Thursday, January 12, 2006

What should you do when the money runs out?

Nothing, you are screwed, you should have set up an emergency fund to avoid running out of money when you lost your source of income. If you did lose your job, and you need a source of income because you have no money saved, its time to suck it up and go work in retail, or in a grocery store, or anywhere you can get money. It doesn't matter if you are above working in retail, you aren't above the repo man who is going to take all of your stuff away when you can't pay the bills. So go to work.

Now to what you should have done before you ever lost your job, or what you should be doing now that you are working. Time to set up an emergency fund. This should be a savings account that you will not be able to access at an ATM. Don't open up this account at your current bank because it is too likely that you will just transfer the money to your checking account and spend it when you decide you need a new TV or some more beer money.

Your best bet, as I have said numerous times before, is a high interest savings account at either EmigrantDirect or ING Direct, both banks make it easy to transfer for money from your current checking account into them, and if need be, transfer money back into your current checking account.

Now you might say, but I can only afford to pay my bills each month and have a little money left over for food and a little spending. Well it looks like you are going to eat some cheaper food and stop buy so much clothing or beer. Every time you get paid, take 5 percent of your pay check and transfer it to your new savings account. Better yet, if you have direct deposit at work, set it up so that 5 percent of your check (or what ever dollar amount that usually is) goes into that account.

How much money do I need in this account you might ask? First you need to figure out about how much you spend each month, this does not mean how much you pay in bills, but the total amount you spend including food and shopping each money. Multiply this number by 3 and that is how much you need. That's right, you should be able to live off this account for 3 months with no change in lifestyle at all if you lose or quit your job. Once you have 3 months worth of savings in that account, don't touch it!

The money that you were saving for that emergency fund will now be able to fund your investing...More to come on this later.

2 Comments:

At 4:25 PM, Blogger Sarah said...

I'd also recommend HSBC for savings accounts. I just signed up with them after hearing good things from others. They are currently paying 4.25% APY, which is better than ING or Emigrant at the moment, and if you enter the code "start" when you sign up, they'll give you a free $25. It's a nice bonus on a good account.

 
At 7:00 AM, Blogger Mike said...

I have been hearing a lot about HSBC recently, and everything I have heard sounds pretty good. I got $50 dollars when I signed up for ING so I was pretty happy about that.

 

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