Your Rainy Day Is Coming

Huge stock market drops. Falling rates from the Fed. A big uptick in the unemployment rate. Are you prepared for the events that will affect your finances?

You can't predict exactly when you'll find yourself in a jam. But the odds are good that sooner or later, an unexpected event will leave you strapped for cash. What happens next will largely depend on whether you've taken steps to prepare for a temporary financial crisis.

Getting wet
If you're like many people, you're more dependent on your next paycheck than you ought to be. So what will you do if your car breaks down, or your furnace goes out? How will you get the cash you absolutely have to have?

Unfortunately, the choices aren't very attractive. You could:

• Get a payday loan. Lenders like Advance America (NYSE: AEA), Dollar Financial (Nasdaq: DLLR), and Cash America (NYSE: CSH) will be happy to give you an advance on your next paycheck. But the fees they charge could trap you in revolving debt if you're not careful.
• Get a credit card cash advance. Nearly all credit cards offer cash advances to cardholders. But many issuers, including Citigroup (NYSE: C), Discover Financial (NYSE: DFS), and Capital One (NYSE: COF), charge an upfront 3% fee just to get the cash. And that's just the beginning, since most cards don't give you a grace period on cash advances before interest starts to accumulate.
• Hit up your relatives. You might avoid paying interest and fees this way, but hitting up friends and family for money can get uncomfortable in a hurry.

None of those sound like too much fun, do they?

Your umbrella in a storm
Luckily, there's a simple solution. To avoid those unpleasant alternatives, just do a little advance planning, and set aside some money into a rainy-day fund. That way, when the financial storms hit, you'll be able to stay high and dry.

Getting started sounds harder than it is. Many online banks, such as ING Direct (NYSE: ING), let you establish a savings account with no minimum balance and no monthly fees. They even pay interest at competitive rates. Even if you can only save $10 a week, that'll give you $200 by the time summer starts, and almost $500 put away by the end of the year.

With the potential for tough times ahead, it's more important than ever to prepare for the worst. Having an emergency fund set aside for a rainy day is your first step toward avoiding the mistakes that could land you in a cascading mudslide of financial ruin.

To learn more about getting the most from your savings, read about

• How savers are bailing out ailing banks;
• How to survive when interest rates fall;
• Using brokered CDs to earn more income; and
• Beating low savings account rates.