Point, Counterpoint

Two interesting articles today, both for people just starting their financial lives.

1. Put Your Finances On Autopilot, from Kiplinger's excellent Starting Out Center, is a primer on ways to start out on (or readjust to) the right financial foot easily and painlessly. I'm going to send this one to a friend who graduated a month ago and yesterday asked me for advice about managing her money. I continue to be surprised by the number of people who aren't aware of the number of simple and easy options available for money management in the pragmatic, daily sense, especially with the glories of the internets all around us.

2. Popular Advice You Shouldn't Take, from the Wall Street Journal's "Getting Going" column, is more controversial. Much of the advice is sensible (buy a moderately sized house, don't be suckered into buying cash value life insurance, and start out investing at your comfort level), but the author also argues against accruing an emergency fund. He argues that we can borrow in the event of emergency (he advocates plastic and/or 401(k) loans) and that our money can work harder in 401(k)s and Roth IRAs. While it's certainly true that the interest rate on liquid cash in even the highest high-yield savings account isn't competitive with what you earn in a tax-sheltered mutual fund, I still believe in the value of a cash reserve (and am leery of the wisdom of borrowing in an emergency--isn't it a little like being kicked when you're down?).

I used to feel very differently. Given my youth, health, employability, and total lack of dependents, I thought, who needs a big emergency fund? Here's the thing, though: I do not have a set plan for my life. If I knew that I were going to continue working at this job, advance, get married, buy a house, and have kids, well, I might be bumping up my retirement contributions and saving for a down payment right about now. But for me, and I think for a lot of young people, money is the power to make choices based on what I want to do and where I want my life to go rather than on where next month's rent is going to come from. I think I'll have more freedom with $10,000 in the bank, and I think having freedom is completely crucial at this stage of life.