Before I even get into this, you need to understand that an emergency fund is a must for anyone. The reason this is so is there is no way to predict what the future will bring, and consequently, to cover unforeseen circumstances or events which could put you in financial trouble, you need to build up an emergency fund to protect yourself.

Now what is an emergency fund as to its overall purpose? While I already stated the obvious that you need financial protection, the practicals of it is your’re buying time. That’s the ultimate result of having an emergency fund put aside.

What time does is offer you the opportunity to go out and find a job if that’s what happened, or to think through what your next step should be.

If you haven’t bought time with an emergency fund, you’ve basically limited your options to moving in with your mom or dad, or to accept the first job offered to you in order to keep your current lifestyle going, or to even stay in the home or apartment you own or are renting.

No matter what you do in the financial realm or what your goals are, be sure to make an emergency fund the first step toward your financial health and ultimately to build your wealth.

If you don’t have an emergency fund build up, you’re forever paying out what should have been used to put away in savings to build for your future retirement or lifestyle choices.

The reason is there is always some type of smaller event coming up that you weren’t aware was going to happen, and these endlessly eat away at your capital if you aren’t committed to putting away to build your emergency fund as the foundation of the rest of your financial strategy.

When you come down to it, don’t delay in any way in building up your financial safety fund. This is why I always advocate paying yourself first in all your financial practices, as there will always be something available to spend on if you don’t get into that practice.

But to get into that way of life you must commit first to doing it and take the first step. That’s always the hardest thing to do. Once you begin developing these financial habits, it’s surprising how easy it is to do it, and there’s an increasing sense of accomplishment, satisfaction and ultimately – the feeling of being prepared for what life may bring your way.

Just commit to taking that first step and decide on what you will put away and at what interval to build your emergency fund. Stick with it and in not too long of a time you’ll have a solid foundation to work the rest of your financial strategy from.

With the coming of the new year, the recession is expected to continue – no matter what government reports say – and so you should consider a couple of things concerning your savings account you set aside to protect you in times of emergencies.

There are a couple of things to consider in our economic times that will help better prepare you for the near future, that promises to be about the same as it has been for the last couple of years.

Keep in mind that many companies continue to lay off, reports continue to come in that the jobs lost over the last couple years may never return, and the so-called recovery will be a jobless one.

In other words, be sure to keep your emergency fund built up, and during 2010, I would advise you build it up for another several months at least, and if you can, up to a year. If the worst happens and you’re laid off, in these economic conditions you’ll have to assume it’ll take at least a couple months more than normal to get yourself another job. I would think in terms of at least several months more than normal to find a job if you’re laid off or fired; so building an emergency fund to reflect those realities should be part of your financial strategy for 2010.

The second element to take into account is the inflation rate. Already commodities are starting to rise in price for 2010, and the commodities rising in price directly have an effect on regular consumers. For example, oil prices and agricultural products are already rising in price, and that should continue on throughout the year.

While oil and related products are less than 5% of what we pay now, it is projected to reach as high as 6% or more for the year, which historically causes consumers to spend less during those period of times. More importantly, we need to prepare for those realities with our emergency funds, thinking in terms of adding an additional five to six percent in it to protect us during these times of inflation.

How to do that would be to get an accurate count of what your monthly expenses are on average through the year. Assume you’ll be paying an extra 5% during 2010 for living expenses; including oil, gas and food.

If your expenses are $15,000 a year say, and you’re building up a fund to protect you during an entire year, then just multiply the $15,000 by about 5% in order to come up how much more you want to put into the fund in case you lose your job or some other unexpected emergency arises which makes take a leave of absence or quit.

Either way, if you do, and you’re expecting your current emergency fund to take care of you for a year, and the cost of living has risen by 5%, you’ll have less money and time to work with than you originally thought. That’s why we must keep up with inflation to be sure we adjust our emergency fund reserves accordingly.

As far as the job market goes, it doesn’t look good in 2010, and that demands more money to be put away in my estimation, as the time it will take to get a new job could be much longer than normal.

Add inflationary pressures and longer time to find a job if you’re laid off, and you see how it would be wise to add several more months to your emergency fund at least, and if at all possible, I would extend it from at least six months to a year if you can, as the job market is that tough.

An emergency fund is there for you to buy time, and time is at a premium during an economic crisis, and inflation can cut back on the time you have it you don’t pay attention to it.

