2010年4月27日星期二

Emergency fund


“For age and want, save while you may; no morning sun lasts a whole day.” – Benjamin Franklin

When everything’s going well in your life, finances aren’t usually a big problem. But inevitably, something unplanned happens that end up costing you a bunch of money, and there’s never a “good” time for these things to happen.

To quote the American poet Henry Wadsworth Longfellow, “Into each life some rain must fall, some days must be dark and dreary.” We all know that the time to prepare for a rainy day is when the sun is still shining. In Life you should expect the unexpected, and this is why you need an emergency fund. The best you can do is to prepare for emergencies that require access to additional money and having an emergency fund is the ideal solution. Let’s face it, even relatively “small” emergencies can send your finances into a tizzy. There’s no way to predict when an emergency will strike, or to know how expensive it will be. But you can plan. An emergency cash fund is your best line of defense.

The first step in constructing any serious financial plan is to create an emergency cash fund. Everyone should have a cushion of cash to fall back on in case of an emergency. You’ll want to have enough money on hand ideally to cover at least three to eight months’ worth of living expenses. That means enough to cover your mortgage or rent, food, utilities, auto/commuting costs, debt payment and other regular expenses you can’t put off even in an emergency – stashed in a safe and liquid in a money market fund or savings account with the highest possible interest where interest earnings generate some excitement rather than yawns. Without this financial cushion, any unexpected expense can derail your long-term plans and force you to get into debt, quite possibly when it is worst possible time for you or from a very expensive source. The last thing you want to do is be forced to rely on credit cards or loan which could simply compound the problem.

Living without an emergency fund is like sailing on a cruise ship that’s not equipped with a life boat. If you don’t have an emergency fund, it means your threshold for risk is set dangerously high – to a point where normal events can become emergencies. Have you ever felt uneasy because you weren’t sure you had enough money in your current account to cover the cheques you wrote?

The only things you can be sure of is that there will be an emergency at some stage, so have some money put aside and don’t raid it or delay in saving for the proverbial rainy day.

You may believe you don’t have extra savings set aside because you don’t make enough money. Or maybe you think you’ll save after you get out of debt. It might be counterintuitive, but unless you start saving regularly, that day may never come. When you save for your rainy day fund, two things happen: You protect yourself so that you can handle anything that comes your way, and you’ll sleep well at night because you won’t be living from paycheck to paycheck. Remember, no amount is too small to get started – even RM100 every payday will make a difference. Start putting a little each month. Ideally, you should treat you emergency fund like any other recurring bill that you must pay each month. Dedicate the appropriate amount from your paycheck and set it aside. Every cent you save is a step toward building your own personal insurance plan. Donald Trump, the real-estate tycoon gives “The Smart” Money-saving advice: work hard for every penny. Fight for the pennies and the dollars will come.

In a crisis, it’s important to know you have resources. You can simply own up to the fact that you need savings and resources to back you up. The bottom line is that safety and security come with savings. And that once you have them, you’ll feel a lot saver going to sleep each night and a lot more comfortable waking up each morning. Start now and save whatever you can, even if it isn’t much. Some day, when you need the money, you’ll be glad you did.

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