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  • How to Save for Emergencies

    Can you quickly come up with $1,000 for an emergency – without resorting to borrowing? Two-thirds of Americans would struggle to do so, according to an Associated Press poll released May 18, 2016. This includes almost 40 percent of households earning more than $100,000.

    how to save moneyA short-term savings is a vital tool in an emergency preparedness kit. One study by the Urban Institute found people with a small amount of non-retirement savings – $250 to $750 – were less likely to be evicted from their homes or need public benefits, according to an AP story.

    It’s possible to save $1,000. Here are some ways to do it.

    First, make a budget. The easiest way is to look at what you spent last month in various categories and input those numbers. Many budgeting programs will do that for you. One free program is Calendar Budget.

    “I have been using [Calendar Budget] for 5 months and I love it,” Shelly Robertson, of American Fork, Utah, wrote in an e-mail.

    Remember also to set aside money for occasional expenses like holidays and car registration fees.

    Once you’ve got a budget, review to make sure you’re sticking to it.

    “Set aside 30 minutes a week to update everything you've spent for the week,” Robertson wrote.

    Next, cut the budget. Peter Dunn, a financial columnist for USA Today, suggested decreasing spending by 10 to 15 percent over time.

    “You’ll tighten the budget before you are forced to tighten the budget,” he said.

    Financial planner Dave Ramsey had some suggestions for immediate cuts: Get rid of cable or satellite TV. Make coffee at home. Reduce dining out and entertainment expenses. Lower the thermostat during the winter and raise it during the summer. Other ideas include shopping around to get the best rate on insurance and cell phone plans.

    how to save

    Kayleen Chen, a peer mentor at the University of Utah’s Personal Money Management Center, suggested the 50/30/20 rule. Fifty percent of a paycheck should go toward fixed expenses, like house payments and utilities. Discretionary expenses, like groceries, should take up about 30 percent. Twenty percent should go toward short-term savings, an emergency fund, and retirement.

    Second, look for ways to earn additional money. This is especially useful for those of us whose fixed expenses take up waaay more than 50 percent of our income.

    “If your job allows, overtime is another great way to bring in extra money,” wrote financial planner Dave Ramsey.

    If not, consider your skill set.

    “Learn new skills that could be turned into a small job such as a piano teacher,” Chen wrote in an e-mail.

    Third, deduct savings first.

    “If we have automatic deduction … we save automatically. Then we live on what’s in the checking account,” said Ann House, coordinator of the Personal Money Management Center at the University of Utah. “I know if I keep extra money in my checking account, I will spend it until it’s gone.”

    Fourth, stash cash.

    Whenever possible, I pay with cash. Then, when I get home, I stash the small bills, like $1’s and $5’s, into an emergency fund. House suggested keeping up to $1,000 in cash in small bills in a 72-hour kit.

    Years ago, my family had just finished moving when a record Colorado snowstorm stranded us in our home. We had no snow shovel, so a young man offered to dig us out. We ended up paying him an exorbitant amount for a half-hour’s work because we only had large bills on hand.

    Finally, and most important, just get started.

    “Even as small as setting $5 aside, it’s still a start,” Chen wrote.

     

    What tips would you add to help others know how to save?

     

    Disaster_Blog_Banner - how to save

  • Financial Preparedness 101: Why Does Money Matter?

    Destroyed House - financial preparednessDid you know that even if your home is destroyed in a natural disaster, you still have to pay your mortgage? Did you know that even if you’re using your credit card to pay for a hotel because you’ve been evacuated, you still have to pay your bill on time?

    “Failing to remain current with your payments could negatively affect your credit at a time when you need credit the most,” according to the Federal Emergency Management Agency’s Emergency Financial First Aid Kit.

    When most of us think about disaster, we think about what we’re going to do physically: how to make sure we’ve got food, water, clothing, and shelter. We don’t think about the financial aftermath.

    For that matter, an individual financial crisis is far more likely than a natural disaster. Job loss, divorce, death or illness, retirement … even a home purchase can cause significant problems if unprepared financially, said Ann House, coordinator of the Personal Money Management Center at the University of Utah.

    House suggested three ways to financial preparedness.

     

    Save and Save Some More

    First, have a short- and long-term savings and an emergency fund.

    Shopping Bill - financial preparednessKayleen Chen, a peer mentor at the University of Utah’s Personal Money Management Center, suggested the 50/30/20 rule. Fifty percent of a paycheck should go toward fixed expenses, like house payments and utilities. Discretionary expenses that can be adjusted, like grocery bills and fuel, should take up about 30 percent. Twenty percent should go toward short-term savings, an emergency fund and retirement.

    The short-term savings fund is for future expenses like holidays or a down payment. An emergency fund helps when things come up like car repairs or doctor bills, to avoid paying for them with high-interest debt like credit cards or short-term loans.

    Women should put 12 percent of their salary toward retirement; men 10 percent, Chen said.

    “The reality is that women live longer and make less income than men,” she wrote in an e-mail.

    House suggested people who want to save take savings out first via direct deposit. Then live off the rest. It’s an out of sight, out of mind thing.

    “I know if I keep extra money in my checking account, I will spend it until it’s gone,” she said.

     

    Get Organized

    Second, get organized. Know where important information is.

    “If there’s a natural disaster like a fire, do you know where your birth certificates are?” she asked.

