Part 2: Emergency Fund

If you have been around the field of personal finance for any amount of time I am sure you know the concept of the emergency fund. If you have an adequate emergency fund you will be covered in case the dryer breaks down, or the car, or -God Forbid- you loose your job. The point of the emergency fund is just that, to care for you in times of emergency.

An emergency fund is a tool to help prevent going into debt when unforseen expenses creep up. Not only that, but knowing that you are covered in case of emergency has a great stress reducing effect. A thousand dollars is the minimum recommended, but the goal is to build up three to six months worth of expenses in a savings account.

For those of us in debt, a $1,000 in savings is almost a requirement. Trying to pay off debt is next to impossible without one. As soon as a credit card is paid off you will need new tires or something and then the card you just paid off is putting you right back into debt. Unless you have an emergency fund. An emergency fund keeps you from taking on more debt and keeps moving forward with your debt reduction plans.

 How to start an emergency fund

1. Pretend its growing an emergency fund as a bill.

Every paycheck set aside some cash and grow your fund.

 2. Start small.

A couple bucks set a side, no mater how small, will add up. Not to mention it will be invaluable if you ever need it.

 3. Bury your tax return in the bank.

Or any lump sum of money that you might be lucky enough to have fall in your lap.

4. Once you have it, don’t touch it.

An emergency fund is going to do you no good in the form of a new television. Keep it for emergencies.

There are many more reasons ways to start an emergency fund then I have listed. Check out these sites for all the information you need.

Emergency Funds: How and Why You Should Get Started Right Now.

How to Start an Emergency Fund.

21 Strategies for Creating an Emergency Fund, and Why its Critical.

Once your debt is paid off it is time to increase your emergency fund from $1,000 up to a couple of months worth of expenses. Three months is a good amount to shoot for, six is even better. In the end though it comes down to how comfortable you are with risk.

But until then, its time to move on to part three.