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home : Money : Personal Finances :

Building An Emergency Fund

Once you've landed your first job, you probably think that you're headed for pay-dirt. But paychecks can be fleeting. Here's how to protect yourself from the beast of unemployment.

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You've grabbed your diploma, shaked the Dean's hand, cleaned out your dorm, and begun your new life. You've even managed to find a great job in your chosen field and have your eyes on the CEO's office. Life is looking good! So, you may be asking yourself, what do I have to worry about?

History should demonstrate this: your luck can change in the blink of an eye. The dot-commers who were once the envy of every working schmuck are now queuing up in lengthy unemployment lines. Yet most graduates come out of school thinking that the job they have now will be theirs for at least two years. But what would happen to you if you were laid off tomorrow? Buffer yourself against the whims of the fickle economy and start building your financial security blanket today.

You may think you don't need to worry about this, but perhaps you will after you read my story. My first job lasted exactly 9 months before the company was sold to a rival and moved halfway across the country. Since I was living from paycheck to paycheck at that point, I had no time to look for the "right" job - I had to take the first one that came along. I was worried about putting food on my table and paying rent on my apartment! This was a very sobering experience, to say the least. But I wised up after that. I began putting money away every paycheck, without fail. I did without a few luxuries, like dining out every Friday and going to the cinema every weekend, but it was worth it. Just five years later, my sacrifices have given me a great deal of peace of mind today.

This sentiment is reflected in the popular book, "The Millionaire Next Door" by Thomas Stanley and William Danko. According to their research (and they have been researching millionaires and find out how they achieved their wealth for over twenty years) the prototypical American millionaire has a "go-to-hell" fund, where they can live comfortably for a period of years without earning a cent. It just goes to show you that everyone needs to protect themselves from swings in the economy - even the rich!

In order to make your dream fund a reality, you will also need to create a spending plan for yourself. According to Bill and Mary Toohey, who were named the "Best Personal Finance Managers in America" by Money Magazine, the key is simply learning how to spend your money wisely. By "spending smart", you can get rid of unnecessary expenditures and make your money work for you by saving and reaping the rewards of interest. To read more about creating a working financial plan for you, see's ( Financial Planning section.

So, do yourself a huge favor and decide exactly how much money you can reasonably put away every paycheck and, to steal Nike's slogan, just do it. Don't think about it, don't tell yourself you'll start next month, don't let opportunity pass you by. Whether you put the money in an interest-bearing savings account, a certificate of deposit, a money market fund, or if you use dollar-based investing to put your money in the stock market, you absolutely will not be sorry you have done this. To get more info on your savings options, go to The Motley Fool ( for interest bearing bank accounts and bonds, or Sharebuilder ( for information on dollar-based investing. There are many options, and it all depends on how much risk you are willing to take with your money.

Trust me, the knowledge that you are not completely at the mercy of the job market is worth any small sacrifice you make now. If you really want that CEO's office, you need to be able to weather a few storms.

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