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Monday, August 24, 2009

Being Broke Sucks: Short term savings solutions

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Calculate how much you spend every month

The first rule of savings is to bank enough to cover the necessities if -- knock on wood -- an emergency arises. How much do you need? Well, how much do you spend on a monthly basis?
Add up what you spend each month on necessities such as food, shelter, transportation to work, and anything that you promised to buy your kids. (If you're not into keeping detailed records, there are online program like Quicken or from to help you if keeping records in not your strong point.

Add some padding for "just-in-case" scenarios

There are small emergencies (bad perm) and big ones (job loss). Bump up your monthly spending number a tad to account for things like job-hunting expenses, should you suddenly find yourself in need of a new gig. Then multiply that figure by three or six (for the number of months that you want to cover), factoring in other available monetary resources and the number of people for whom you're financially responsible

Gaze into your 1- to 5-year "big expenditures" crystal ball

With your emergency savings covered, now it's time to figure out what other kind of cash you should put aside. Planning a renovation, extreme dental work or a family vacation? These things are also part of your short-term savings strategy. Put 'em down on paper and estimate how much these purchases will cost

Figure out how quickly you will meet this goal

You want to fund your cash kitty ASAP (emergency expenses tend not to wait around until it's convenient). Come up with an amount you can afford to contribute each month. Make it one of those must-pay expenses -- just like your electric bill and grocery money. Yes, it's that important. Once the emergency stash is stashed, move on to the non-emergency short-term savings goals

Pick a parking spot for your cash

Easy access is essential when we're talking about emergency savings, so your money should be stashed somewhere you'll be able to get your hands on it quickly ... in case of, well, an emergency. It should also be in a "safe" investment -- meaning one that won't tank every time the stock market takes a tumble. That narrows it down to:
• High-yield savings accounts.
• Money market accounts.
• Money market mutual funds.

For non-emergency savings (where you pinky-swear to let the money sit untouched until you need it) less liquid investments -- such as certificates of deposit -- may offer you a better interest rate on your money I spoke about this here in "Where To Stash Your Cash!!!"

Click around and comparison-shop

Look at bank ads in newspapers, check out the best national rates on, see what your broker is paying on cash in your brokerage account, ask your regular bank or local credit union what they offer, and get information on money market funds from websites like www.iMoneyNet.
Find out:
• What interest rates are available.
• What are the comparable yields over identical time periods.
• What timeframe the rate applies to.
• What fees (if any) there are to purchase and maintain the investment.
• The minimum investment required to get favorable interest rates.
(Investors beware: Some institutions will offer aggressive rates in order to lure you to send them your dinero, only to lower the rates soon thereafter. Check historical rates at to test the interest rates over time.)

Just do it

The clock is ticking. There's no time to waste. A short-term emergency fund is one of Being Broke Sucks top money "must-haves." In fact, it may be the very thing that saves you from a long stretch of high-interest credit card debt after a fender-bender, chipped tooth, basement flood, or really unfortunate haircut

Extra credit: Automate it!

Brand New Credit Building Cards!

If you're having trouble saving, we highly recommend an automatic transfer program. You can also see if your employer will split your paycheck (direct deposit) between your ordinary account and your short-term savings account, or you could set up an auto-transfer from your checking account into your emergency account

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