type of emergency I am building a plan for, let’s call it …

Emergency Plan A

Before I go into details, let me describe two scenarios where I may need immediate funds.

• Travel - If I have to make an emergency trip, rent a car, or stay in a hotel.
• Deductible - As we all know, having a high deductible means lower insurance premiums. A possible emergency may be a situation where my insurance will cover the expenses but I have to pay the deductible right away such as a trip to the hospital or a car accident.
• Outside Normal Business Hours - While banking can be done online 24/7, the financial transactions does not occur outside of normal business hours which varies from bank to bank.

Until I reach a point where I have plenty of cash on hand where I am comfortable in handling any type of emergency, I need to manage my budget and cash flow to a point where I can pay my expenses and grow my net worth at the same time.

While I have a budget that I am fairly capable of staying with, I have to admit I am not very strict with it. Some months I find myself spending more than others. That is okay because most of the time, I can plan for these expenses and ensure I have the cash necessary to cover these expenses.

However, I am not at a point where I have enough cash to cover an emergency travel expense or a deductible.

Actually, I do but in a different sense than one would think.

My Secured Credit Card

After much hemming and hawwing, last year I opened up a secured credit card account. The biggest reason is because of the word secured.

Basically, a secured credit card is established when you open up a secured savings account with the credit card provider. Your credit limit is determined by the amount of cash you deposit into your secured savings account.

For example, if you deposited $500, your credit limit is $500. You can make additional deposits in the future which would also increase your credit limit.

This was the biggest factor in my decision for securing a credit card to be used for the qualified emergencies such as the ones I listed earlier. There is a sense of comfort knowing if I should find myself in a situation where I am unable to pay off the balance on my credit card, I can transfer the “balance” from my secured savings account. Naturally, this would lower my credit limit to the new balance in my secured savings account.

Think about it for a moment. If you don’t have the cash to pay off your credit card balance, why risk it all with an unsecured credit card? We all know what kind of problems an unsecured credit or loan can do for you or your business.

The Pros Of A Secured Credit Card

• Credit History - This helps establish a credit history with timely payments.
• Credit Score - By having a higher credit limit while keeping a low credit utilization score along with timely payment, I can raise the score in my favor.
• Ability to make payments - I would never have to worry about where the money is coming from to pay off the balance because I have the funds needed sitting in my secured savings account.

The Cons Of A Secured Credit Card

• Limited Credit Limit - My secured credit provider has a limit of $15,000 for a secured savings account which means once I reach that amount, I would not be able to increase my credit limit beyond $15,000.
• Cash Not Available - My cash sitting in the secured savings account is unavailable for withdrawal until I close my credit account. It is only available for transfer to pay off the balance.
• Low Interest - These secured savings account usually have a very low, low, low interest rate. I probably made a few pennies last year but that’s okay.

That said…

I am not sure if I made my point clearly enough. This secured credit card is to be used only for qualified emergency where I do not have enough cash readily available such as the scenarios I mentioned earlier.

It generally will take 24 to 72 business hours for any financial transaction to be posted so if I find myself in a position where I need to transfer cash from one account to my checking account to make payments with, at the least, I would be able to pay off my balance within 2 weeks or break it down over monthly payments depending on my budget.

As with any plan, where there is a Plan A, there is a Plan B which I will talk about next week to round out the theme of the month for the Wealth Money and Life Network.