If tomorrow you were out of a job, could you continue to pay for rent, utitlities, food and other necessary expenses until you secured another position?

The only problem with The Micawber Principle is that it doesn’t allow for savings. Sixpence is not much to save over a year’s time. The guideline is to have 3 months of expenses saved to tide you over in case of financial emergency, such as loss of a job. This 3-month figure is separate from your retirement savings.

The only way to save successfully is to have a surplus after you have paid all expenses. If you find you never have anything left over to save, then the next entry in this series is for you. It’s time to make a budget.