repost­ed from AP.org
by: Joseph Pisani, AP Busi­ness Writer

NEW YORK (AP) — Let the gov­ern­ment shut­down serve as a wake-up call: You need an emer­gency fund.

Thou­sands of gov­ern­ment work­ers were out of work for more than two weeks, caus­ing many of them to fall behind on their bills. Although they will receive back pay, the event high­lights how quick­ly, and unex­pect­ed­ly, finan­cial sit­u­a­tions can change.

The shut­down also showed that no jobs are safe, even gov­ern­ment posi­tions which are nor­mal­ly thought of as the safest.

Most finan­cial advis­ers say that you should be pre­pared to go with­out a pay­check for sev­er­al months, not weeks. Here’s what you need to know about build­ing that safe­ty fund:

 

FIGURE OUT EXPENSES

Start by adding up your expens­es for neces­si­ties, such as rent, health insur­ance, gro­ceries and util­i­ties, says Mack­ey McNeill, a cer­ti­fied pub­lic accoun­tant and pres­i­dent of Mack­ey Advi­sors in Belle­vue, Ky. It would­n’t hurt to also add in dis­cre­tionary spend­ing, too, like going out to the movies or eat­ing out. “Should you cut out Star­bucks? Prob­a­bly,” says McNeill, “but a lot of peo­ple don’t change their behav­ior.”

 

DETERMINE HOW MUCH YOU NEED

You need to have at least three months in expens­es saved up, says Anna Behnam, a finan­cial advis­er at Ameriprise in Rockville, Md. But if you’re ner­vous about the secu­ri­ty of your job, you should save more. Think at least six months, espe­cial­ly if you’ve been laid off or fur­loughed before. “There’s a chance it might hap­pen again,” says Behnam.

If you’ve nev­er saved for an emer­gency fund before, start small. “Try sav­ing $100 a month,” McNeill says. “Don’t over­reach.” It may take longer to save up, but putting away more than you can afford can lead to fail­ure, and you may just quit. And don’t ever take the mon­ey out.

 

MAKE SURE IT’S ACCESSIBLE

Always keep your emer­gency fund in a bank account that’s eas­i­ly acces­si­ble. The stock mar­ket’s recent record highs may be hard to resist, but you always want to keep the fund out of stocks and in cash. “It should be in the most bor­ing account you can find,” says McNeill. That means sav­ings accounts, even though most banks offer inter­est rates that are close to zero.

Behnam says that if inter­est rates on your bank’s cer­tifi­cate of deposits, or CDs, are more attrac­tive, she rec­om­mends leav­ing one mon­th’s worth of expens­es in a sav­ings account and the rest in a no-penal­ty CD. That means that you can with­draw mon­ey from it at any time, with­out pay­ing a fee.

The account should be sep­a­rate from your check­ing account and the accounts you are using to save up to pur­chase a home or vaca­tion. If you decide to go with an online sav­ings account, make sure it is linked to your pri­ma­ry check­ing account so that you can make eas­i­er trans­fers, says Behnam.

 

ASK FOR HELP

If you lose your job, or find your­self fur­loughed for a short peri­od time and don’t have enough in an emer­gency fund, call the com­pa­nies that you owe pay­ments to. “Most cred­i­tors want to hear from you if you’re not pay­ing bills on time,” says Hugh Ander­son a Las Vegas-based man­ag­ing direc­tor at finan­cial ser­vices com­pa­ny High­Tow­er. Call land­lords, mort­gage providers, cred­it cards, stu­dent loan com­pa­nies and any­one you may owe mon­ey too.

“I think most cred­i­tors are will­ing to help,” says Ander­son.

 

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