2 Easy Steps to Building Up Your Emergency Fund by Financial Freedom

An emergency fund is basically 3 to 6 months of income that you set aside which you can withdraw easily. This means that the fund is most probably in a bank account that you can easily tap into should any emergency arise.



Step #1 - Open Another Bank Account



Yes, you heard me right. Why do you have to open another bank account? It is very likely that if you were to start saving money into the same bank account, you will most probably spend the money without knowing it. The most important thing about an emergency account is to keep it out of sight from us so that we do not spend the money!



Many years ago, I wanted to set aside an emergency fund of 6 months income. It was however only 2 years ago that I managed to do so. The reason for the long delay was that I was simply spending all my money in my only bank account which I had. Whenever it reached a certain amount, I would think to myself: "Hey, I've got lots of money....why not I buy this?"



To cut a long story short, I could not succeed in building up the 6 month emergency fund because I had easy access to the account. I started withdrawing money from the fund as it was not kept separate from my other bank account. This is my BEST advice to you: OPEN ANOTHER BANK ACCOUNT.



You will of course want to make sure that this bank account does not have any high charges and stuff for things like minimum balances.



Step #2 - Deposit a FIXED sum of money EVERY month ONCE you get your paycheck



Keeping a separate bank account is Step 1. For Step 2, it requires a certain amount of discipline. The key is to deposit a FIXED amount EVERY month the DAY you get your paycheck.



This is speaking from my own personal experience. The day that you get your pay check credited into your bank account is THE DAY that you must deposit that fixed amount of money into your separate bank account (your emergency fund account).



Do not wait for a few days because once you procrastinate, you will most probably not do it and end up not depositing any money at all for that month.



Let's say that you decide to save $500 per month to build up an emergency fund. All you have to do is simply deposit or transfer the money from your normal banking account straight into the emergency fund account the moment you get your paycheck. This is to prevent yourself from spending it before you carry out the transfer.



Do this EVERY single month until you have built up your emergency fund to your desired level of 3 to 6 months income. No excuses.



Every month, you will stick to the amount you have decided and deposit it into your emergency fund the moment you get your paycheck.



Slowly but surely, you will see that your emergency fund account will start to grow. Make sure that you do not withdraw any money from it unless for emergencies.



So there you have it. 2 simple steps that anyone can take to start building up an emergency fund.


SgFinancialFreedom is a blog dedicated to help people achieve their financial freedom. This is done through the sharing of knowledge, information and experience. Find out more about the author and his journey to financial freedom at http://sgfinancialfreedom.blogspot.com


Article Source: 2 Easy Steps to Building Up Your Emergency Fund

Start Building Your Savings

Where To Start With Building Savings
By Jennifer Tannehill

When I began getting my finances in order, I couldn't wait to get started but I was perplexed. Where should I start? Some experts say, "Pay yourself first" meaning retirement, some say get your debt paid down, while other suggested beginning with an emergency fund. And, those are just the top three, there are many other schools of thought. I asked around. No one agreed on any one method. I read Suze Orman's new book Women and Money. It was a great book, but it could not answer this question to my satisfaction.

I did a lot of research on the net and I came up with my own plan. Here are the steps and my reason for putting them in the order that I did.

1. Start a small emergency fund. I will start by paying the minimums on my credit cards until I have socked away around $500 to $1000. I think this is the best first step because without some free flowing cash I will have no choice but to use plastic if I have any unexpected expenses. I am limiting it to just $1000 at most because I figure that would cover an ER visit, a replacement appliance, or car problems. I just hope I don't ever have all three at once!

2. Begin paying off the credit card debt. One note here, if you are already paying into retirement keep doing so unless you are not able to pay off your existing debt. In paying off debt, almost everyone agrees- you must pay more than the minimum balance due on your cards. However, there are two methods to choose from. The first is to pay off the card with the highest interest rate first. This makes sense because that is the one that will end up costing the most in finance charges. But, if you are anything like me, you like to see progress. Another way to go is to throw the most money at your smallest debt first. That way you see $0 balances sooner giving you a little pick-me-up on the long road to debt repayment. Whichever you choose, pay the minimums on all but the card you are trying to pay down first. Put more money toward that card, but once it is paid off keep putting the same amount toward your debt. In other words, if I am paying $200 on my high rate card and I pay it off, I am to put that money toward the next card. Then repeat the same process until all the debt is paid.

3. SAVE. It is a good rule of thumb to have several months of income saved up in the event that you are laid off, become ill, or cannot work for one reason or another. At this point you can start putting more money into your emergency fund. Once you have that built up, begin saving for retirement if you are not already doing so. How you choose to save is up to you. Step three really requires its own article. Briefly, if you get an employer match on your 401K at work fund it to get the full match, hey, that is FREE money. If you don't get a match or once you have funded up to the match, try to max out an IRA. The type and amount you can invest depend on your income and your age respectively.

I hope this has given you a starting point in getting your finances in order. When I began looking I just wanted a simple plan to follow. I ended up having to make my own. Try it, tweak it, but do something. The worst mistake you can make is to do nothing. Know that no matter where you begin, taking small steps toward dealing with debt and saving will eventually turn into a change for the good.

Jennifer Tannehill maintains a personal finance blog at http://picturewealth.blogspot.com
Please check it out!

Article Source: http://EzineArticles.com/?expert=Jennifer_Tannehill
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