Wednesday, October 1, 2008

Money Talks- Emergency Fund


An Emergency Fund is money set aside in times of crisis-job loss, unexpected illness, major home or car repair, etc. Due to the instability of current market its imperative that you have money set aside in case of an emergency. There is no way to predict when an emergency will occur but you can be prepared if something happens. Emergency funds give you the financial freedom and time needed until your condition improves. Over 80,000 jobs were lost this year, and in January, over 250,000 homes were lost due to foreclosures. So the real question isn't whether, or even when, they will happen, but how it will be resolved.

How Much?
A general rule of thumb is to save at least 3-6 months of living expenses. Determine how much you need to save by tracking your monthly expenses both fixed and variable? Examples of fixed would be your rent/mortgage, car payment, insurance premiums. Examples of variables food, gas, clothing, utilities. Check out sites like Mint, My Spending Plan , or Duck Software, that offer free online tools to help create, track, and understand your monthly expenses. Start saving something today. It doesn't have to be a large amount; start small and gradual increase until goal amount is reached.

How to save on tight budget?
Once you create a budget you will be able to have a graphical view of how you spend your money. You will be surprised to find out that your spending $100 a month on take out, or $85 bucks on lattes and morning Joe! Evaluate your budget and find create ways to shift money to more constructive spending, ie emergency fund. Treat the fund like a bill and even consider having set amount automatically transferred from your checking account or pay check.

Where to Keep it?
I often considered putting my money in a coffee can and bury it in the back yard (probably safer than the current stock market), but that is a bit archaic! The market will eventually improve and confidence will be restored. According to A Women's Guide to Investing, you want to keep your money in an account that are fairly liquid and will not risk losing your money-such as high yielding Savings Account , or Money Market Account (not your checking account), or short-term investments like Certificate of Deposit (CD) or US Treasury Bonds. Wherever you decide to keep your money, the key is accessibility in times of emergency.

When to Save?
NOW

3 comments:

J. Thompson said...

I also remember a financial expert (forgot his name) saying that you should always pay yourself first. Put your savings away first and then work out the rest for your bills.

This is to be sure that you get your savings in there no matter what, make minimum payments on cards, etc, until that nest egg grows to where you want it to be.

sapphirestarr said...

thanks for your input, greatly appreciated.

sapphirestarr said...

also be careful how you allocate funds for savings and debt, it makes no sense to put money in a savings account earning less than 2%, when you have credit card debt costing 14-20%. Always save something and also reduce debt simultaneously.

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