Are You Ready for a Financial Emergency?
What is a financial emergency? How can you survive a catastrophe? Most of us are just trying to make ends meet each month and we have no cushion set aside for a crisis. What happens if you lose your job or get hurt without enough disability insurance? What covers the mortgage, car payments, groceries and utilities?
Financial professionals say we should all have between three and six months worth of living expenses for a financial emergency. They also suggest that this be separate from funds you would consider an investment. It should be in a separate account so you will be less tempted to use it for everyday expenses, and it should be in a very liquid account so you can get at these funds immediately. If you put this money in a CD or other long-term investment, it will be more difficult to use and you will pay a penalty to withdraw it before it matures.
What is a real financial emergency? It is a good idea to have a strategy in place so you don’t tap into this fund unnecessarily. The pros say that any expense you can delay for a week, most often, isn’t an emergency. This fund should be strictly kept for loss of employment, medical emergencies, or an unexpected major repair on your automobile
Top Ten Investing Points
- The Stock Market has outperformed all other long term investments from 1926-today
- The Stock Market can be very volatile short term investment.
- Higher risk stocks and bonds pay more than low risk.
- The primary factor in a stock’s value over 10 years is earnings.
- Stocks lose far more than bonds when the markets go bad.
- Interest rates up – bonds down/ Interest rates down – bonds up.
- Inflation is your long term investment’s biggest enemy – you lose 3.2% per year.
- U.S. Treasury Bonds – the lowest risk fixed income investment.
- Diversify your portfolio to reduce risk.
- Actively Managed Mutual Funds rarely exceed the performance of Index Mutual Funds.
The Month Isn‘t Over and I’m Out of Money!
Okay, so I’m no accountant. I didn’t like math. Life has lots of challenges and I just don’t feel like going through the discipline of bookkeeping. Is that such a crime?
We all have our reasons for slacking off and you are free to choose which is more painful: the effort to do the budgeting or the problems caused by not budgeting. It’s the right thing to do, but so few of us do it. Why?
Some people don’t want to face the reality about their money. They want to pretend they have more money than they really do, so they choose to live in denial until they get into a crisis or financial emergency. Others don’t believe they are spending too much and experience those unpleasant surprises when the overdrafts start piling up. Often household relationships are strained by money discussions, so it seems more peaceful to avoid them.
It is a fact that those who keep track of their money have far fewer problems in most aspects of life. If we fail to manage our finances, our finances will run our lives. It is a matter of choosing to be in control or out of control. Yes, it isn’t the most fun to work on your budget, but the payoff can be very rewarding, and it doesn’t have to be as difficult as you might think.
Without getting technical, a budget is a simple process. You add up all of your expenses and total up all of your income. Then compare the results. It is obvious what action is needed. Very simple software programs are now available to make this process easier. If the expenses are greater than the income, you need to reduce expenses or increase income. If your income is already greater than your expenses, you can plan to save or get a program started for investing some of your extra money for the future.
Often, your income will appear to be greater than your expenses, but you’ll still come up short at the end of the month. Most times, this is caused by unplanned spending that you didn’t realize you were doing. To find these “budget breakers”, financial experts suggest dividing expenses into three categories: fixed expenses, discretionary expenses and out-of-pattern expenses. Fixed expenses include: housing, clothing, food, transportation and utilities. Discretionary expenses include: entertainment, vacations, and hobbies. Out-of-pattern expenses include: holiday and birthday gifts, car repair or home maintenance. Looking closely at these expenses will reveal where you can trim, steering your financial life away from a crash. If necessary, examine your canceled checks or get a printout of your debit card history to provide even more clues.
It is a good idea to start a budget at a time that will encourage you to stick with it. It is good to start at the first of a month or the first of the year. It is not a good idea to start a routine just before the holidays. Don’t go from the extreme of keeping no records to the opposite of watching every penny. Keep it less intense, but do engage in some budget activity daily so you get accustomed to participating in the activity. Once it is second nature, you will be surprised at how easy it really is and how great it feels to avoid all those pitfalls that occur when you are not paying attention.