Last week the Federal Reserve took aggressive action to reduce the cost of borrowing and spur lending activity throughout the economy.  The Fed, still reeling from a broken economy and lackluster credit market announced a massive plan to purchase long term treasury bonds and other mortgage backed securities – thereby dropping the rates associated with those assets.

30 year fixed rate mortgage quotes are hovering in the mid 4% range to 5%.  These are some of the lowest mortgage rates ever seen, and the goal would be to spur more lending, more home buying, more refinancing of home loans to help stabilize the real estate markets and put more cash in current homeowners pockets as they save money in interest expense.

This action has ballooned the mortgage refinancing activity over the last couple of weeks and provided many an opportunity to recognized real dollar benefits from taking advantage of the lower rates.

We’re also seeing signs of life as reports hit the wire yesterday that housing sales were up, housing starts were up, and while the median home price has dropped it’s still encouraging to see real activity in the largest component of the economic mess this country is in.

Loanexa Admin

As a CERTIFIED FINANCIAL PLANNER(TM) one of the most common areas of planning that is consistently overlooked (and I’ve been guilty of this myself at points) is the emergency fund.  Every person, no matter what stage of life should have an emergency fund.

An emergency fund is quite simply just that – a liquid reserves fund (typically money markets, short term CD’s, checking or savings accounts) that is set aside and “earmarked” (we’ve been hearing a lot about earmarks lately!) for unexpected financial needs.  For example job loss, or car problems, or a family member in need.  More often than not however it’s job loss that the emergency fund should help you through until you can find employment again.

The amount to set aside is in question and depends on many things.  Stability of employment is primary.  If you’re a schoolteacher or health care worker – your employment is highly stable typically meaning you can target a 4 to 6 month fund of “bare bones” living expenses.  By this I mean turning off the cable and not going out to eat – basically scrimping but still surviving!  So for example if you’re highly confident in your current budgeting and stability of employment, and it costs you $3,000 per month to live on necessities alone – an $18,000 emergency fund is appropriate.

If your employment is less stable – for example construction or retail – a longer emergency fund is more appropriate – typically 6 months at a minimum and ideally one year.

Don’t overlook this critical planning step.  Many people make the mistake of jumping past the emergency fund into their long term investment portfolio – which puts your nest egg and financial stability at unnecessary risk!

For more information on selecting a financial advisor to help you with your basic planning I highly recommend the National Association of Personal Financial Advisors – www.NAPFA.org – The Fee-Only financial planners in NAPFA are highly educated and an exceptional resource for the general public.

Greg