Planning for Emergencies

It has been a while since my last financial advice post, so I thought now would be a good time for the second installment of how to plan for financial security.  In the first article we talked about simple budgetting and knowing where your money is going.  That is always a good thing, after we have that down it’s time to start planning for the inopportune events in life which are bound to affect us all at one time or another.  When the unthinkable happens it’s good to have some cashed stashed away to pay for it.  Generally this types of funds are called emergency savings.  Just like budgeting this is a fairly wide spread concept so most personal finance books will cover the idea in great detail if you are interested.  In general the idea is to have enough money accessible to pay for disasters should they arise.  Depending on who you talk to they will tell you different stories when it comes to how much you should actually stash away.  In the end a lot of it comes down to personal decision of how much you need to feel comfortable.  A good rule of thumb is anywhere from 3 to 12 months of after tax income should suffice as your emergency savings.  I maintain about 6 months of after income in a tiered savings structure.  Three months of that income is in a high-yield internet money market account which currently yields about 4.6% APR.  These funds are accessible whenever I want them and earn a relatively high interest rate for such liquidity.  The remaining 3 months of savings I keep in a laddered 12-month CD porfolio.  What that means is that I have 12 CD’s that are staggered such that one matures for each month of the year.  This allows me to maintain a higher interest rate while still keeping the money partially liquid.  No matter how you do it emergency funds are a good thing to have and since most people don’t have 30 or 40K laying around for emergency funds now is a good time to start budgetting a monthly amount to put into savings to try to reach your savings goal.