Emergency Savings

Amidst all the doom and gloom that this global recession has brought to us this past year and a half, thanks to the networks and CNBC, is worries about your job. Unemployment is growing in America and it's not just happening in Detroit. I have recently heard from friends in Oklahoma City and St. Louis who have lost their jobs and are actively looking for work. So what should you do if you are still gainfully employed? For one thing, don't assume your job is safe. As Rick Wagoner recently found out, even if you are the CEO of a large corporation, your job is at risk. So if you don't already have an emergency savings account set up, open one right away! Many people today are living paycheck to paycheck, without any short term savings of any kind. So if they lost their job tomorrow, how will they pay the bills next month? The rule of thumb is to have 3 to 6 months of expenses set aside in an emergency savings account. This is money that should not be invested aggressively in the stock market or held in CD's. It needs to be liquid, meaning its available at a moments notice, typically accessible by writing a check or transferring money into your checking account. The preferred type of account for this is a money market account. These usually pay a higher interest rate than normal checking or savings account do, and are available at your local bank or through your investment rep in a brokerage account. The amount of money you want to ultimately save in there is an amount equal to the total monthly expenses you have times the number of months a person with your job skills would need to find a new job. So if you are a nurse, it might only be 3 months, but if you are a factory worker for Chrysler, it could be much longer. If you never lose your job, great, you can use this account to pay for other large expenses like replacing your refrigerator or washer and dryer. So get down to your local bank and open up that new account. If you need a suggestion for a good bank, I know of one!