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Ask Dave

The Coming Storm

Charles can see slow times for his business coming up and wants to be ready for them.

QUESTION: Charles in Oklahoma is having trouble balancing his debt and savings. He knows a downturn in business is coming and isn't sure where to put the next few paychecks. How does Dave tell Charles to prepare for this?

Dave's ANSWER: There are two types of saving you're doing. Number one is you're doing the traditional saving toward building an emergency fund that everyone needs to do. The other thing you've got to do is put money away so that when winter comes, you're all right. You have to save up for some down months.

If you've been in the business three years, you can kind of look back over the last three years and determine how much money you need to add from savings to stay afloat in those months.

You need an account that has the emergency fund in it, and then the other account is to cover the hole that you're in that you know is coming. On that second one, you should be able to estimate that pretty closely. The goal of that one being that you estimated it so close that there's very little left in there when the dry spell is over.

The winter fund has to be done first because you're going to have a time when you can't eat otherwise. Then you start your Baby Steps, with Baby Step 1 being $1,000 in the emergency fund. Then Baby Step 2 is paying off your debts smallest to largest.