The Federal Reserve has stated more than once that it has no intention of raising interest rates anytime soon, and that eliminates most, if not all, avenues of generating a decent return on any safe investment.

While we enjoy a low inflationary period during these times in general, at the same time we get almost nothing for a return if we want to invest in some type of cash account.

So whether it’s a savings account, CD, money market account, money market fund, or any other type of cash investment, you’re not going to get much of a return right now, and it doesn’t pay to invest in something long term just to get a couple of percentage points of interest.

There’s no doubt inflation will kick in in the not too distant future, and if you’re invested in something so you can beat today’s terrible short-term cash investment vehicles, you’ll pay for it in the long run when inflation really roars, which with food is already happening, and is expected to increase over the next several years, if not more.

The answer to where to safely put your money right now is in what we’ve already mentioned: a cash account of some sort. All I’m saying is no matter where that is, it’s not going to give you any type of return worth talking about, and in most cases almost zero.

So why bother with even doing it in the first place? First, you need an emergency fund built up to protect you. If you don’t have one, the last thing to be concerned with is whether you can get a little bit more interest for you money. The first thing to be concerned with is to launch a plan where you put away a certain amount each month to build up at least a six-month reserve in case of an unforeseen situation that may happen to you.

Next, we’re not only in an economic environment thinking in terms of making money, we’re also in an environment where preserving capital is just as important. To do that, you have to forget about interest rates when they’re as low as they are today, and think more in terms of preserving your capital.

One psychological aspect to keep in mind is you’re probably doing better today than you were about a year-and-a-half to two years ago when you could get a decent return of five percent on a safe account. The reason is inflation was high at the time, and so in terms of growing earning power, you do as well today as then because there is very little inflation now, although it is starting to go up in some areas, but not enough yet to make a big difference.

It’s not really any better in this particular interest rate environment, but neither is it any worse.

So in terms of low-interest rate investments, think on a short-term basis, because inflation will return with a vengeance, and you don’t want to be stuck with a puny long-term interest rate just because you could get a little better rate today for a longer term commitment of your capital.

I wouldn’t invest in anything over a year, and would prefer something much less than that. Even a savings account or money market accounts may be the best bet because of the needed flexibility to transfer funds quickly to a better investment when rates begin to rise again.

Finally, forget about rates as far as the determining factor in a safe-money savings plan. The point is to get in the habit of putting money away to have emergency funds available. Interest rates are secondary at this time, but that could change when the Fed decides to increase interest rates.

Until that time, there’s nothing to do but keep saving and waiting, as it’s probably going to be a least a year before interest rates go up, and so trying to force something to satisfy your desire to have better interest rates could come back to haunt you when they really go up and you may be stuck with a long-term investment that is losing ground to inflation.

Don’t panic and do something you’ll regret. Interest rates will return in time, and until then it’s best to place your cash in something you can have immediate access to than anything else. Flexibility rules the day in a low interest rate environment, and that’s more important than anything else, other than putting the money into something safe in the first place.

As the current mortgage meltdown and economic crisis has taught us, how you’re paying for you home is as important as having a home. This will be very important going forward, as inflation is an surety after the huge spending of the U.S. government, and we need to keep this in mind with the financial decisions we make.

Inflation is already here, as you can tell from food and fuel prices, but what hides the actual figures are things like light trucks for example, which are included in the inflation numbers, but very few people are buying at this time. That means the price of a light truck, or another product which most people wouldn’t be buying at this time, could drop in price in a big way, but because it has no impact on most people, makes the inflation numbers look tame, but in reality the everyday cost of items we actually use are going up.

There is no doubt interest rates will eventually rise, and that will also put inflationary pressure on the products and services we all use.

So how does this apply to how you own your home? Simple: own it with a long-term fixed-rate mortgage. The reason this is so wise is as inflation rises and the government continues to print money to pay for its trillions in debt, the value of the U.S. dollar will continue to fall.

What that means is the money you pay off your mortgage with will be worth less in the future, and so cheaper from your standpoint to use for that purpose. In other words, you have a built-in inflation hedge when you pay for your home in this responsible and conservative manner.

