Financial 911

Those of you of a certain age remember the television show, "Emergency." For those of you who don't, the title gives it away. It was a show with two good-looking paramedics who went on emergency runs to help people deal with unexpected events. We also have unexpected financial emergencies, and it's important that we plan for them as best we can.

In today's economy, if you aren't worried about losing your job, you're lucky. With one cold snap, pipes burst and carpet, appliances, and dry wall suffer. In that same cold snap, going to get the mail can be a treacherous adventure. (Sorry I'm focusing on arctic weather; it just seems so appropriate right now!) The one thing these emergencies have in common is a need for money.

Everyone should have a financial emergency fund. Last week, you began calculating your monthly expenses. Your emergency fund should be equal to three (if your world is extremely stable) to eight (Suze Orman's recommendation) months of these expenses. If this amount of money seems overwhelming, eat it like an elephant--one bite at a time. You don't have to save it all right now. Just make saving the emergency fund a monthly goal.

Where do you keep your emergency fund? The answer is really boring--the bank. Your emergency fund is NOT to be invested in the stock market, mutual funds, or annuities. The only acceptable investment would be in a money market fund. Don't even use a certificate of deposit (CD). Why am I being so picky? Your emergency fund must be safe and liquid (or quickly convertible to cash without loss of principal). Stock market investments aren't safe, even if they're liquid. Annuities (variable) are often not safe or liquid, due to investment subaccounts and surrender periods. CDs are safe (insured by the FDIC), but they aren't liquid--you can't immediately convert them to cash. Savings accounts or money market funds are both safe and liquid.

Don't have a financial emergency, even to meet the cute paramedics. Keep your money safe and sound and know that there is space between you and a financial disaster.

Be prosperous!
Peggy Doviak