Monday, October 17th, 2011
A wise person once said that the shortest period of time lies between the minute you put some money away for a rainy day and the unexpected arrival of rain. Although savings seem to disappear quickly, without them, unexpected events can become disasters. If you have a reasonable income and a small mortgage or none at all, having a chunk of money set aside ‘just in case’ should be easily achievable. Decide what level of savings will enable you to sleep at night and keep it in a high interest, accessible bank account. The rule of thumb is to have enough on hand to pay your living expenses for three months. For those with a large mortgage, a lot of short term debt, or barely enough income to cover expenses, having an emergency fund may seem an impossible achievement. If you are paying 7% interest on your mortgage, putting money into savings on which you are earning 3% less tax doesn’t make good financial sense. Some banks are now offering offset accounts where your savings can be offset against your mortgage to reduce the amount of interest you pay. If your bank doesn’t offer this arrangement, you could instead set up part of your mortgage as a line of credit. Put your savings into the line of credit so as to keep your interest to a minimum, in the knowledge that you can get access to the money easily if you need it. For those struggling to make ends meet it is still important to set aside a small amount each week, even $20 or so, to cover emergencies. Cut your expenses or increase your income so that you have a small surplus. Unless you are able to do this, your financial position is likely to worsen in the medium term.
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