Preparing for a Rainy Day

Financial planning experts recommend having an emergency fund in case something unexpected like a layoff or injury interrupts your paycheck. Your safety net should cover at least six months’ worth of living expenses. Here’s how to calculate what you need to save:

· Gather your financial records for the past 12 months. Include bank and credit card statements, ATM receipts, and canceled checks.

· Create a 12-month grid. Down the left-hand side note all your fixed monthly expenses: mortgage or rent, insurance policies, car payments, utilities, medical expenses, etc. Then add other major spending categories such as food, entertainment, etc.

· Do some arithmetic. Use the financial documents you collected to calculate the amount you spent in each category during each month of the past year. Total the expenses for each month and then add them together for a yearly figure.

· Divide the figure by 12 to determine average monthly expenditures. Then multiply the average by six (or eight, for a more comfortable safety net). This is how much you should put aside.

In addition to your emergency fund, you should also have on hand an emergency credit card with the largest credit limit you can qualify for. Apply for this card before an emergency hits, as credit card companies are less likely to give you a line of credit when you are without income.