This week’s value:  Security

 The last week of August brought us some of the strongest  Monsoon storms that we had in years.  Some neighborhoods in the Valley were out of power for as much as 72 hours.  And as I write this, New Orleans is being hit by Gustav. 

It just reminded me of the time that we were living in Florida.  Each year, we have to prepare and emergency kit.  We have to pack up a box with canned foods (ligo, spam, etc), water, batteries, radio, and other non perishable foods.  Before the hurricane, we cooked a lot of rice and adobo in case we would not have power for a few days. We have to keep it in our closet under the stairs (no windows) and that’s where we stay to weather the storm in case our roof flies off.

We also have to have cash.  Which leads me to my point.  We all need some sort of emergency fund.  In case we get hit by a small monsoon storm, or a hurricane.

Ideally, you need to have 3-6 months of expenses in a liquid form of investment.  Money Market accounts are preferable.  I recommend either the Orange Savings Account from ING or HSBC direct.  They have the comparable interest rates with CD’s without the early withdrawal penalties. 

Notice that I said expenses and not income.  That is because there are some expenses that you would incur when you’re unemployed or in an emergency.  This can be child care, commuting cost and lunches out.

Whether you keep 3 month or 6 months depends on a number of factors.  Mainly, what are you comfortable with.  Some people can’t sleep at night if they have less that 6 months of cash stashed away.  Practically, you have consider your sources of income.  If you are a dual income couple and are both nurses, you can probably live with 3 months.  If you are a small business owner or your income is heavily dependent on commissions, then I would recommend leaning on having a longer cushion.

Ok, you say, what about us who are stuggling to pay our credit card bills and don’t even have $100  in our savings account and living paycheck to paycheck.  Having 3 months, or even 1 month of expenses saved up is a pipe dream.  Do we just give up and continue living our lives?

I say no.  And the book that I am currently reading, Dave Ramsey’s Total Money Makeover, would say the same thing.  It is in situations like this that you would need an emergency fund even more.  But you don’t need to have 3 months saved up.  $1,000 will do. 

$1,000?  What kind of emergency fund is that?  Well, its more of like a rainy day fund.  Not enough to cover the storms or hurricanes, but if it rains, you’ll need an umbrella.  And $1,000 is enough.  Enough to cover, car repairs, appliances breaking down, etc.

Do you keep it in a money market account?  Well, the idea is to keep it accessible, but not accessible enough that you would reach for it in non-emergency cases.  An example in the book is this lady putting 10 $100 bills in a frame and wrote, break glass in case you emergency.

One thing that this would do to you is it will help you avoid, tapping your credit cards in case of emergency.  By the way, you have to STOP using credit cards.  (That’s for another article). 

Having an emergency fund, whether a thousand or ten thousand dollars may just be enough to have that financial security to help you sleep better at night.