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Articles from the tag of RainyDay
Emergency Fund Basics
Posted by: Alex Watson from Gold Max on Tuesday November 6, 2012 at 2:28 PM   (-08 GMT) | Comments (4)
Tags | RainyDay, | Savings | Categories: | Accounting, | Debt, | Finance - Managing your money, | Finance - Personal Investing
The personal finance blogosphere is abuzz with the topic of emergency funds and how and if you need one. Though opinions vary on what form your emergency fund should take and how big it should be, all agree that you should have some kind of financial plan for when emergencies do come. If you just want to take some basic steps toward being prepared for a rainy day, experts recommend building an emergency fund consisting of 3-6 months’ worth of expenses.

So, how does one go about creating such a fund?

First of all, start with a manageable goal, and break that goal up into smaller ones. Evaluate your circumstances and lifestyle, and determine what you would like your emergency fund to look like. Everyone should have some cash in a liquid asset such as a savings account to cover emergencies, but how much you choose to have will depend on your situation and personal preference. For example, a single person renting an apartment will probably not need as large an emergency fund as a family with a mortgage payment to cover the cost of most emergencies. Also, some people may feel comfortable with 3 months of expenses, and other may not want to settle for any less than 12 months’ worth. Thus, whether your goal is $1,000 or $10,000, set a goal and work towards it.

Second, open a new account. Shop around for the best savings rate, and keep your fund separate from your other accounts to avoid accidentally dipping into it. Some prefer to take a mixed approach, putting some of their emergency fund money into CDs and other investments with a higher return rate and keeping a smaller amount in savings accounts, which have lower rates of interest. Third, start building. Right—easier said than done, you’re thinking. There are bills to pay, after all, and pizza to eat, and Prada handbags to buy. But start now, because emergencies wait for no one. Jackie Beck on MoneyCrush.com outlines three basic strategies for getting your emergency fund started.

• Go crazy: This is a short-term strategy to get a quick start on your emergency fund goal right out of the gate, and it’s just like it sounds—you use whatever means possible to generate extra cash to put toward your emergency fund. These means might include reducing expenses (less eating out, for example), selling your gold jewelry, having a yard sale, doing odd jobs, whatever you can think of. Put every extra penny into your savings account for a short period of time, like two weeks or two months.

• Windfall: This method utilizes unexpected/extra funds to put toward your emergency stash. For example, save your tax return instead of spending it. Got some birthday money from Aunt Flo? Put it into your emergency fund. Bonus at work? Into the emergency fund it goes.

• Percentage: For this strategy, determine a percentage of each paycheck that goes toward your emergency fund. Many have reported success with treating their emergency fund as another bill and paying themselves each month just as they would the power company or the water company. Also, you can arrange direct deposit from checking to savings so you don’t have to think about it, and you can set up a payroll deduction with your employer that goes directly into your emergency fund. The automatic deposit approach helps particularly if you have trouble exercising the discipline to write a check to yourself every month.

To sum up:

Is an emergency financial plan important? Yes.

Does everyone’s emergency fund look the same? No.

Utilize strategies that work for you, and start your own emergency fund today.
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Comments

Posted by Prudence from United States posted at Monday, November 26, 2012 19:41
Comment from Prudence is -
Stellar work there everyone. I'll keep on reading.
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Posted by Lichtbringer from United States posted at Monday, November 26, 2012 15:48
Comment from Lichtbringer is -
Depending on your emergency fund (EF) needs, split beweetn the EF and the car loan. But the crux of the matter is not really how to divert your leftover savings, but how to increase those savings to erase your debt burden more quickly.Saving depends on1) Increasing Income (often less feasible).2) Decreasing Expenses (often more feasible).Most people focus on #1, and neglect #2. But most expenses can be decreased dramatically, or even eliminated. Share rent with lots of people, or live at home or in a low-cost area if possible, avoid owning cars in the near future (they suck a lot of money), eat out less, buy less (or better yet, nothing) or secondhand, don't engage in expensive sports/hobbies, no travel/tech gadgets/brand names/movies, etc. Reduce all water, power, phone, mobile + cable bills to the minimum. Analyze your biggest expenses (usually rent/car/food/leisure/bills), and find ways to cut all the financial fat. Since you'll have a lot of extra time on your hands, use it to invest in educating yourself and developing your professional talents/interests/skills so that you can achieve a higher future income potential. Go DIY don't pay others to teach you.Live poor because actually, you ARE poor. By my personal definition, if you need a job in order to feed yourself, you're poor. If you need to worry about what your boss thinks of you, you're poor. If you're in debt, you're in the hole poor. Don't be generous or ashamed you literally can't afford to be. Be generous and proud after you've saved up some $ $ $ . Extreme situations call for extreme measures. If you compare yourself to other people with lots of debt, you'll feel your situation isn't so bad, but you should be comparing yourself to people with positive net worth. I only make 18K/year now, but I save about 10,12K more than 50% savings on income. I've been doing this for many years now, so it all adds up. So despite my low income, I had my basic 1K EF in my first month. I intentionally chose to live in a lower-cost city that didn't require a car, and in the beginning I had to forego a lot of costly urban enjoyments (movies, dining, shopping, etc.). But the payoffs have been tremendous; I don't worry about money or jobs. Plus, I only work part-time now. If you can find a way to save 1K a month, you'll be well on your way. It'll only take 20 months to pay off all your debts. If you have higher income and can save 1.5K, you only need 13 months to be completely debt-free.After you pay off your debts, you should continue your hardcore saving for a couple years, (1yr =12K, 2y=24K, 3y = 36K, depends on what your long-term financial goals are), after which you can invest your savings, and your money can start working for you, instead of you always working for money. Then you can ease off on or abandon the Spartan lifestyle. If you're a guy, you might not want to though, because being a Spartan is actually pretty cool. It's good mental physical training, because it helps to cut away all the consumer materialist crap in life. Makes you focus on what's really important in life which is ironically, not the money, but yourself, your relationships, and your purpose in life. And coincidentally, all those 3 things suffer when you're working the 9-to-5 grind and spending nearly all of your hard-earned money on whatever. Best wishes to you -
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Posted by Gildas from United States posted at Monday, November 26, 2012 14:32
Comment from Gildas is -
Thanks for the insight. It binrgs light into the dark!
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Posted by Doll from United States posted at Monday, November 26, 2012 12:25
Comment from Doll is -
Your article was excellent and erudite.
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