Sunday, April 13, 2008

Money saving: Emergency Fund

The key point of building wealth is saving your money. You need to spend less than all your earnings, in order to save any money. But oftentimes this is one of the hardest things to do, however there are plenty of ways to help you to save your money on even the tightest budget. As you probably already know - the money earned is the money saved.

The first thing you need: Emergency Fund

The unexpected always happens in your life when you are the least expecting it, and this is exactly why you must have an emergency fund. It is the best solution to be prepared for those unexpected emergencies that require additional money. Whether it be a job loss, health issues and medical care, car or house repairs, the death of your loved ones or anything that might require quite a portion of our money. And the very last thing you want to do is taking a loan or rely on any other kind of credit. It might even worsen the situation.

The size of the emergency fund

It is commonly known that there should be such an amount of money in your emergency fund, that you could live normally for at least three to six months without worrying. The amount of money in your emergency fund could be modified considering your current situation. It might be changed due to whether or not you have children, have any kind of debt, insurance, other liabilities or even current economic situation. (i.e. Unemployment rate is rising due to hard economic times and your job loss chance is increased.)
In fact, the reason you might want to have emergency fund set up is that the most common reason of family money problems is due to a sudden loss of income. So, if you or your husband/wife loses a job you still have bills to pay and food to buy, and it could take months to find a new job that you would be satisfied with. That's why it is best to plan ahead for the worst-case scenario. In this case less critical emergencies will be easily dealt with.

Start with small deposits

Most people don't have an emergency fund, because they find it difficult to save money. But the key to doing so is to start saving with small deposits. You must realize that saving enough money for one month will take quite some time. If you set your goals to be realistic, small to affordable, you will have a much better chance in reaching them faster. Bank would probably be the best way to get started saving. You could open up a new savings account (if you don’t have one already) and start saving there first. Making regular deposits into this savings account would be the next step. Make it a habit. Creating a schedule could help. Make deposits weekly or monthly and try to never skip it. You could also agree with a bank that it would transfer that money from your current account into that newly created savings account and you wouldn't even need to think about it.
Start with a very small amount, if you feel that it is difficult to begin saving. You could try making deposits as small as $10 a week at the very start. The amount is not impressive and it will not build up quickly, but the important thing is make it a habit to put some cash away. After a while the amount you save and don't spend will not even be noticeable, so you can raise it to a larger sum. With this done, you will have your emergency fund all saved up in no time.

A place for an emergency fund

You should remember that starting with a savings account is the best, simply because it is so easy to use and does not cost you anything. It doesn't care how much you put away every week/month, just do it. After a while when your emergency fund is bigger, you could find a place to keep it where it can gather some nice interest. It is essential, however, to keep it in a fairly liquid place then, such as money markets, so you could get the money out quickly, if any emergency occurs. It is not advised to have this money invested into stocks or mutual funds, because you could lose money in the short-term period, due to the volatility of the markets.

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