You are not alone. Most people wouldn’t cope for more than a month (if that) if they suddenly lost their income and several wouldn’t manage more than a week so take heart!
- Firstly, do a budget and work out how much you need each month to live — i.e. pay the mortgage or rent, your family bills and basic food, travel and clothing for the month. Nothing fancy, just survival.
- Take that number and multiply it by six. Could you put that money together during the next few months?
- Establish a savings account (ideally an instant-access one so that you can find the money in an emergency)
- establish a standing order from your bank account to put money into this savings account every month until you have three or more months-worth of survival money.
- Also, for those who have a lump of money somewhere, add this to the pot so you build it up quickly
- do not touch the money unless you have an emergency!
- Your mortgage or rent
- Your utility bills
- Basic clothes
- Extra for Family expenses
How does your month price?
This is the amount you need to have to keep the roof over your head and body and soul together.
Good, because this might hurt: you need to put away between three and six times the sum you need to keep yourself going for one month.
… unless you have an emergency. Indeed — do NOT touch this money whatsoever unless you really, really have to. If I hear you taking some of that money out when there wasn’t a dire need I’ll come round your house and tell you away!
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 Precise — just write a rough list of the expenses you have each month including, for example:
This money is only to be dipped into if you lose your job or have some other event that stops you making money monthly. It is your security savings net and it has to stay intact until you want it.
Investing is for the long term and the best returns tend to come from products that go up and down a whole lot in the short-term (such as the stock market). Long-term these investments do well, but in case you suddenly need to get hold of your money you could realize that your investment is in a very low period so you won’t have as much as you thought you had.
- You set up a standing order from your existing account every month — just as much as you can afford — to that savings account until you have enough.
- If you have no excess money monthly, you find ways of saving and making money… difficult? No. This is what this website is all about!
How much money do you need to cope?
Broadly speaking, people have found 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 kinds of things you need to protect yourself against financially. That is why advisers and all of the big investors state that you need to prepare a savings safety net to cover you for this period.
You have to have your money in a nice, safe savings account for your emergency fund so you can get hold of it easily and you may know that your investment won’t suddenly heater only at the time you would like to get it. Choose an easy-access savings account here.
The money you save for your savings safety net needs to be put into a high-interest savings account and left there. Have a look here for the very best savings rates and open up the very best one you can find.
How long can you afford if you suddenly lost your source of income? Six months? Six weeks? Six days? Can you manage from day to day?
Investors say it, by the way, because you need to have money you can access quickly and easily at any time instead of having to dip into your investments.
Add up that list (or just click ‘calculate’ if you’re using an internet budget calculator and there you have your monthly budget.
If you Have worked out that it costs you #1,000 a month just to pay the bills then you should aim to put away between #3,000 — #6,000 in your savings account
- 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.
Do NOT touch the Cash
However, this situation cannot last. Everyone needs to have a ‘savings safety net’, whatever their income, and now is the time to create one. Here is how you do it.
Of course, savings rates often change so you should keep an eye on your account to be sure that it’s the best one. Keep checking back after every 3 months or so to see if your account remains in the top few. If it has dropped down then move your money to the current best buy.
Now, we have a very comprehensive article here about how to save when you don’t have any money so take a look at what that says. Remember that the main ways to do this are to:
Establish a savings account
Yeah right. Easy huh? Now there are two ways you can do this:
Now multiply this number. Ideally you need to have at least three times this much in your savings safety net — in fact, having six times that number would be even better. But aim at least for three times that number.