When an unforeseen event that you weren’t prepared for takes place, it’s easy in hindsight to say something along the lines of, ‘I should’ve seen this coming.’ While it is next to impossible to predict a specific unexpected occurrence, you’ll be better off taking for granted that something, some setback, is going to happen, as unlikely as it may seem, because if it does, you will be ready for it. In any case, never say ‘that’s never going to happen to me;’ as they say, prevention is the best medicine.
How To Get Started
Saving for a rainy day is a practice better known as keeping an emergency fund. The amount that you want to save in your emergency fund varies depending of your particular characteristics. As may be quite obvious, it’s not the same to save only for yourself than it is to do so for an entire family. Some experts advise to have between 3 and 6 months worth of living expenses saved up in an emergency fund. However, that is not going to happen overnight, so don’t feel pressured to come up with a lump sum all of a sudden; you can perfectly start small and go from there. Leave a space in your budget exclusively for this fund.
Even though the title for this article uses the words ‘rainy day;’ you have to internalize the fact that you’re actually saving for the perfect storm. That is to say, you need to have a very clear definition of what an emergency is. The money you’re saving up is not to be touched unless it is absolutely necessary. In other words, a busted water heater is not an emergency, as there is no reason you can’t shower with cold water for a while. Losing your job, especially in the state of today’s labor market, does indeed qualify as an emergency, and create a new savings account for it, separate from any others you may have.
What Type Of Situations You’re Saving For
The word unexpected itself implies that we don’t know what it is that can happen, we just know that it could. However, you can narrow down a few possibilities in order to be better prepared. For instance, the aforementioned job loss scenario. You may think that you have all the security and stability in the world, but let’s hypothesize for a moment. If the proposed March 1 massive federal budget cuts come to be, thousands of employees will be furloughed as soon as April, that is, they will be sent home without pay for even days at a time.
You can save for a temporary or long term job loss, by switching from credit cards to cash, which will make you more aware of your (over) expenses; you can also cut back on your 401(k) for a small period of time; moreover, if you come by any money aside from your income, don’t go with a ‘easy come, easy gone’ philosophy. These suggestions can help you save for other emergencies too, like accidents, sickness, natural disasters, and others.
This article is provided courtesy Pocket Savvy, a personal finance website, with the best money saving tips and financial resources to help you improve your money management skills. Follow Pocket Savvy on Twitter and connect on Google+ and Facebook.