Saving money isn't easy, and it's especially tough when you have a lot of medical bills or you are unable to work as much because of your arthritis. But saving even a small amount of money every month can help you feel more in control of your life.

First Priority: An Emergency Fund

Your first priority should be to establish an emergency fund. The money you save in your emergency fund will pay for living expenses if you are laid off from a job or you have an unexpected expense, such as a major car repair bill. The emergency fund could also pay your expenses if you must quit working because of your arthritis and you are waiting for Social Security or another disability plan to kick in. Think of money in your emergency fund as available only when there is no other way to pay for something that is a necessity.

How much should I save in an emergency fund?

Most financial advisors will recommend having three to six months' worth of income set aside in your emergency fund, but when faced with a health problem such as arthritis that can cause disability and large out-of-pocket medical expenses, you should consider keeping a larger emergency fund. To determine how large your fund should be, think about how much money you would need to bridge any gaps in income if you were to become disabled. Also think about how your monthly living expenses may increase down the road if your health worsens. Add these additional amounts to the generally recommended three to six months of cash, then invest this amount in a savings account or money market fund that can be converted easily to cash.

How can I find extra money to put in an emergency fund?

Here are some ideas for starting and building an emergency fund:

• Pay yourself first. If you have a job, take a certain amount of money out of each paycheck ($10, $25, $50) and put it into a savings account before you pay any other bills. Leave the money in the account until you face a real emergency. 
   
• Put "extra" money into the emergency fund. This extra money could include tax refunds, job bonuses, overtime pay or raises. When you pay off a bill, continue making the same payment-but pay it to yourself in a savings account. Another easy way to save: Put $1 a day plus your loose change in a jar. By the end of the month, you may have $50 or more to deposit into your savings account. 
   
• Plug spending leaks. Find ways to cut back on spending, and put what you save into your emergency fund. See Chapter 6 for ideas on cutting expenses.

Saving for Long-Term Goals

After I have an emergency fund, what should I focus on?

When you reach your emergency fund goal, start a new savings account for other short-term goals, such as buying furniture, taking a vacation or enrolling in education or training classes. Or, consider investing money in stocks, bonds or mutual funds for long-term goals, such as saving for a house or your retirement. The real power of money is that it can grow dramatically over time-if you save it in the first place. If your job offers a retirement plan, take advantage of it. It's one of the best ways to save for retirement, especially if your employer matches all or part of your contributions. You also get special tax breaks for saving in a retirement plan. If your company does not have a retirement plan, set up your own Individual Retirement Account (IRA) and contribute money to it every year. 

What are some options for investing my money?

Following are some of the most common ways that you can save and invest your money. To learn more, see the list of resources at the end of this book.

• Bank and credit union savings accounts. The federal government insures savings
  accounts and certificates of deposit. That makes them a very safe investment, but they may pay a relatively low interest rate, so your money will grow slowly. In general, bank or credit union savings accounts are a good place to put your emergency fund or to save for a short-term goal such as a vacation or down payment for a car.
   
• Mutual funds. When you invest in a mutual fund, the mutual fund company pools your
  money with that of other investors to buy shares of stocks and/or bonds of many different companies. If the stock market goes down, the value of the mutual fund also may go down. Unlike savings accounts at a bank, mutual funds are not insured by the federal government, so they might be considered riskier. At the same time, they also tend to earn a higher average rate of return than a savings account. In general, mutual funds are a good way to invest for long-term goals such as retirement or your children's college education. 
   
• Individual stocks and bonds. You can also buy individual stocks and bonds, but this can be riskier than investing in mutual funds-unless you are confident that you have investment experience or can rely on a competent financial advisor and have a sufficient amount of assets to properly diversify.

Should I invest my money aggressively so I can build my savings quickly?

Try to avoid taking big risks with your money. At the same time, you want the return on your investments to outpace inflation. One way to balance risk and return is to have a mix of higher-risk and lower-risk investments-stocks, bonds, mutual funds, certificates of deposit and savings accounts. This is referred to as "diversification." A professional advisor, such as a financial planner, can help you select the right mix of investments for your particular situation. 

If I save money, will I jeopardize my government benefits?

If you are receiving Social Security Disability Insurance (SSDI) benefits, money you save 
and invest will not affect your payments. If you are receiving Supplemental Security Income (SSI) benefits, the value of assets you own, including your savings, can affect your benefits. However, you may be able to participate in a program called Plan for Achieving Self-Support (PASS). PASS permits you to save money to reach a work goal. For example, you could save money to go to a trade school or start a business, and the money you save for those reasons will not reduce your SSI payment. The Social Security Administration oversees this program and must approve your plan. Work with your state's vocational rehabilitation office if you think PASS might apply to you.

©2001. National Endowment for Financial Education. All rights reserved.

Note: Certain content areas in this material are current as of the publishing, but legislative and regulatory changes as well as new developments may date this material over time. This content is meant to provide general financial information; it is not meant to be a substitute for or to supersede specific professional or legal advice.