In the US, what is a good way to get emergency money for a couple of weeks?

Question

I am in between projects, being a software engineering contractor, so my paycheck won't arrive until about 2 to 3 weeks later. But I need about $2000 so that my credit card payments won't all bounce or cause my checking account to become overdrafted.

One method could be to sell some stocks, from an account which is considered to be long term investments (or for retirement), so there could be all sorts of tax consequences, such as, some firm default it to the earliest share I bought as the cost basis (such as the share I bought 5 years ago) and will fill the 1099 with that info, unless when I sell, I call them to change it.

And if I sell the shares that I bought 2 months ago which didn't go up in price, then I may have no tax consequence. But if I actually lose a little bit of money, and then a couple weeks later when I have cash again to buy them back, it could be considered a "wash sale" and it seems complicated to handle it.

The stock account is already near the 50% margin requirement, so I cannot take cash away from it.

Other ways may be to borrow from family members or friends, or to tap into a balance transfer using a blank check the credit card companies sent you, but last I checked, no credit card companies is offering it, maybe because money is tight right now.

So what is a good way to have emergency money like $2000 just for a couple of weeks in the US?

Answer 1

Retirement funds would the the last place to look for "emergency" cash due to the heavy taxes and penalties involved. Loans from friends and family would be the next-to-last, unless you can guarantee that you can pay them back very quickly. Don't treat them like a line of credit or you'll risk ruining the relationship.

If you have non-retirement investments, that would be the first place I'd look, with taxes only a minor consideration (you're going to pay taxes eventually anyway, so you may just be accelerating the tax now and reducing it in the future). Wash sales just defer tax breaks, they don't eliminate them, so wash sales are not a concern in an emergency situation, since the tax effect is the same as if you didn't sell the shares in the first place.

Balance transfers typically cost 2-3%, which isn't terrible, but it only moves the problem from one debt to another.

Another option would be to just pay the minimums on the cards instead of the full balance until you can pay them off completely. Yes the annual interest rate is much higher, but if you only carry the balance for a month or two it's not as painful, and would be closer to the flat 3% you'll pay on a balance transfer. Plus it's good to have some pain as a deterrent not to overspend again.

If 2,000 IS the minimum payment, then you're spending way too much on credit cards. I would suggest dialing that back and getting a better handle on your budget.

what is a good way to have emergency money like $2000 just for a couple of weeks in the US?

Save it before you need it.

Once the crisis is averted, you should look to set aside 3-6 months in cash or highly liquid securities like money market funds (not stocks) purely for emergencies. Then you won't have to make a bad financial situation situation worse.

Secondly, credit cards payments are not an emergency, it's a symptom of overspending, which might be due to an emergency, but is not the root problem.

Since you mentioned "margin requirement", I'm assuming you're trading in futures, shorts, CFDs, or other leveraged investments. I would STRONGLY suggest getting a better grasp on your personal finances before trading in risky investments.

Answer 2

The stock account is already near the 50% margin requirement, so I cannot take cash away from it.

That's a function of your open positions, so you'll close positions to free up available cash.

And if I sell the shares that I bought 2 months ago which didn't go up in price, then I may have no tax consequence. But if I actually lose a little bit of money, and then a couple weeks later when I have cash again to buy them back, it could be considered a "wash sale" and it seems complicated to handle it.

Wash sales aren't that complex tax-wise, but they are also easy to avoid, just don't buy the shares back immediately.

To me, selling some liquid assets from your brokerage account is your best approach, taking on debt to avoid taxes rarely makes sense, and as you mentioned you may not even be avoiding taxes depending on what you sell.

This situation is why it's important to have an emergency fund. Some amount of cash in a savings account earning a bit of interest as a first line of defense is worthwhile. You don't necessarily need to have 6+ months worth of expenses in a savings account, many people have their emergency fund in tiers based on liquidity and the downsides of accessing that money.

For example, I have some cash in my house, savings accounts, CD's (small interest penalty if I withdraw early), brokerage accounts (potential tax implications). Then there's credit cards, home equity, rental properties, and retirement accounts.

Answer 3

Just to point out the obvious, pawn shops specialize in short term loans against physical collateral. If you have something they would agree is worth more than $2000 to them, that you can do without for a few weeks, that's an unattractive but not unreasonable solution. The risk is that if you can't redeem the loan you lose the object, and I have no idea what interest rates they charge in the meantime so this may be no better than overloading your credit card.

I tend to think of pawn shops as lenders of last resort, but since you have painted yourself into a corner... It's at least an alternative to selling something outright.

Also: Note that one of the reasons contractors demand higher pay than employees -- besides having to pay all the taxes and "benefits" themselves -- is that their income does have to anticipate that there will be periods between gigs when they have to live off savings. That only works, of course, if you actually put aside the savings to cover those periods, rather than spending it. You really do need to cut back your spending at least long enough to build that buffer (in addition to the emergency funds we should all be maintaining).

Addendum: According to AARP, some banks have started offering very-short-term loans for relatively small amounts. They may operate at a fixed cost for the service or a percentage of what is loaned, and the time before you must have it fully paid back to avoid penalties varies from bank to bank. Generally these are capped at $500 to $1000. Unfortunately there is no agreed upon name for this category; every bank that offers it seems to call it something different, and it might not be available to folks who don't already have an account so it might not help you now. You might want to ask banks in your area if they offer this and under what terms.... But it would still be better to try to manage your earning, spending and savings so this stops happening. (Unless you're in serious poverty and saving is simply impossible, in which case you have larger issues than an occasional loan is likely to get you out of.)