What if your air-conditioner suddenly decided to give up
its ghost? Do you resurrect it (replace it with a new functioning unit) using a
credit card and then scrimp on your meals for half a year in order to cover the
cost of enjoying a cool summer and a warm winter?
Small and big accidents can happen and it helps a lot if
you have the cash to insulate you from the worry and stress. Spend the next 60
seconds to learn how to create a short-term bundle of cash effectively.
Estimate your monthly expenses
The main purpose of having a bank savings is to have the cash to spend for essential needs in
the event of unexpected or unfortunate life situations. Ask yourself then how
much you would need in case that happens (Heaven forbid). It is as simple as
asking yourself how much you spend every month.
You can add up what you spend monthly on your basic
needs, such as food, house rental or mortgage payment, transportation cost and
other expenses you regularly incur for yourself and your family.
Include an
additional amount for unexpected expenses
This could include average surprises such as a broken
pipe or substantial ones such as losing a job. Bring your budget up to take
care of the usual needs you spend for while looking for a new job. Next,
compute the amount you would have to raise during the time you would be
unemployed by multiplying the monthly income you lost by the number of months
(say, you would be job-hunting for 3 to 5 months). In addition, you can
integrate whatever available cash sources you may have and other expenses to
cover the needs of people who depend on you financially.
There you go. That rounds up the figure you have to save
as an emergency savings account.
It is time to see into your future expenses, from 1 to 5 years
Having accomplished the first step, think of other cash
needs you have in mind. Does your fence need repainting? Do the children need
dental check-ups? Your family has always
wanted to go to Hawaii? Such plans should find a place in your short-term
savings account. Sit down and crank up the figures to derive an amount for the
next few years.
Think about how
fast you will achieve this objective
You need to raise the amount in the least possible time
because emergency expenses are like thieves that strike when you least expect
them. Determine how much you can comfortably spare monthly to that pot. You
cannot afford to avoid this call; so for your own good, take it. Your survival
rests on its being there to turn to. Having done that, you can then estimate
your non-emergency short-term savings. (We have savings calculators you can use
to do this.)
Decide where to
put your stash
Consider how you can get your hands readily on the money
you have kept away for any eventuality. No sense preparing for an emergency
without the hardware being there when you need it. Hence, you must choose a
secure place for your money – that is, it must not be an investment which is as
fickle as the weather in Seattle. Here are the possible choices:
·
Money market mutual funds
·
High-yielding savings accounts
·
Money market accounts
For savings intended for expenses that we refer to as
non-emergency (those which you really wish you could spend on a whim), liquid
investments can provide a better return on your money. These include
certificates of deposit. For more info on this type of instrument, check
this out for articles.
Compare the
various types of investments online
You can check out bank adverts in the media, compare
national rates on Bankrate.com, find out how much your broker pays on cash in
your brokerage account, know more about money market funds from iMoneyNet and
ask your credit card union and your bank what they offer. Investigate the
following:
·
What are the relative returns for equal time
frames?
·
What are the prevailing interest rates?
·
Over what time frame do these rates apply?
·
What are the fees for buying and holding the
investment?
·
What is the smallest investment allowed for
attractive interest rates?
(Be careful of some institutions which attract investors
with high rates too avoid getting scammed and to get your attention but bring
them down once you negotiate. Look over the actual rates in the past at
Bankrate.com to check how the interest rates change over time.)
Work the plan!
Time is running short,
if you have not noticed by now. You need to have a short-term emergency savings today, not tomorrow! Do not wait
until you find yourself paying an onerous credit-card debt incurred because
your smartphone broke, the plumbing leaked, the wife got sick or the winds blew
away your roof.
Bonus tip: Force
your savings!
In case it is not your habit to save, you need not worry
as an automatic salary-deduction or
transfer can help you move in right away. Talk to your employer if the company
can split your paycheck (direct deposit) into your regular account and your
short-term savings account. Or you can have an auto-transfer from your checking
account into your emergency account.
There is more, if
you still have time.
Some valuable links for you – click away:
Where to keep your cash
Steps to take to build a cash-stash
Safeguard your finances for your peace of mind
Easy computations for figuring out a rainy-day savings
Where to find a high-yield account for your short-term
savings (Our Banking collection can help you today)
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