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Archive for the ‘Saving’ Category

Beyond Your Emergency Savings – How to Be Prepared

Brought to you by: The Frugal Buzz On November 10, 2011 No Comments

A financial safety net is about more than setting aside money. It’s also about protecting your money and your finances.

Here’s a list of the documents you should have in place and the measures to take to protect you and your family’s financial future:

* Will and Testament
* Living Will/Medical Directive
* Trust
* Home Insurance
* Health Insurance
* Life Insurance
* Auto Insurance

Other documents to consider:

* Long term disability
* Long term care insurance

Insurance protects you and your family against emergency. It is one of the most responsible and financially sound decisions you can make. If you don’t have insurance, consider visiting with an insurance representative for a package deal. If you are insured, consider consulting a financial advisor or insurance agent to make sure you’re properly insured.

Additionally, a will and testament and a medical directive ensure your requests are met. A trust ensures your wishes stay out of court and in the hands of your family.

Throughout this report we’ve discussed several types of savings to have and a tier based system in order of important. We’ve also mentioned where to save your money depending on the savings type. Let’s take a look at that once again so you know all of your options.


Where to Save Your Money

Depending on how much you’re saving, how much access you need to the money, your tolerance for risk and how much interest you want to earn, there are a number of options to save your money.

These options include:

  1. Interest bearing checking account. You can find access to this type of account online or with your local bank or credit union. Research bank fees and interest rates to find the best option for you. This is an ideal account type for a household emergency savings account of $1000 or less.
  2. Money Market Account. These sometimes offer check writing services and offer a higher interest rate than a standard checking or savings account.
    Money Market Funds. Not FDIC insured but generally safe investments. Generally pays more than any type of bank account.
  3. CDs or Certificate of Deposit. They’re federally insured up to $250,000 and have a good interest rate. However, you don’t have easy access to the money. They’re better used for long term savings like saving for the potential loss of income.

What to Not Use to Pay for Financial Emergencies

* Credit Cards
* Home Equity Line of Credit
* Tapping into your 401k or retirement plan
* Postponing other monthly payments

Your financial safety net is established to help you avoid falling into the trap of borrowing to cover emergencies. You don’t have to borrow from yourself or from creditors to stay on solid financial ground.

Conclusion

Financial emergencies happen. They’re a fact of life. When you’re prepared for them, you can focus on getting through the tough times in your life without dealing with the added stress of financial insecurity.

You owe it to yourself, to your family, and to your future to take a look at your financial plan right now. Create a plan to:

* Budget
* Pay off debt
* Save for minor emergencies
* Save for major emergencies
* Protect your finances

Use the three tiered approach, focus on one goal at a time and you’ll be sitting pretty in no time.  This ends our series on preparing for financial emergencies. What do you think? Would love to hear your thoughts.

Frugally yours, Mary

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How Much is Enough?

Brought to you by: The Frugal Buzz On November 9, 2011 No Comments

This is where the waters start to get murky. Visit any financial advisor or read any financial magazine and you’ll see a variety of recommendations on how much to save for emergencies.

Here are a few good rules of thumb:

#1 Basic Emergency Account – As mentioned in Chapter One a basic emergency account of $1000 will cover most basic household emergencies. It’s also a common deductible for home, health, and auto insurance.

Set aside $25 to $50 a week and you’ll have that savings established quickly and easily. Once the $1000 is saved. Leave it alone. Let it earn interest. Let it sit and you can relax knowing that any major home emergencies are taken care of.

#2 Loss of a Job and Major Financial Loss

This second category of savings is one that you may want to hold off on until you’ve paid off your credit card debt. If necessary, take on a second job or do some freelance work so you can get the debt taken care of. This savings account is extremely important!

Rule of thumb for this account is to save for approximately six months out of work. Some experts say it can be as little as three months while others recommend saving for an entire year. Three months just doesn’t make sense with the current job market. It can take months, sometimes even years, to find employment.

Six months is a good round number and it seems more achievable than saving for an entire year out of work.

So, if you make $30,000 annually, then the goal will be to save $15,000. Based on your budget and financial standing, this can take a while to save up for. Remember, you’ve already saved $500 to $1000 and you’re on your way to paying off debt if you haven’t already. You can accomplish this goal too!

 

Look at what you can set aside each week. Start small if you need to, $5 a day is fine. That’ll add up to $1820 a year. If you can double it and save $10 a day (the cost of going out to lunch) you can save $3650 in the next year. With interest, over time the amount you’re saving will grow. Add in financial gains like tax returns, bonuses at work and any other money you can save and you’ll reach that goal in no time.

Because you’re not going to need quick access to this savings account you can put it into a money market fund or other account with higher interest rates. You can earn around 5% with many online banking money market funds.

#3 Your Financial Future

The one question you’re probably mulling over is “How am I going to save all of this money and still save for retirement, college, and live day to day?”

The answer is to make a plan. Some experts recommend saving in tiers. Focus on tier one or your household emergency savings account first. Secondly, save for the loss of a job or a major financial emergency. Third, save for retirement. College savings, if you can manage it, is a last priority. As they say so often, “You can’t take out a loan for retirement.”

The key to knowing how much you can save and how long it’s going to take you to reach your goals is to create a budget. Your budget will tell you not only what to expect day to day but also help you set aside money for all of your financial goals.

Frugally yours, Mary

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