To help you understand this a little better, think of the fact that no matter what the U.S. dollar is worth, you’re going to be paying the same amount of monthly payment for your mortgage over the 30 years you took out your loan. So as the U.S. dollar plunges in value, you continue to pay the same amount of dollars, even if they aren’t worth near the amount they were when you took on the mortgage. That’s a hedge against inflation, and a very strong and real one.

Don’t misunderstand, ignore or be caught off guard by inflation. It’s coming, and we need to protect our buying power through taking a number of steps to keep ahead of the inflationary pressures. Buying a home and mortgaging it with a 30-year fixed rate is one of the better steps to take to ensure this happens.

8In our continuing coverage of CDs, this article we’ll talk about callable CDs, which as with all investments, offers pros and cons if you decide to invest in one.

The first thing to understand with a callable CD is it can be returned by a financial institution before the term ends, along with whatever interest has built up during that time. Along with that, there is included what is named a call-protection provision, which guarantees you will own the CD during that period at the interest rate offered. For example, if you acquired a 3-year CD, it may be callable after you hold it for six months. At that time the bank can end the deal and pay you the principle and interest for that period, without continuing on with the contract.

I want to interject here concerning the reason in talking about CDs in all the various ways you can invest in them; it’s so you can not only discover what’s available out there, but more importantly, to understand what each one has to offer and why. This helps you become a better investor, even if you decide to go outside the relative safety of CDs into another type of more risky investment.

With that in mind, what value would it be for someone to invest in a callable CD, and why would a bank or financial institution offer one?  From the point of view of the bank or financial institution, it shifts the risk concerning interest rates away from the bank to the one buying the CD. Banks are managing their loan portfolio as it applies to interest rates of their deposits, the reason a callable CD is offered.

Why would we want to do something like that? It’s all about return on investment or interest rate yields; you get a higher interest rate for bearing the risk. This isn’t risk to your money invested, but risk as to returns.

During the period of time you own the CD, if interest rates fall, you then will have the bank “call” the CD if the call-protection period is over, causing to lose the higher interest rate you originally had.

How do you determine whether to invest in a callable CD or not? It’s all related to the interest rate environment and if your research shows it’ll fall, plateau, or go up.

The downside for the investor is if the callable CD is in fact called by the bank, it would force the investor to invest at lower interest rates, receiving less on their money.

While a bump-up CD is as safe as any CD, there is an included benefit, which when used right, can be a great way to take advantage of interest rates when the interest rate environment is one that is rising.

The duration of a bump-up CD can change from financial institution to financial institution, along with the interest rates offered, so you obviously need to do your homework concerning that.

What a bump-up CD is is just what it sounds like. If you buy a CD that has the bump-up option, what that does is allow you to participate in increased interest rates by telling your financial institution you want the new and higher rate as they’re offered. It’s as simple as that. If the interest rates rise, you contact who you bought the CD from and tell them you want the higher rate. It’s obvious, but you must buy a bump-up CD to get this. You can’t just buy a CD and tell the bank to bump it up, it doesn’t work that way.

The reason why, is the original bump-up CD will carry a slightly lower market rate at the time you buy it. A bank or financial institution will gamble that the interest rates won’t go higher during the time you own the CD, while you’re gambling it will, by buying the slightly lower interest rate. So in essence, both the bank and you are offering one another a carrot and a stick to make the transaction.

If interest rates don’t go up during the time you own the CD, the bank wins because they got use of your money at a better rate than they did from others, thus making more profit. If the interest rates do go up, you win, assuming they go higher than the market rate offered for regular CDs, so the bank makes less profits on your money, while you make a better return.

As a bump-up CD will be insured like any other CD, the risk isn’t in losing your money, the risk is in possibly making a smaller return.

So the obvious time to buy a bump-up CD is when it’s close to certain interest rates will start to rise, so you can essentially lock in a higher interest rate by temporarily accepting a smaller one until the higher rates kick in.

The other thing to take into consideration is the length of time it will take an interest rate to rise. You want to buy a bump-up CD when you believe there will be significant hikes in the interest rates … and soon, as the longer it takes to rise, the less chance you’ll have of making up the difference in interest rates when you first bought them, as it would have to rise fast and high the closer it gets to the end of the ownership period.
 
The strategy would be to buy them as close to the expected interest rate hike as you can, as that would give a CD the chance to move up a couple of times during the time you own it, giving you a much higher interest rate than you would have if you had bought a conventional CD.

