| 60-Second Guide to |
Could you cover the cost of a new water heater if yours were to suddenly go on the fritz? What if you found yourself on the wrong side of your company's "rightsizing"? And what if your contralto son started puberty, ending his professional opera gig that helped cover tuition for the chichi private school he loves?
Give us 60 seconds and we'll show you how to establish a short-term stash of emergency cash to cover life's little hiccups (and croaking ariettas).
0:60 Figure out how much you need to stash.
How much do you spend each month on necessities such as food, shelter, transportation to work, and anything that you've promised your kids? Bump up this number a tad to account for things like job-hunting expenses should you suddenly find yourself in need of a new gig. Multiply it by 3 or 6 (for the number of months that you want to cover), factoring in other available monetary resources and how many people you're financially responsible for.
0:48 Figure out how much you can afford to contribute each month to meet this goal.
Make sure that this amount fits into your budget. Make it one of those must-pay expenses -- just like your electric bill and grocery money.
0:37 Pick the right kind of account.
Since we're talking about your emergency savings here, you should put that money somewhere you'll be able to get your hands on it quickly... in case of, well, an emergency. It should also be in a "safe" investment --meaning one that won't tank when Alan Greenspan sneezes. That narrows it down to:
a. High-yield savings accounts
b. Money market accounts
c. Money market mutual funds
0:29 Comparison shop.
Look at bank ads in newspapers, check out www.Bankrate.com, see what the brokers are offering and visit www.iMoneyNet.com for information on money market funds. Find out:
a. What interest rates are available.
b. What are the comparable yields over identical time periods.
c. What (if anything) will it cost to purchase and maintain the investment.
d. The minimum investment required to get favorable interest rates.
(Investor beware: Some institutions will offer aggressive rates in order to lure your dinero, only to lower the rates within the same quarter. Check historical rates at Bankrate.com to test the interest rate over time.)
0:17 Just do it.
If you're having trouble saving, we highly recommend an automatic transfer program. You can also see if your employer will split your paycheck (direct deposit) between your ordinary account and your short-term savings account.
0:03 Do your homework:
See how it stacks up to some of the other institutions out there.
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