Safety in Numbers?

Alright, already - yes, it's been almost four months since I posted. Yes, I've been really really busy. Would you believe that I've been to eight states and built a barber shop since June?

Today's message is about Safety - but not things like "don't run with scissors" or "wait a half hour after eating to go swimming". What we're referring to is the old concept of having 1) an emergency fund; and 2) adequate insurance coverage. The primary thing that you should take away from this Safety portion of our discussion is Peace Of Mind.

An emergency fund is a vital component of your overall financial toolkit. You should have 3 to 6 months' worth of expenses set aside in a liquid, stable account, such as a bank passbook savings account or a money market account. By "liquid" we mean that the funds are easily valued and withdrawn as necessary. By "stable", we mean that the funds are not at risk due to market volatility, and that there is some return of interest to the account.

Why do you need an emergency fund? First of all, even though it may seem like your employment is stable - there are millions of your fellow Americans who would tell you that nothing is stable. Your employment can dramatically change from one day to the next. With an emergency account, you can face this situation with much more confidence. That's not to say that you wouldn't be seriously impacted by a layoff or cutback, but having an emergency fund will help to cushion the blow.

Secondly, if you've got an emergency fund available, the next time your car breaks down, or you need a new roof, or the washing machine shoots craps, or you need new tires - you won't have to go into debt to pay for it. And don't feel guilty about using the funds in the emergency account, that's what they're for. Just be sure that you repay them (with the funds that you would have used to pay off those credit cards!).

So that covers emergency funds. Next time, we'll discuss insurance. This discussion will likely take several days, as the topic of insurance can be quite voluminous.

'til then -- jb