CREATING A SAFETY NET

It doesn't take long to figure out that sometimes, unexpected things happen. We get sick, our pets get sick, our cars break down, we lose our steady job or aren't able to find as much freelance work. Whatever the case may be, it's important that when you do have steady income, you start to save for an emergency fund, or safety net to ease the financial burden of these hardships. Here's how:

Prioritize this before most other things. After you've made all of your monthly bill payments and have paid off the minimum amount on your debts, begin to set aside as much as you possibly can to build this safety net. Aim to set aside at least 3 - 6 months worth of living expenses. Once you've achieved this, you can begin to work son other goals, such as making extra loan/debt payments or contributing to a retirement fund.

It's also good to anticipate events that may cause you to pull form this fund. In my case, I've got a car that's 14 years old with 100k miles on it. While I'm hoping it will last me another 100k miles, I know it's something I can't rely on, and I can at least expect to make repairs to it in the coming years. So even though I've already got an emergency fund with 6 months of living expenses saved, I plan to slowly save additional amounts so that when my car dies, I can hopefully afford to buy another used one.

The money you put into your emergency fund should be easily accessible. That means that you should probably keep it in a savings account. Some people may have a hard time just letting a few thousand dollars sit in a savings account as opposed to using it to invest, save for retirement, or pay of debts...but trust me, if an emergency or unfortunate event does occured, having that money available right away will save you loads of stress.

If you want your money to be as useful as possible while it sits, consider opening a high interest savings account with an online bank to let your safety net grow. These banks are insured by the FDIC and have interest rates as high as .09%, as opposed to the .01% interest rate at most big-named banks. The banks are able to pay your more interest on yor money because they don't have physical locations, so they pay less for real estate and personnel. Consider keeping 1/3 of your money in your usual savings account, but putting 2/3 into the online bank savings account. Withdrawing money from your internet savings account is as easy as transferring it online to your regular bank account, and it only takes a couple of days.

Details: I've only recently been looking into doing this myself, and I hope to use Ally for my new internet savings account. If you check out their website, they have a handy tool that lets you see how much money you'll earn in interest. I've got $6,000 saved in my safety net, all currently at Bank of America (my man bank), earning me .05 cents a month in interest. If I place $4,000 into an account with Ally I'll be making $3 a month instead. There are no fees (so long as you don't make excessive transfers), and accessing your money is as easy as going online. Now imagine the day you've paid off all your loans, and you're able to really start growing your savings account (if you're already here, congratulations!). If your money can make more money just by sitting in a different account, you might as well take the plunge! There are many fantastic internet banks to consider besides Ally, but I think I'll stick with them because they work with my Mint.com budgeting app.

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