by Heather, June 03, 2011
Having an emergency fund is one important aspect of a sound financial strategy. Every person needs to have emergency money set aside in case of unforeseen circumstances that require additional expenses. When something unexpected occurs, for example, the loss of a stable job, an emergency fund is vital. Depending on credit cards is not a good option. When emergencies do occur, and emergency money does not exist, people tend to overuse their credit cards. The problem with this method is that if there is no money, there is also no means by which the credit payments may be made in a timely manner. When the bill is not paid on time, interest accumulates, an, as time goes on, the amount owed becomes greater. Credit cards have their place, but they are not meant to replace an emergency savings fund. You can set up a separate account at your bank and order personal checks just for that account. This way, you can keep your everyday account separate from your emergency fund account.
Three months’ income is the absolute minimum amount of money a person needs to have in an emergency fund. If possible, 6 months to 1 year is a better option. The money in an emergency fund should be in a high-yield savings account that is easily accessible. In other words, money in a Certificate of Deposit, or CD, should not be used for emergencies, because there are penalties involved if money is prematurely withdrawn from a CD. A savings account that allows the saver to deposit and withdraw money without any limits is the correct type of savings account to have for an emergency fund. In fact, you can order checks online to access your emergency funds. In a fluid account, the money can be withdrawn at any time, without any legal stipulations or fees.
Many individuals have trouble saving money from week to week. The money is already gone before the next paycheck is received. It seems as though there is no possible way to save a dime, yet alone enough money to last three months. However, saving money is not very difficult if the person sets up a workable budget plan. Prior to creating a budget, the potential saver needs to write down every expense, including inexpensive items such as chewing gum and candy bars, because when a person is seriously attempting to save money, every penny counts.
When everything is written down on a piece of paper or in a ledger book, the way in which money is being spent quickly becomes apparent. Also, paying with checks helps from spending on credit cards. Eliminate items that are not necessities, and save the remaining balance. It is surprising how much money a person can save by simply making a serious attempt to save money. Having an emergency fund is not complicated. All that is needed is determination and will power.