    The Federal Emergency Management Agency’s Emergency Financial First Aid Kit is a great organizational resource, she said.

    The 44-page booklet includes four sections that identify what information to collect, like social security cards, insurance policies, prescriptions and emergency contact information.

    In case of emergency, House said, “Most of us run for family pictures or a kid’s favorite toys. If we knew where (vital information) all was, if it was organized into folders and files and boxes, we could just grab it.

     

    Emergency Storage

    Third, have an emergency storage, including cash in small bills.

    “If you were out of water, and somebody came by with a water selling wagon, you might be giving the person a $100 bill for water. It’s $1 bills that are going to come in handy for emergencies,” House said.

    Other ways to prepare financially include getting out of debt and getting a credit score in order. More than 60 percent of prospective employers check credit scores so a good one could mean the difference between getting and missing out on a job. All three credit bureaus must give one free credit report per year.

    House’s father-in-law lived through the Great Depression. After his death, she said, his family found $150,000 in paper bags while cleaning out his home. She does not recommend that approach to saving.

    Life happens. To keep from being traumatized by a disaster, it’s vital to be mentally prepared. And one great way to do that is to be physically prepared.

    “The key is to keep in mind that anything can happen. Therefore, always prepare for any possible emergency! It's never too late!” Chen wrote.

     

    Do you have a financial preparedness plan in place?

     

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  • The Apple Event, Market Collapse, and Preparing Financially

    Apple Logo - Fox News Stock Market Collapse Image via Fox News

    Apple held its new products show on September 9. It kind of fell flat. For example, a $99 “Apple Pencil” immediately came in for ridicule because, first, it was $99, and second, Apple founder Steve Jobs once said “As soon as you have a stylus, you’re dead.”

    Even before the product announcement, Apple stock was falling – the first time since 2007 it had done so right before a new product launch. Apple had been largely immune to stock market drops. Not anymore. Shares have fallen 17 percent since July.

    The stock market drop of the last few months has not caused major concern, with most analysts calling it a correction. But the market is still volatile.

    Stock market collapses begat recession before, most famously the crash of 1929 that started the Great Depression. It seems all of the major recessions of the last century had two commonalities: debt and lack of short-term savings.

    For example, in 1929, people bought stock by paying 10 percent of the stock price up front and borrowing the rest, using the stock itself as collateral. When the market collapsed, investors didn’t have enough money to cover the cost of their loans. People became leery about buying on credit, production slowed to accommodate fewer purchases and companies laid off workers.

    Suze Orman, a popular financial planner, said getting rid of debt is one way to prepare for a personal financial crisis.

    “If you still have income coming in,” she wrote, “make it a priority to pay off credit card debt ASAP. If you have an outstanding 401(k) loan, pay it off now.”

    To make money for saving and paying off debt, look for ways to reduce spending.

    “Repeat after me: Needs, yes. Wants, no. Got it?” Orman wrote.

    Bank Stock Market CollapseIn 1930, a series of bank collapses deepened the Great Depression, according to a history of the Federal Reserve. All banks lend some cash deposited into them and keep some as savings, called a cash reserve. In 1930, while a check was being processed, that money was counted as cash reserve in two banks: the one from which it was withdrawn and the one it was going to. This meant banks had less cash in reserve than they said they did.

    Many banks also kept most of their cash reserve in other banks belonging to the same company. If one bank needed cash because its customers were withdrawing too much, it had to turn to its correspondent bank, whose customers might be doing the same thing. Too-small cash reserves caused the collapse of hundreds of banks in 1930 and 1931, according to the Federal Reserve history. The country arguably didn’t recover from the Great Depression until World War II. The stock market didn’t again reach pre-1929 highs until November 1954.

    Ann House, coordinator of the Personal Money Management Center at the University of Utah, said her father-in-law lived through the Great Depression. After his death, his family found $150,000 while cleaning out his home. She does not recommend that approach to saving, since banks are now insured.

    She also does not recommend the other approach Americans are taking: not saving.

    One study published in April said a third of households making $75,000 per year or more are living paycheck to paycheck.

    “There’s not going to be a run on banks in the U.S., because Americans don’t have savings,” House joked.

    Many financial advisers recommend saving at least 20 percent of earnings. Part should go into retirement, part into short-term savings and part into an emergency fund, House said.

    The short-term savings fund is for future expenses like holidays or a down payment. An emergency fund helps when things come up like car repairs or doctor bills, so you don’t have to use high-interest debt like credit cards or short-term loans.

    Take savings out first via direct deposit. Then live off the rest. It’s an out of sight, out of mind thing, House said.

    “I know if I keep extra money in my checking account, I will spend it until it’s gone,” she said.

    Dolla billz Stock Market CollapseKeep up to $1,000 in small bills in a short-term emergency kit, House suggested. ATMs might not work in emergencies.

    “If you were out of water, and somebody came by with a water-selling wagon, you might be giving the person a $100 bill for water. It’s $1 bills that are going to come in handy for emergencies,” she said.

    Personal finance collapses like job loss, divorce, medical emergencies and retirement are far more common than a major financial market collapse. Getting out of debt and saving can reduce their impact.

    “It’s unlikely we’re going to have a big crisis like [the Great Depression] again if we heed what’s going on and do some tweaking,” House said.

     

    - Melissa

     

    What are you doing to prepare for a market collapse or other financial crisis? Let us know in the comments!

     

    Economic Blog Banner Market Collapse

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