Be sure to check with the institution as to how many bump-ups you’re allowed, as at times they’ll limit it to two or less, so you want to be sure if the interest rates rise, that you get the bump.

Also remember that just because the interest rate rises, doesn’t mean the bump automatically kicks in or you have to trigger it. The couple of bumps allowed by most banks can be taken an any time while you own the CD, and so you must keep a careful eye on when the best time will be.

One other thing to watch for is some banks require you to extend the length of the CD when you bump it up.

Keep all these factors in mind when looking into a bump-up CD. They can be great personal finance tools to use to get a better return on your money. Just understand what the bank or financial institution you’re buying it from requires, and watch the Federal Reserve and any expected announcements as to interest rate increases.

Most the times the consensus from analysts is pretty much on the money as to when interest rates will rise, the only question usually how many basis points.

With the economic crisis not going to abate any time soon, and all of us working on paying down our debt, saving more and cutting back on spending, a growing number of banks are wisely implementing new credit card services built for customers to help pay down, avoid interest fees and better manage their personal finances.

There are a wide range of services, and it would be good for you to check if your bank has implemented one for their customers as part of their service package to you.

What most of these will usually entail, is some way to put a automatic payment plan in place for the credit cards of choice for you, where you can have them paid off on a monthly basis in a way that will keep you from incurring interest fees; an important step toward managing your personal finances. Here’s one from JP Chase Morgan called Chase Blueprints you can look at if you do business with them, or as an example of what a plan like this would look like in general.

With the types of busy lives we live, and listening to a lot of people complain about interest fees and other late fees related to their banking, getting into these types of financial management services are a great way to take the onus off of your memory and busy life you live. Why get socked with late fees and interest fees when you can sign up for programs like this and take all the pressure off yourself and just leave it in the hands of those running the program?

If your bank doesn’t have this type of service yet, ask them if there are plans in the works for one, and if so, how long will it take to get it going. If your bank doens’t have one, and has no plans to put one in place, it could be well worth you time and energy to look for a bank that does offer this type of service.

There is just too much money to safe and peace of mind that comes with a program of this type to ignore it and go on doing business as usual. Now that banks are offering this opportunity, why pass on it and continue to pay far more money than you need to for your various accounts?

Not everyone is quick to rush out an buy the latest software or gadget to handle their own personal finances. These people just might have the right idea. Spending a ton of money you don’t necessarily have in the first place just to manage your own money may not be the best way to remain frugal or financially smart. So for those who are not tech-savvy or who can not afford to get the technology claiming to make financial management as easy as 1-2-3, here are some was to keep track of your cash while saving some of it at the same time.

Put It In Writing
One of the most common and useful pieces of advice concerning personal finance is tracking your spending. Typically, it is advised that you keep a pocket-sized notebook on hand at all times to make tracking more efficient. Since you are already using a notebook and a pencil to deal with your finances, take it a bit further when you are ready to create a new budget and purchase an inexpensive notebook or ledger that you can use to write down all of your bills, due dares, expenses, and other financial obligations each month. You can also keep a page to re-write all of you expense spending and get a clearer picture of how much you are spending each month and where you can make some cuts. A more traditional pen-to-paper method can help you keep it simple and inexpensive, but most importantly it will allow you to keep tabs on your cash.

Retain Your Receipts
If you can get in the habit of consistently asking for receipts, even if you pay cash, you will have a better history of what you are spending until you can sit and write it down. Receipts will help you keep track of the date you made the purchase, what the purchase entailed, and the total cost of the purchase. It can also help you to mark on each receipt what category the expense falls under so when it comes time to go over your budget, you’ll know how much spending you are doing for all different categories such as entertainment, bills, food, and the like. The key to making this an effective method of saving money is to keep all of your receipts in a designated location, regularly writing down the information contained on the receipts, and of course, remembering to ask for a receipt each time you spend money. Otherwise, this method can quickly become overwhelming and ineffective.

Utilize Statements
This may not be an effective method for all types of expense tracking but if you are prone to using your credit card for all your spending, you can take the monthly statements and notate them with individual categories. You can total each statements and have a good idea of what you are spending on each category. This will make it easier to make the difficult decisions of what to cut out spending-wise to save your budget. This will help you to also create a new budget if you haven’t yet started one.