Prepare for Financial Disasters and Bad Years!
One of the great concerns that most financial planners have is that there are many people who have no savings. Living like this is very dangerous because it leaves you with no cushion in the event of a financial disaster. This is not a position that you want to find yourself in so you are going to want to make sure that you have some put away in case you do have a financial emergency.
One lesson that we have learned as the result of the global financial crisis that we have recently gone through is that financial disasters can and do happen and we need to be prepared for them. That means that we have to have money saved to make sure that we can survive in the event that we lose our jobs or suffer some other sort of financial loss. The question then becomes how much should you have saved for these events? It is generally recommended that you have at least three months salary put away for an emergency but you may want to have more depending on your financial standing.
The big thing when you put money away for an emergency is to make sure that you put it in the right place. A lot of people choose to invest that money in the stock market so that they can get the best possible return. The problem with doing that is that if there is a financial disaster it will almost certainly cause the stock market to crash which will wipe out your savings and kind of defeat the point of having money put away for an emergency.
The other big thing that you need to make sure of when you are putting money away for an emergency is that you need to put it somewhere that you will be able to get at it quickly. Another mistake that people make is to put their money into an investment like a certificate of deposit so that they can get a better return. The problem with doing this is that you can't take your money out on short notice. Really the only place that you should be putting your emergency money is in a savings account at your bank.
One concern when it comes to saving money for an emergency is that most people have so much debt that they really never get around to saving because they are trying to pay the debt off. While paying your debt off is certainly important you want to make sure that you have your emergency savings in place before you do this. You never know when a financial crisis might hit so you need to make sure that you get your savings in place as soon as possible. This will help to make sure that you are protected if the worst happens.