How to Build Safety Nets

Saving money is ideal in creating safety nets.

During any hard economic time, having a safety net is essential for the good of you and your family. While it's not always possible to be prepared for that rainy day, starting as soon as you can to develop your safety net will keep the bad from getting worse. As with any financial planning, creating a safety net takes time and perseverance to get it where you need it to be in the event of a personal crisis or employment change. Simple changes to your daily spending habits will help you create your own safety net.

Things You'll Need

• Savings account
• Budget

Instructions

1. Begin saving money in a separate account for an emergency fund. Ideally, you should have a six to nine month fund that pays everything from your rent or mortgage to utility bills should you be out of a job unexpectedly. Make sure you place your emergency fund in an account that you are able to pull money out of immediately, such as a savings account.

2. Reduce spending on unnecessary items like eating out or entertainment until you build up a safety net. This will allow you to stash money in a saving account for a few months while you prepare for the unexpected.

3. Pay off any debts you have. The less money you owe each month, the easier it is to pay the necessary bills like mortgage or utilities during hard economic times. Use extra savings to add additional money to a monthly payment to get rid of the balance as soon as possible.

4. Stick to a budget. A budget will help you reduce unnecessary spending so you not only save for an emergency fund but you also help pay down bills that will otherwise increase monthly spending during a crisis.

References

• Financial Planning Association: Build Your Family's Financial Safety Net!
• 360 Degrees of Financial Literacy: Establishing a financial safety net