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Archive for March, 2008

Ok lets say you are determined to start saving for your financial future, paying down debt, reducing expenses and trying to increase your income any way possible.

The first thing your should do after cutting back your expenses is to build up a small emergency fund. Initially I opened up an Ing Direct account and had $100 per month taken directly from my checking account where my pay was automatically deposited. Once I saved up $1000 in this account I lowered the monthly contribution down from $100 per month to $50(this was so I could apply the additional money towards outstanding debt).

What is an Emergency Fund?

It is money automatically put aside from each pay check to be available in case of emergency. An emergency is not needing that new movie that was just release on DVD or a new purse that is on sale. An emergency is needing a new battery for your car, a new hot water tank etc…

Like mentioned earlier $1,000 is a good goal for the initial emergency fund. If you used $350 for a new hot water tank then you increase your emergency fund contributions until it is back up to $1,000. This is your safety blanket fund, this is what lets you sleep at night knowing that if your refrigerator dies tomorrow you can afford to buy a new one without going into further debt.

Once you have much of your debt paid off you should increase your emergency fund to allow for a 6 month cushion in case you lose your job or have health issues where you cannot work.

What if I do not have any money to setup my emergency fund?

Simply put find it! Re-read our cutting back post and see if there is something you can cut back on, so you can find the funds to start up your emergency fund.

1) If you get a bonus at work put these funds into your emergency fund, do not waste this money it is “found” money.

2) Most of us drink soda, or pop, many states have bottle refund laws, here in New York you get 5 cents per bottle, when I take back bottles this money(even though it is a small amount), goes into my emergency fund. Believe it or not I live across the street from a baseball field, where little league players play all summer, the evenings after the games I will walk over and pickup bottles and cans, it serves a few purposes, it makes the place across from my house cleaner(I pickup the bottles and cans, and other trash so I don’t have to look at it all day), and I make some extra money.

3) Collect pocket change, I have dish in my room when I come home I empty my pockets into it, usually 50 cents here, $1 the next time etc. When this dish fills up I once again put it in my emergency fund.

4) Sell things you no longer use or need - I usually sell a few things on Ebay, and once a summer I have a garage sale, this allows me to clean up the clutter in my house and make some extra money doing so. Once again the emergency fund gets a little boost.

If you have any questions about emergency funds please ask a question in the comments area and I will do my best to answer them.