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Money Girl
114 MG Emergency Money for a New Economy
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I'm your host, Laura Adams. In this episode, I'll discuss the importance of an emergency fund and how much you really need as a savings goal right now. We all know we should have some emergency funds to help us through those unforeseen emergencies in life. You know what I'm talking about. Your car won't start, your computer crashes, you get the flu, your water heater quits working, or what about the granddaddy financial emergency of them all? You lose your job or business income. Many people don't think about the financial "what-ifs" in life. They happily trot along until some large expense or crisis really throws them. That's when you want a nice, soft cash cushion to land on. The alternative for many is to pull out a credit card and make charges that they really can't afford. Emergency funds should be tapped only for real emergencies. Even though it may feel like it at times, taking a vacation is not an emergency. Buying presents, extra clothes, computer games and the like are not emergencies either. The purpose of emergency funds is to keep you healthy and safe during times of unemployment or other unexpected crisis situations. The solution to dealing responsibly with unplanned expenses is to save up an adequate cash reserve fund. It should be very liquid so you can access it immediately. Having enough money at your fingertips for emergencies shouldn't be thought of as a luxury. It should be your top financial objective. The stress you can eliminate by having a healthy reserve fund is truly amazing. How much is enough? Your reserve goal should actually change as your life and the world around you change. If our current economy has taught us anything, it's that we can't know what may be right around the corner. So think of your emergency savings as a moving target that should be re-evaluated a couple times per year. The first step is to accurately figure your monthly living expenses. These are the essentials such as housing, utilities, insurance, food, loan payments, transportation, etc. Add up all your current financial needs and obligations for yourself, your family, and to third parties that you couldn't or wouldn't want to cut if your income was seriously reduced. The second step is to estimate for how long you could potentially need your emergency money. I recommend saving no less than six months worth of living expenses. But your unique situation might call for considerably more or less savings. Here are some tips to help you determine how much you should set aside. Number one, be realistic about the stability of your household income. Do you or your spouse work in an industry with volatile consumer demand or one that's already been steadily declining? If so, this should prompt you to consider saving more than six months of living expenses. September is a great month for planning. We start thinking about the rest of the year, whether it's back to school, big year-end work projects, holiday plans or travel. Planning ahead is crucial in life, especially when it comes to what happens when you're gone. Getting life insurance may sound daunting, but Policy Genius makes the process a breeze. With Policy Genius, you can find insurance policies that start at just $292 a year for a million dollars of coverage. Some options offer same-day approval and avoid unnecessary medical exams. Policy Genius's technology lets you compare quotes from America's top insurers in just a few clicks to find your lowest price. It's the country's leading online insurance marketplace. And if you ever need help or guidance, they have an expert license support team to answer your questions, handle all the paperwork, and advocate for you throughout the process. It's never too late to plan ahead. Go to PolicyGenius.com or click the link in the description to get your free life insurance quotes and see how much you can save. That's PolicyGenius.com. Look around. You can find cars like these on AutoTrader. New cars, used cars, electric cars, maybe even flying cars. Okay, no flying cars, but as soon as they get invented, they'll be on AutoTrader. Just you wait. AutoTrader. My dad works in B2B marketing. He came by my school for career day and said he was a big row as man. Then he told everyone how much he loved calculating his return on ad spend. My friends still laughing me to this day. Not everyone gets B2B, but with LinkedIn, you'll be able to reach people who do. Get $100 credit on your next ad campaign. Go to LinkedIn.com/results to claim your credit. That's LinkedIn.com/results. Terms and conditions apply. LinkedIn, the place to be, to be. Number two, add a safety buffer. Consider adding an additional 10% to your calculated monthly expenses. This will give you confidence that you'll have enough for job hunting expenses or other surprises that you may have forgotten to estimate. Number three, consider funds you already have saved. If you have savings that aren't in a retirement account, perhaps you can earmark all or a part of it for your emergency fund. And four, don't count on selling stuff. When times get tough, it can be difficult to sell possessions, especially if you need the money quickly. So cash is king for your reserve fund. Yes, a minimum of six months of expenses is a lot to save. If funding an emergency account seems too daunting to you, begin by taking baby steps. Make a goal to accumulate $1,000, then $2,000 as quickly as you can. Try to steadily build up your reserves until you reach your goal. This might require some sacrifices to reduce spending, especially if you're like most and are already cutting back. If you're not a discipline saver, here's a tip. Put it on autopilot. If you receive a paycheck by direct deposit, ask your employer to split your payment between your regular checking and your emergency account. If you get a paper check or are self-employed, set up an automatic transfer from your checking into your emergency fund. This way you never see the money and don't even have to think about it. Emergency funds should be easy to access, but not so easy that you'll be tempted to spend them. It's best to keep reserves completely separate from other accounts. In next week's show, I'll cover specific options for the best places to stash your cash. We'll cover important issues to consider so you can keep your money safe and still working hard for you. An emergency fund is one of the most important financial must-have, so there's no time to spare and getting started. No one said financial security would be easy, but the goal is to be as prepared as possible to survive the tough times. Are you looking for successful strategies to save and invest for a secure future, even during market volatility? Check out my new audio book Money Girl's Guide to Retirement Planning. Find it on iTunes and Audible.com. I'm glad you're listening. Cha-ching. That's all for now. Courtesy of Money Girl, your guide to a richer life. Get Money Girl and other great shows from quick and dirty tips streamed to your iPhone. Download Stitcher free today at Stitcher.com. Dave's your supply chain wizard. He also has diabetes. Maybe it's time for a group dental plan with support for chronic conditions. Grin from within, United Concordia Dental. Learn more at grin with ucd.com products under written by United Concordia Insurance Company. Imagine earning a degree that prepares you with real skills for the real world. Capella University's programs teach skills relevant to your career, so you can apply what you learn right away. Learn how Capella can make a difference in your life at Capella.edu. 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