[Video] What To Do With My Paycheck?

MICHELLE SMALENBERGER, CFP®

It is really important to consider some of the first steps and goals in your financial life.  Before you start thinking about investing or saving for retirement, you need to be sure that you have a good foundation to build upon.  One of the first places to start is being sure to have an emergency fund in place.

Yes, an emergency fund.

It is just for that, the times that occur that we can’t predict or sometimes even expect.

This may not be a fun topic but it is very important especially when the only other options are maxing out credit cards or pulling funds from retirement accounts.

So what is an emergency fund?  It’s money set aside that covers 3-6 months of living expenses.  The expenses that need to be considered are fixed costs that are non-discretionary meaning that they have to be paid.

Here’s some examples:

• Mortgage/Rent
• Real Estate Taxes
• Health Insurance
• Life Insurance
• Utilities
• Auto Payment
• Auto Insurance

Our other expenses are considered variable meaning that they don’t happen like clockwork.  We have the ability and flexibility to decide when they happen.

The general rule of thumb is to have 3 months of savings to cover fixed expenses when you are a two-income household and 6 months of savings when living on one-income.

The thought here is to have enough saved should an unexpected event happen that would provide you with enough time to recover, get back on your feet or find new employment.

So what is an emergency?  It is something that is usually sudden, unexpected and potentially even life-altering.

• Job Loss
• Health Issues
• Complications related to a Pregnancy
• Accident

It is important to think through how much money you need to have set aside in case an emergency happens in your life.

Again, this is one of the first building blocks that is important to have in place.  After this, we can move on to future goals that we are saving and planning for!