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How to Prepare for a Rainy Day

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    Unexpected events are a natural part of life and can happen to anyone at any time--like a job change, car troubles, or health issues. And even though we can't control things at all times, we can take measures to become financially prepared for unexpected times of emergency.


    How Much Should I Set Aside?

    Generally, you should have enough money to cover your living expenses for at least three months. If your job is less secure, if the economy is weakening and job layoffs are increasing, or if you are self-employed, then it's probably safer to have closer to six months' worth or more saved.


    If you have other resources that you could tap into beyond your emergency fund, you can adjust how much you need to save accordingly. For example, if you have retirement savings that you could borrow from, or friends and family that could lend you the money, then perhaps only three months of emergency funds is necessary. Just remember that some accounts such as 401Ks may charge penalty fees for borrowing against them or cashing them out.

    Where Do I Get the Money From?

    When you are faced with an unexpected expense, the good news is that you have several options. The money you've invested in your home can help cover unpredicted situations. Starting a savings account, refinancing your mortgage or getting a home equity line of credit (HELOC) are a few ways to get you through these sudden times.

    Start Saving

    Creating a budget will be key in stashing those extra needed dollars. The easiest way to get the ball rolling is to tuck away a little at a time. It may not always be possible to save extra cash, but cutting back on unnecessary spending can help you along the way.

    Home Equity Line of Credit (HELOC)

    With a HELOC, your lender gives you a line of credit which functions much like a credit card in that you draw upon the account when you need; you also make payments when you draw on it. You receive either a set of checks or a plastic card that gives you access to your line of credit. You are not required to take any money up front and you can draw on the credit line at any time during the draw period. Use a home equity calculator to help you determine how much of your homes equity is accessible to you.

    Life isn't predictable and it's a good idea to be prepared. So start thinking about ways you can save money. If you're currently experiencing a financial emergency and haven't saved anything yet, then tapping into your home equity can help get you out of a tight situation. If you start small and tuck a little away from each paycheck, then when life's unexpected events occur, you will come out on top!


    Refinancing your existing mortgage is another way to get you on your way to saving for a rainy day. You can refinance your mortgage to lower the interest rate, thus lowering your monthly payment. The less you have to pay toward your mortgage, the more disposable income you'll have to stash away. Use a mortgage calculator to help you determine how you can lower your interest rate and monthly mortgage payment.

    By Diane Tuman

    Saving changes
    • Last edited October 12 2012
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