Saving Money for a Financial Emergency

Two of my friends are real estate agents who have been hit hard by the latest downturn in the real estate market. Although they did very well during the last few years when the market seemed to be unstoppable, they are now facing financial problems as houses in their area are simply not selling. Their hard lesson serves as a great reminder of why it’s so important to plan ahead for unforeseen financial emergencies such as and extended illness, loss of job or just a serious economic downturn. A proper savings goal to get you through 3 to 6 months of living expenses should be part of your everyday financial plan.

Most experts agree that you should have set aside from three to six months worth of expenses in a safe, interest bearing saving’s account. This money needs to be easily accessible and should only be accessed in a real financial emergency. It should not be used as down payment on a car or a family vacation. However tempting it may be to tap into this money, you should resist touching it unless absolutely necessary.

After you’ve made sure that you have enough money to see you through a financial emergency, you can then start putting your money aside for pleasure and other long-term financial goals such as retirement planning.

As part of your plan for a possible financial emergency, you should identify those expenses that can be easily cut–little extras like your daily mocha java or an expensive night on the town. Stripping away all of the extravagances will leave you with the necessities that you simply can’t live without. A real financial emergency is certainly not something you’ll enjoy, but at least you’ll be able to pull yourself through the rough times once you’ve created a thorough plan and set aside enough money pay for your most important expenses.