Posted: Sunday, October 22, 2006 7:00 pm
With cold weather on the way, are you prepared to cover the cost if your water heater or furnace breaks down? Or your high-mileage car dies on you? Those are just a few of many sudden expenses Americans are faced with daily.
That’s why you should be building a short-term emergency stash.
Financial-education company The Motley Fool suggests it’s easy to set up an emergency fund in a few simple steps. Here’s how:
1. Determine how much you need to save by assessing how much you spend each month on necessities. Consider food, shelter and transportation expenses, then add a bit more to cover unforeseen expenses. Multiply that number by three or six, depending on how many months you want to cover.
2. Set aside money each month to meet this goal as quickly as you can afford to. Make sure it fits your budget — and treat it as a must-pay expense, such as the heating bill or rent.
3. Choose the right account in which to save your money. You want to be able to access the cash quickly, so select a safe investment such as a high-yield savings account, money-market account or money-market mutual fund.
4. Shop around for the best rate. Here’s what you should know when comparing: the interest rates available, comparable yields over identical time periods, fees on the account and the minimum investment required.
5. Set up an automatic transfer program if you think it’s going to be difficult to save. You might be able to split your direct deposit paycheck between your regular account and your savings account.
— MarketWatch