By in Business

Setting Up an Emergency Fund with Investment and Saving

Have you set up some sort of emergency fund just in case you lose your job? I did over three years ago. Starting with the very first paycheck I received, a portion of my income was set aside for investments and savings. I made sure to invest in a stock mutual fund for growth of my cash, and a savings account to hold it.

Whenever I received my paycheck, I made sure to pay off my rent and cellphone bill. I set aside money for food and laundry. The remainder was divided in half for the mutual fund and the savings account.

If I did not have enough money after paying my expenses for the mutual fund, then I only put money into savings. If "too much" money accumulated in my savings, I would transfer some into the stock mutual fund. When I say, "too much," I mean that if I had way more money

in savings than in the mutual fund, then I would try to put enough into the mutual fund in order to have equal amounts in both accounts.

When the stock market is climbing and you have been disciplined with the investing, you can take out some profits for safe keeping.* Transfer this money to your savings account. You now have a "solid" emergency fund. When the stock market drops, invest again in the stock mutual fund from your paycheck.** When the stock market climbs again, take out profits as before and add to the savings account.

As long as you have a job, keep on investing and saving. You will be more secure in the event of a job loss.

*Put aside some money for possible capital gains taxes. At least 30% of the profit to be on the safe side.

**A stock market drop can last for years, so be prepared for this.


Image Credit » Photo was taken by me, Victor Serrao.

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Comments

Ruby3881 wrote on August 7, 2014, 6:24 PM

It must be nice to afford to invest like that. A lot of folks I know can't afford to even have money in their savings accounts right now.

allen0187 wrote on August 7, 2014, 7:24 PM

I make sure I put part of my salary in my savings account and in my emergency fund account. Ideally, the emergency fund should cover six month's worth of expenses. I'm nowhere near that amount.

vserrao1 wrote on August 7, 2014, 8:00 PM

I was in that spot. I made sure to move to a cheaper place to live and lived frugally.

vserrao1 wrote on August 7, 2014, 8:01 PM

Just keep building it up and don't buy unnecessary things.

allen0187 wrote on August 7, 2014, 8:29 PM

Exactly! Easier said than done though. Especially with the rising costs of almost everything, saving has been difficult.

vserrao1 wrote on August 7, 2014, 8:34 PM

Sometimes you just have to get a side hustle.

AthenaGoodlight wrote on August 8, 2014, 4:22 AM

You are very systematic in your financial planning. It is very important though that we have a sure income. Sometimes, expected online earnings don't come. That's when a buffer is much needed.

FreebieJunkie wrote on August 10, 2014, 5:53 AM

When I was young this was something my dad always harped on, and I'm glad he did. When I lost my job in 2009 I don't know how I would have survived without that money. While it killed me to draw from my nest egg, at the same time I was grateful I did have it.