A Personal Finance Guide

Save First Or Else

Do not even think about investing until you have a fully-funded emergency fund. The size is up to you (and your spouse, if you have one). What makes you feel comfortable? Is it three, six, or nine months worth of expenses in the bank? Notice I said three to nine months of expenses not income.

When calculating your monthly expenses you should include your mortgage, student/other loans, transportation, food, gifts, real estate/other taxes, subscriptions, memberships, utilities, car/life insurance and anything else you might spend money on each month. The point is to be able to pay all your bills in the event of an unexpected emergency. Your emergency fund will protect you from job loss, disability, or just random bad luck.

I am willing to bet that you, or someone you know, have had one or more of these things happen in the last six years:

� Car broke down and needed major repair

� Minor/major damage to house

� Unexpected surgery

� Victim of theft or lost an expensive item that was not insured

� Divorce

� Natural disaster (hurricane, flood, tornado, fire, etc.)

� Grown child needs financial assistance or moves in with you

� Elderly parent needs assistance or moves in with you

� Major appliance needs repair (TV, fridge, washer/dryer, water heater, HVAC)

Look, it’s inevitable…random negative events are going to happen. If we’re lucky they happen only occasionally. An emergency fund allows you to be prepared for such events. I bet if you sit for just 30 seconds you can think of a time, maybe even multiple times, in the last 6 years at which you sincerely wish you had an emergency fund in place. Don’t wait for the next event to occur.

And remember your emergency fund is for emergencies only! I hope I don’t need to tell you that a new 55″ HDTV is NOT an emergency. Sorry…it just isn’t. You can refer back to the list above for some examples of real emergencies.

Your emergency fund also functions as a psychological buffer when the stock market declines. It’s a relief to know that you have some money stashed away safe no matter what twists and turns the stock market throws at you. Additionally, make it a rule that if you ever have to dip into your emergency fund you must replenish those funds right away, or as soon as possible. Place your emergency fund in a high-yield online savings account all its own! Do not co-mingle this money with your checking account. It has a way of “magically” disappearing when you do that.

Emergency fund = peace of mind. Opening your bank statement each month and seeing a fully-funded emergency fund is an awesome feeling. Do this first, before you begin investing.

Hold on… I’ve got one more secret to tell you about investing, buy-and-hold is broken! My clients’ accounts made new equity highs this year while most people were still recovering from the bear market of 2008. Want to know this powerful investing secret? Get your FREE copy of ‘Buy-and-Hold Sucks Market Timing Rules’ at SimpleVesting (http://www.simplevesting.com)