- Your Rent or Mortgage
- Your utility bills
- Basic clothes
- Extra for household expenses
Investing is for the long-term and the best returns often come from products which go up and down a lot in the short-term (such as the stock market). Long-term these investments do well, but if you suddenly need to get hold of your money you could find that your investment is in a low period so that you won’t need as much as you thought you had.
However, this situation cannot last. Everyone needs to have a ‘savings safety net’, whatever their income, and now is the time to Make one. Here’s how you do it.
Investors say it, by the way, as you need to have money you can get quickly and easily at any time rather than having to dip into your investments.
Now, we have a very comprehensive article here about how to save when you don’t have any cash so have a look at what that says. Remember that the main ways to do this are to:
See below for a step-by-step explanation of how (and why) to perform this…
Generally speaking, people have found that it may take up to six months to get yourself back on your feet after a blow like a divorce, job loss or bereavement. These are the sorts of things you need to protect yourself against financially. That’s why advisers and all the big investors say that you need to prepare a savings safety net to cover you for this period.
Start putting money into it
How much cash do you need to cope?
Set up a savings account
- Firstly, do a budget and work out how much you need each month to survive — i.e. pay the mortgage or rent, your family bills and basic food, travel and clothing for the month.
- Take that number and multiply it by six. Could you put that money together over the next few months?
- Set up a savings account (ideally an instant-access one so that you can get the money in an emergency)
- set up a standing order from your bank account to put money into this savings account every month until you have at least three months-worth of survival money.
- Moreover, if you have a lump of money somewhere, add that to the pot so that you build it up quickly
- do not touch the cash unless you’ve got an emergency!
- Save money on bills and other spending
- Make extra money where you can and
- Throw what’s left over into your savings account until you’ve reached your target.
This is the amount you need to need to keep the roof over your mind and body and soul together.
You’re not alone. Most people wouldn’t cope for more than a month (if that) if they suddenly lost their income and many would not manage more than a week so take heart!
The money you save for your savings safety net has to be placed into a high-interest savings account and left there. Take a look here for the very best savings rates and open up the top one you can find.
Add up that list (or just click ‘calculate’ if you’re using an online budget calculator and there you have your monthly budget.
How does your month price?
Yeah right. Easy huh? Now there are two ways you can do this:
- You set up a standing order from your current account every month — just as much as you can afford — to that savings account until you have enough.
- When you’ve got no excess money monthly, you find ways of making and saving money… difficult? No. This is what this website is all about!
If you’ve worked out that it costs you #1,000 a month just to pay the bills then you should Plan to put away between #3,000 — #6,000 on your savings account
You need to have your cash in a nice, safe savings account for your emergency fund so that you can get hold of it easily and you may know that your investment won’t suddenly heater only at the time that you would like to get it. Pick an easy-access savings account here.
… unless you’ve got an emergency. Really — do NOT touch this money whatsoever unless you really, really need to. If I hear of you taking some of that money out when there was not a dire need I’ll come round your house and tell you off!
How long could you manage if you suddenly lost your source of revenue? Six months? Six weeks? Six days? Do you manage from day to day?
Now multiply this number. Ideally you need to have at least three times that much in your savings safety net — in fact, having six times that number will be even better. But aim at least for three times that number.
Of course, savings rates often change so you should keep an eye on your account to make certain it’s the best one. Keep checking back once every 3 months or so to see if your account is still in the top few. If it has dropped down then transfer your money to the current best buy.
Now, are you sitting down? Good, because this might hurt: you need to put off between three and six times the amount you need to keep yourself going for one month.
Now, the next step is to prepare a budget. See this article on how to do a budget for ideas. It doesn’t have to be exact — Only write a rough list of the expenses you have each month including, for example:
This money is only to be dipped into in the event that you lose your job or have some other event that stops you making money monthly. It’s your safety savings net and it has to stay intact until you need it.