Monday, November 20, 2006

Commonsense Money Management

Problem:
Most people begin to save, then withdraw it when emergencies arise. They lose not only their initial savings goal, but often a part of their investment because they terminate their plan prematurely.

Solution:
Before you begin a long-range investment program, have three months income set aside in an emergency fund.

An emergency fund is critical to your financial success. Just because you never know what could happen, it is a good idea to have the equivalent of three months income in reserve. Your family's breadwinner could lose their job, a serious medical problem could arise, a major household repair could be necessary - there are any number of minor disasters that could occur without warning. It is important to protect against being wiped out financially and being forced to remove every cent you've worked hard to save and invest.

You should budget for your emergency fund in the same way you do for other expenditures, particularly if you are starting from zero. Pay yourself first by putting into your emergency fund before you put in anywhere else.

The main point of an emergency fund is protection. You are providing a cushion against unforeseen problems or disasters. And, you are preparing yourself with the security that will allow you to go and work towards some long term investment goals.

A good Emergency Fund investment is one that will give you excellent returns if you don't have to withdraw funds, but where you won't suffer a significant loss if you have to withdraw funds early.

Establish your emergency fund as soon as possible. Your money will build up before you know it, and you will be surprised at the feeling of security you will have, knowing that you are covered in the case of emergencies. You will be able to concerntrate much more clearly on your long term financial plan - and see results sooner.

And that is the name of the game.

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