A final element of organizing your finances is saving.  I thought I’d spend some time talking about the different kinds of savings and then make some suggestions:

• The first type of savings is something financial columnist Michelle Singletary calls the life happens fund.  It’s a moderately-sized fund (say $500-$2000) that you use for the annoying expenses that arise in life: the car breaks down, the hot water heater must be replaced, etc. A good sale on cashmere is not what this fund is to be used for.
• The second kind of savings is emergency savings. As a rule, you want to have at least 6 months of living expenses, but 3 is a great start.  If possible, build this fund up to twelve months of essential living expenses. You only use these funds in case of a serious emergency — like loss of your job. You’ll need to build up to this level over time.  Try to save a bit each month. You should keep in in a safe, interest-bearing vehicle, like a short-term CD or a money market account.
• The third kind of savings is for long term, expected expenses. Think saving for college or for a new car for when your current one wears out. This is not for annual expected expenses, like your Christmas fund or a regular vacation. Those annual expenses should be part of your regular budget.
• The fourth kind of savings is for major purchases. This would be for things like a house purchase or remodel or a major vacation.
• The final kind of savings is retirement savings. These are the personal savings that supplement whatever you will have from work and/or government programs

The first two are the most critical in the short-term. They help you get by when things get bad – like now. If you get furloughed, they will keep a roof over your head and food on the table. If you are still working and don’t have those kinds of savings, start putting away every extra cent that you can. If you are not working, don’t be afraid to use these savings to cover essential expenses. That’s why you saved! If you are not working for an extended period of time, you may need to tap into your savings for a vacation or a car. You may even have to temporarily suspend saving for college or retirement. You can get back to regular savings when things are more stable.