Lost your Job? Hope you have an Emergency Fund!

Recession, downsizing, outsourcing – words that terrify all the working stiffs (me included) that rely on the 9 to 5 rat race to survive. Unlike Paris Hilton or Britney Spears, most of us have real jobs and real bills to pay. So when the subject losing your job comes up, people start getting nervous fairly quickly.

Question is... What if you lose your job too?

Your first line of defense is your savings! It doesn't take a genius to surmise that money going out of your pocket faster than it's coming in is a huge problem. That is why having an emergency fund is paramount.

Put briefly, an emergency fund is exactly what it sounds like. It's your own personal Fort Knox of emergency cash reserves when the “Oh S--t” moment happens and you need a sizeable infusion of cash.

This can be useful when a spy satellite crashes through your roof (thank you Dept. of Defense) or your girlfriend slashes your tires because you broke up with her on Valentines Day, but in this case it's your survival stash (not weed you stoners!) of cash.

HOW DO I CREATE AN EMERGENCY FUND?

Depending upon your salary and current debts, saving extra cash is not as easy as it sounds. To further complicate matters, your Best Buy gadget junkie or Prada loving socialite habits must take a back seat to your new found fiscal responsibility.

I know, I know – it blows, but quit your bitchin' because what I have to say really works.

Make a habit of saving a minimum of 10% of your paycheck each month. Best way to accomplish this is not to have immediate access to these funds by setting up an automatic savings plan with your employer. When you get paid, have 10% of your paycheck to be automatically transferred into an interest bearing savings or money market account. This way your money is working for you, and not against you.

Once you begin to see the dollars really add up, don't take a quick trip to Vegas or bet it all on the Patriots in Superbowl XLII. Just because the Patriots are one game away from cementing themselves in history, it doesn't mean they can't screw the pooch in the big game.

Once you have reached a savings balance equal to 3 months of your current monthly budget, then you can begin to relax a bit. For example, if you average spending $2,000 each month, you should have $6,000 in cash reserves. It may sound like overkill, but if you lose your job, you will be shocked how quickly that $6,000 will disappear.

If you find that saving 10% (or more) of your paycheck is long term possibility, start saving for your retirement by contributing to your 401k fund or Roth IRA. If your have shorter term savings goals (i.e. buying a home), a regular brokerage account is probably your best solution.

Just remember, IT TAKES MONEY TO MAKE MONEY. So the more money you save implies you will have more in the future.

As always, if questions arise just leave a comment.