you walk the high wire of personal finance?
Is every month a balancing act that works
only as long as the next paycheck arrives
on time? What happens if that next paycheck
doesn't arrive? The cause could be many
things which you cannot control: an illness,
a layoff, a sales slump.
some unexpected event interrupted your
next paycheck, would your household's
financial balancing act come crashing
to the ground? Would you be forced to
resort to debt to fill the money gap?
emergencies happen to just about everyone
at one time or another -- and usually
when you least expect them. Prevent an
emergency from turning into a disaster
by building your own Safety Net Savings.
A safety net account is a reserve of savings
that allows you to pay your normal expenses
in the event of a sudden drop in income.
And it helps avoid the need to turn to
credit as a solution, which can result
in a perpetual cycle of debt. Resorting
to debt to cover lost income can mean
years spent digging yourself out of debt.
safety net account is the second step
in a three-step savings program for financial
fitness, that also includes your:
Money set aside monthly to pay for the
non-monthly expenses that often get left
out of our financial equation, such as
quarterly insurance, car repairs, appliance
replacement, holiday spending, taxes and
the family vacation.
Money set aside for retirement, college
and other long-term financial goals.
Safety Net Savings by setting aside a
specific amount from your paycheck each
pay period, with the understanding that
the money will not be touched unless a
justifiable financial need arises. How
large a safety net account should you
build? That depends on your personal financial
you self-employed? Or does your income
fluctuate seasonally or due to commissions?
Do you have a medical situation that could
cause added expenses or loss of work income?
You may need to plan for a larger safety
you well-settled in a stable job? Do you
have plenty of sick leave or vacation
built up? Does your company provide a
good severance package in the event your
job is eliminated? You may be able to
get by with a smaller fund.
financial planners suggest a fund cover
three to six months of normal and necessary
expenses. The most important thing, though,
is to just get started!
your monthly spending plan to determine
the total of those normal and necessary
expenses. You don't need to include everything
from your monthly spending plan -- in
times of lost income you probably shouldn't
be thinking about new clothes, vacations
or entertainment expenses. Do include
costs of food, mortgage or rent, household
utilities, credit payments and other necessary
expenses (DON'T forget non-monthly expenses
such as insurance, car maintenance, and
taxes). Multiply that figure by three
or six months -- or whatever period you've
decided is necessary -- to arrive at your
Safety Net Savings goal.
start saving -- emphasis on the "now!"
One of my favorite phrases is "Save
early and often". And pay your savings
first. If you don't, you'll likely find
some other way to use that money. If you
think all your income is going toward
necessary expenditures, try recording
your spending. You'll probably see that
some of the things you spend money on
really aren't that necessary and may not
even give you any real pleasure! Cut those
out first and put that money toward your
Net Savings is intended to be accessible
in the event of an emergency, so don't
sock it away in a long-term investment.
Keep it in money market funds or short-term
CDs. Of course, you wont earn
much interest, but the point of the Safety
Net Savings is to avoid having to use
credit cards at much higher interest rates.
Net Savings offers benefits even when
you're not using it -- the benefit of
security and peace of mind. Knowing that
you'll be able to take care of your needs,
and those of the people who depend on
you, can relieve a huge mental burden
you may not be aware you're carrying.
Experiencing that sense of security may
also make you feel more comfortable taking
a few personal risks to enhance your quality
of life, like changing jobs or starting
your own business.
when you have a safety net beneath you,
you can be a lot more fearless walking
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