When it comes to saving for the long-term (think college, retirement, etc.) many of us have something in place in the form of investment plans that will cover those big eventualities. However, not everything can be planned for. Emergencies by their very definition are unexpected. If you don’t have the cash to address them, you could be forced to do something foolish like dip into your savings or retirement, or use high-interest credit cards.
Don’t go into debt over emergencies. Here are some ways to better plan for those unexpected happenings that threaten to foil your savings efforts.
Know What to Save
You should have six months to a year of funds socked away to cover expenses should the unexpected come up, such as divorce, hospital stays, car repairs, etc. The amount you save will depend on how much you owe for the following:
- Housing expenses
- Transportation
- Debt repayment
- Food
- Health care
- Personal expenses (household supplies, clothing, haircuts and toiletries)
Come up with a Budget
A budget is the best way to get on track and stay there. You’ll need one if you’re going to easily cover contingencies that may surprise you, like illness, separation, plumbing emergencies and the like. Take a snapshot of your financial situation and develop a comprehensive plan that illustrates your current financial status. It will take some time to build up your emergency. Just dedicate a certain percentage of your paycheck to this endeavor.
Follow these steps:
- Put your current expenses in writing using recent credit card bills and bank statements, etc.
- Estimate your monthly income.
- Compare what you make with your expenses. If you have more expenses than income, prioritize your spending and cut back until they even out.
Create a Savings Account
Don’t use an existing savings account or long-term vehicle such as a CD. The whole purpose of an emergency fund is to be able to get to it quickly. If you can’t liquidate the account fast, there’s no point to having an emergency fund. Next, sign up for automatic deposit through your employer so you can keep a steady stream of money going into the account. If you come into windfalls, such as tax refunds, inheritances and bonuses, always put a portion of it in that account before spending or investing.
Enhance Your Savings
Once your emergency fund is firmly established, it’s time to address additional areas of your investment plan. This can be done in any number of ways, such as conservative contributions in stocks and mutual funds. Be leery of any broker who makes deals seem too good to be true. That means you should always know a good stockbroker fraud lawyer you can trust. Thomas Law Group has a success rate of more than 90 percent, helping investors recover losses since 1991.