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.