Friday, September 14, 2012

Fantastic Friday - Use It - Financial Setback

Fantastic Friday - it is fantastic to find a way to use a financial setback for good.

This is the second of four Fantastic Friday posts dealing with using what seems to be a bad thing for a good purpose. This post is dealing with financial setback and how we can use it for good.

Financial setbacks are a common part of every day life. The following upsets to our financial conditions are common: an unexpected layoff occurs on the job, a roof starts to leak, a furnace blows out at the start of winter, the transmission on the car dies on the highway. Each of these instances will put a strain on an existing budget. Most of us are not overjoyed when we suffer a financial setback. However, these types of financial hardships do not have to be permanently devastating. Instead,we can look at these financial hardships as an opportunity to start improving our financial conditions.

I like the Six Month Solution to these types of issues. By this I mean that one of the best ways to keep a financial setback from causing a permanent hardship is to have sufficient savings to cover all living expenses for six months. Included in this would be the following:

  • rent or mortgage
  • all utilities
  • food
  • car payments including insurance
  • tithes for church
  • entertainment
  • cell phone bill
  • laundry and dry cleaning
  • clothing
  • pet food and pet supplies
  • meals out
  • hair or nail salon visit
  • anything you spend money on each month
piggy-bankA financial setback will cause you to dip into your savings or re-prioritize your current monthly expenditures. If you lost your job unexpectedly, but had sufficient funds in your bank account to cover all your expenses for six months, it will help you avoid the initial shock and fear. If you are eligible to collect unemployment insurance after a surprise job loss,  those funds will be significantly less than a regular full pay check. However, with the six months worth of income in the bank, the unemployment checks will last longer and the time between job loss and financial distress will be longer. 

A six month bank account will also provide you with sufficient funds to deal with any of the financial setbacks listed above without a devastating lifestyle effect. I recognize it is not easy to set up a Six Month Account. But alas, so many things in life are not easy.This is one of those situations where you just have to put on your big girl panties and do the hard work. Start saving a little at a time from each paycheck. If you can start off by putting aside the minimum required by your bank or credit union to open a savings account, do that. If not, start saving a small amount each pay check that you can save each pay day, it can even be one dollar.  If you are a disciplined person, put the money aside until you have the minimum your bank or credit union requires to open the account.  If you do not have the discipline, put the money in the bottom of a cup or sandwich bag, fill the cup or sandwich bag with water and freeze it. For most people, the work of unfreezing the ice cube of money will keep one the money safe until enough as been saved to make the trip to the bank or credit union.

Keep saving the money  little by little until the Six Month Account number has been reached. Don't let the name Six Month Account stop you from saving more. An account with six months of living expense money in it offers good protection against financial setbacks. So the question for you this Fantastic Friday is how far along the path to having six months of living expenses in the bank are you?

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