From Here to Financial Happiness

Day Nineteen Sleeping Better

When folks are out of work, they often do a heap of damage to their financial future. They rack up huge amounts of credit card debt. They take desperate measures, like skipping mortgage payments and defaulting on auto loans. They cash in retirement accounts, triggering income taxes and tax penalties – and putting their retirement at risk.

Would you have to take such steps? Go back and look at what you wrote yesterday. If you don't currently have the financial wherewithal to deal with a prolonged period of unemployment, consider four steps:

1. Figure out which expenses you would immediately slash if you lost your job – and ponder whether you ought to cut some of those expenses today. The lower your living costs, the longer your savings would last.
2. Decide how many months of living expenses you want saved as an emergency fund and what that means in total dollars. Next, open either a high‐yield savings account or a money market mutual fund. A quick internet search will help you identify high‐yield savings accounts. Meanwhile, Vanguard Group regularly has some of the highest‐yielding money market mutual funds, thanks to the firm's legendary low investment expenses. Once you have an account set up for your emergency money, arrange to contribute automatically every month until you hit your target amount.
3. If you own a house, set up a home‐equity line of credit. It'll be a paperwork hassle to establish the credit line and you might have to pay an annual fee ...