60 Second Guide to Getting Out of Dept | 60
Seconds Guide to Short Term Savings | Budgeting
101 | Getting Out of Dept | How
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Could you cover the cost of a new water heater if yours
were to suddenly go on the fritz? What if you found yourself
on the wrong side of your company's "rightsizing"?
And what if your contralto son started puberty, ending his
professional opera gig that helped cover tuition for the
chichi private school he loves?
Give us 60 seconds and we'll show you how to establish
a short-term stash of emergency cash to cover life's little
hiccups (and croaking ariettas).
0:60 Figure out how much you need to stash.
How much do you spend each month on necessities such as food, shelter,
transportation to work, and anything that you've promised your kids?
Bump up this number a tad to account for things like job-hunting expenses
should you suddenly find yourself in need of a new gig. Multiply it
by 3 or 6 (for the number of months that you want to cover), factoring
in other available monetary resources and how many people you're financially
0:48 Figure out how much you can afford to contribute
each month to meet this goal.
Make sure that this amount fits into your budget. Make it one of those
— just like your electric bill and grocery money.
0:37 Pick the right kind of account.
Since we're talking about your emergency savings here, you should put
that money 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 when Alan Greenspan sneezes. That narrows
it down to:
High-yield savings accounts
Money market accounts
Money market mutual funds
0:29 Comparison shop.
Look at bank ads in newspapers, check out Bankrate.com, see what the
brokers are offering using The Motley Fool's brokerage center, and
visit iMoneyNet for information on money market funds. Find out:
What interest rates are available.
What are the comparable yields over identical time periods.
What (if anything) will it cost to purchase and maintain the investment.
The minimum investment required to get favorable interest rates.
(Investor beware: Some institutions will offer aggressive
rates in order to lure your dinero,
only to lower the rates within the same quarter. Check historical rates
at Bankrate.com to
test the interest rate over time.)
0:17 Just do it.
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
0:03 Just do it through our partner!
Check out MBNA, which offers special money market yields for Fools. Do
your homework: See how it stacks up to some of the other institutions