Saving for rough times is a crucial part of your financial planning as having some spare cash stashed in an easily accessible place to cover disasters is a good idea. At a certain point common sense dictates that you’re going to run into an unforeseen expense and not having funds to pay for it you’re going to have to use poor borrowing practices. The average surprise cost when such events do occur is thought to run a few thousand dollars however whether it’s a gigantic amount or a very minor amount a disaster fund is needed to cover it.
You don’t need to hide this money under the mattress for it to be available. The best way to conserve this fund is by using a quick access savings account that pays a good rate of interest and hopefully is tax exempt. You could set up a simple bank transfer and allot a small amount into your bank account each pay check. You should also be sure that your savings account is low risk as you wouldn’t want to lose the money by trying for high interest payments. For example: don’t invest the money in the stock market, as stocks and shares can change in value, depriving you of much needed money at a critical moment.
Treat any interest your disaster account earns as a perk and not the main reason for having the account. In a pinch you’ll need quick easy access to your money and this is more useful than a little more money in interest can ever bet. Do not allow your disaster fund to grow into a fortune as the extra money would be more wisely invested, growing more in a better investment vehicle. Keep just enough to cover a rainy day so a few thousand should be more than enough.
Don’t be tempted to use your existing account to create up your rainy day fund. Your existing account makes it easy to “borrow” from the savings without knowing it and this usually means you won’t have enough money when you really need it. Also most checking accounts don’t pay high interest rates. To avoid the accidental spending of your disaster fund keep your checking account for normal bills and expenses.
By: Joe Duggins
Posts Tagged Savings Account
Saving For Hard Times
Nov 11
When you find yourself strapped for cash, the first thing many people think about is a home equity secured loan. Although this may sometimes be the quickest way to obtain needed cash, one should be very cautious when using your home to secure a loan. Always use the equity in your home after all other attempts at securing the funds you need have failed.
Do you qualify?
Depending on your credit and the amount of the loan, you may qualify for an unsecured loan. Many lending institutions will make unsecured loans to borrowers who have extraordinary credit; however, this is based on the amount of the loan. If you are looking for a loan under £5,000 and have excellent credit, you may qualify for a loan on just your signature.
Using stocks and securities as collateral
If your bank is also the holder of your securities portfolio, the lender may be willing to accept them as collateral for a loan. This will, of course, depend on the amount of your portfolio, and how volatile the market is at the time of the loan. Some securities are more stable than others are and substantiate a higher approval rate than securities in less stable markets.
Savings account loan
If you have a substantial savings account or a retirement account that allows for loan withdrawals, this is another option to consider before a home equity secured loan. Not only is the interest rate lower on these type loans, but you actually pay the interest to yourself since you have borrowed against your own money. Not only lenders or retirement administrators offer these type loans, but if you are able to do so, consider these options before you consider a home equity secured loan.
When you have to have a secured loan
When the amount of substantial or your credit does not qualify you for an unsecured loan, a home equity secured loan is your only remaining option. Tread carefully when taking advantage of this type of loan and remember that you are putting your home on the line with these type loans. You don’t want to be frivolous and buy things for which you have no use, but rather use a home equity secured loan for things that are necessary for the well-being of your family or the upkeep of your home.
Some of the reasons you might want to use a home equity secured loan include:
Major repairs and maintenance
Renovations
Home improvements
Catastrophic medical or personal expenses
Educational expenses for your family (you, spouse, children)
Bill consolidation to preserve credit
Other purposes may include reverse mortgages for those approaching retirement, however, these loans are not paid back monthly, but rather at the death of the borrower or upon the sale of the house.
The important thing to remember, though, with a home equity secured loan is with the exception of the reverse mortgage, you must treat it with as much caution as your primary mortgage because you can lose your home if you miss payments on your home equity loan just as quickly as you can with your primary mortgage.
By: Bill Stone