A Million Bucks In Your Sock Drawer

Mike Causey

A Million Bucks In Your Sock Drawer

Do you have a rainy day fund? If not, why not? Senior Correspondent Mike Causey says the financial pros recommend you have money to cover 6 months of expenses set...

Federal News Network Staff

February 21, 2008 4:00 am

3 min read

George Raft, a hoofer-turned tough guy movie star, once said that he had earned $10 million in his career. When asked what he did with it, he said, “part of the $10 million I spent on gambling, part on booze and part on women. The rest I spent foolishly.”

My hero.

But I digress…

In a financially-perfect world, each of us (after winning $25 million in the lottery) would set aside something. Maybe a cool one million bucks. For a rainy day. The money should be something we don’t touch, but it should be where it is very, very safe (not in a sock under the bed, not in a stock fund). And it should be where we can get at it quickly when we need it.

This is a rainy day fund. Savings that can be used in case you or a family member has a serious illness or accident. Or you lose your job. Or your house burns down and you can’t find the cancelled check that shows you had insurance.

Deep down we all know that! But how many of us actually have a rainy day fund? And how much should we have? We put the question to financial planner Ed Zurndofer. This is what he tells seminars he teaches for the National Institute of Transition Planning:

“Pay” yourself first – ideally, you should have your financial institution or your brokerage debit your checking account where your paycheck is deposited on a regular basis.
Be realistic – don’t save so much that you are unable to meet your daily obligations.
“Early” saver wins – time is the key. The earlier an age you save, the more will be there to enjoy at a later age.
You’re never too old (or young) to save.
Keep a six month liquidity “cushion” – six months of of one’s average monthly expenses should be in a “liquid” account. Liquid accounts include checking accounts (just watch the fees that banks may charge for not maintaining minimum balances), savings accounts (especially those at federal credit unions that have low minimum balances), and money market accounts. Also make sure that the liquid account has some type of “insurance” – for example, FDIC or SIPC. One needs a liquid account for that unforeseen emergency – you need a new roof, the car needs a new transmission, the hot water heater goes, etc.
Here’s an example: Your average monthly expenses consisting of rent or mortgage, utilities, food, transportation, entertainment, insurance and credit cards (paid in full on time!) amount to $3,000. You should keep $18,000 (6 times $3,000) in a liquid account.

Note: Some financial planners recommend liquidity of three times monthly expenses. This financial planner is more conservative!
Attempt to increase your savings without severely infringing on your daily lifestyle.

Campaign Causes ED

Yesterday’s column, about the political activity of federal and postal unions prompted Anthony Krolik to comment on what he says is a less than inspiring group of candidates from both political parties. In his case, he says it’s given him “Electile Dysfunction” which he defines as “the inability to become aroused over any of the choices for President put forth by either party in the 2008 election year.” Hmmmm.

Jo Ann B. wrote in too, saying she “went back and read your previous column on this issue. I agree wholeheartedly that federally associated unions should NOT be endorsing any candidate for the presidency. To me, it insults all federal employees – either employed or retired. These unions always pick a Democrat. Why???? They haven’t done any better than the Republicans at protecting federal workers and the military or the retirees. Actually, the Democrats have done worse. There is only one Democratic president that I respect (based on what I’ve read about him) and that is Harry S. Truman. The first election I was old enough to vote in was 1964. I have voted in every presidential election since then.”