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Money Smarts
Chapter 13 Money Smarts: Reserve Fund
Will an insurance policy cover every penny
of your loss? No. Your policy will usually have a deductible.
A deductible is the set amount that the policyholder
must pay per loss.
When you buy homeowners, health, or motor
vehicle insurance, you can lower your premiums by having high
deductibles. Of course, you must set aside sufficient funds
to cover your deductible as well as unexpected emergencies.
Go to the BusinessWeek Online
Personal
Finance Planning calculators. Scroll down to the Budgeting
Calculators and click on “How much should I set aside
for emergencies?”
Input the following values:
| Uninsured or unexpected
emergencies |
|
| Medical & dental costs |
$500 |
| Legal suits |
$0 |
| Auto repairs |
$200 |
| Property damage |
$100 |
| Other losses or expenses |
$0 |
| |
|
| Insurance deductibles |
|
| Medical |
$350 |
| Auto |
$250 |
| Property |
$250 |
| Other |
$0 |
| |
|
| Loss of job or income |
|
| Monthly living expenses |
$2,500 |
| Months unemployed |
4 |
| |
|
| Savings you can use |
|
| Current savings |
$1,000 |
| Savings rate |
4.00% |
| Federal & state tax rate |
25.80% |
| Amount you can save monthly |
$150 |
Click on the “get your results”
button and answer the following questions.
- How much will you need to cover emergencies, losses, and
unemployment?
- How long will it take to save enough to have adequate
emergency funds?
- Click on the INPUTS tab and change your monthly savings
to $250. How long will it take now to save enough for your
emergency fund?
- Change your current savings to $2,500. How long will
it take now to save enough for your emergency fund?
- Can insurance cover all the risks associated with unexpected
losses and emergencies?
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