If getting your finances in order is a goal for 2012, there are three basic rules to follow; reduce your spending, get out of debt and have an emergency fund. The first two rules are self-explanatory, however, there are many different opinions floating around regarding what a proper emergency fund entails.
What is an emergency fund? Simply stated, an emergency fund is money set aside for unexpected expenses. The basic purpose for this fund is to tide you over just in case you experience large-scale emergencies including a job loss or medical bills. This same fund can cover minor expenses such as car and home repairs. Credit cards and home equity lines of credit are not emergency funds even though many people turn to them in a time of financial need.
Home much should you save? Experts' opinions regarding how much to save varies. Most agree that an immediate fund of $1,000.00 will cover minor expenses. Any money saved over that amount is up to you. To determine this, you must decide how much you would need to tuck away in order to pay your bills if you become unemployed. How many months will it take for you to become employed again or to replace your current income?
How do you get started? If you are currently living on a budget, getting started will be easy. If you do not have a budget, make one. There are on-line forms and advice available to help you. Once this has been accomplished, simply add up your current monthly expenses that must be paid. These will include housing expenses, food, utilities, transportation, insurance and other mandatory expenses. From this amount, subtract any expenses that can either be eliminated or postponed such as vacation, entertainment and clothing. Take the total and multiply it by the number of months it will take to have income coming in again. Realistically, this number will be two to eight month's living expenses. To this amount, add job hunting expenses and any bills you pay once a year such as taxes.
How can you succeed? There are two important things to do in order to succeed: 1) If saving a large amount of cash seems impossible, don't give up altogether, instead start small. It may take time to meet your financial goals, but even $25 saved each pay period adds up. Start by scrutinizing your monthly expenses for extra money. Contact your insurance agent to find ways to lower your home and automobile premiums, look around your home to find ways to lower your utility bills, eat out less, set up a car-pool to save on gas, and talk to your mortgage professional about refinancing your home; 2) Do not tap into this account for anything other than a true emergency. If your refrigerator stops working, that is an emergency - if your television goes out, that is not an emergency.
Where should you save your money? Your money should be saved in an account where you will not incur early withdrawal penalties. It must be accessible anytime, anywhere. For this reason savings accounts and money market accounts work well. Make sure that you have a debit card tied to this account in order to pull out funds after hours or if you are traveling.
*Information above provided by Your Marketing Assistant Newsletter 2012.
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