Planning for Financial Emergencies
When an emergency strikes you want to have the necessary amount of money to see you through the situation. Because of this, it's a good idea to set aside money now in case the unexpected should happen. There will always be unforeseen incidents that require your attention, so the best preparation you can make is to ensure that you have a solid nest egg ready for when it happens to you.
The rule to remember when planning for unforeseen financial emergencies is to have at least six months' worth of income available to meet your needs. The easiest possible way of calculating this is to take your monthly income (following taxes) and to multiply it by the appropriate number of months that you'd like to cover. If you'd like to have six months of income available, multiply your monthly after-tax income by six. With this type of preparation, if you suddenly lose your job, you will have enough cash available to stay afloat while you look for another.
In addition to a nest egg, saving for the expenses you know are coming is an excellent idea. Doing your best to anticipate future expenses can help keep your budget right where you want it to be. If you're looking to replace a car, refurnish a room in your home, buy new windows, or replace the home computer in the next few years, then the best way to pay for those expenses is through saving.
Take a moment to figure out how much you need to save every month in order to make those larger purchases. This will keep your budget on track while allowing you to avoid using credit cards or other means that could inhibit your long-term goals.
