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Friday, April 18, 2008

How to beef up the emergency fund. . . .

I've posted about the fact that my labor union may call a strike sometime during the next two months, which has resulted in my obsessing about my emergency fund. Will I need it? If so, for how long? How much will I need? At this point, I can't answer any of these questions. However, what I can control is how much I contribute, at least in the short term, to my emergency fund. I'm a natural planner---I like to be prepared. Since I can't control whether or not my union goes on strike, the only thing I can do is prepare for it, or for any other unexpected calamity that might affect my ability to pay my bills.

First, I need to establish what my goals are. Most financial experts recommend putting away funds to cover at least three months expenses. Six months is better. My monthly out-go is, on average, about $2,500. That means that at a minimum, I need to save an additional $6,500 to add to the $1,000 I already have. That's a tall order! I can probably do about $1,000 in the next couple of months by paying the minimum on my credit card. Perhaps by this time next year, I'll have saved the entire $7,500!

Next, I need to commit to not spending the funds except in a 'real' emergency. 'Real' emergencies do not include a huge sale at Macy's, dinner and drinks out with friends, or a last-minute trip to someplace sunny. So far, I've not touched my $1,000 emergency fund, so I think I'll do well here.

Finally, my money needs to be working for me, in a high-interest account. I bank with ING Direct, which I love. I'm earning 3.0% on my checking account---not a huge number, but I receive nice little chunks of change at the end of every month (equal to about the cost of a small mocha). It's nice to know that I'm earning interest---with my previous, 'bricks and mortar' bank, the savings account paid---if I'm not mistaken---.075% or some ridiculously low number.

If you can, make your savings deposits automatic. I started my ING account with an automatic $50 coming from my checking account---and then promptly forgot about it! Suddenly (well, it seemed sudden) I had over $700 dollars in my account! I highly recommend automating any savings or investing plan---when you don't have to make that monthly decision to save, it takes the ability to fudge right out of your hands. . . .

2 comments:

Rachel @ Master Your Card said...

This is all great advice. I have built up quite a few money reserves since getting married but firstly spent some on having my kitchen extendd and then on having my bathroom refitted. I have now decided that my proirity must now be to pay off the mortgage so my reserve of money is being put aside to pay that off.

Finally Frugal said...

Isn't it great to know the money is there when you need it? I never realized how satisfying and comforting it could be to have some (even a little) cash in reserve, to cover unexpected expenses. I highly recommend it to everyone (sounds like you're already doing it)!

Thanks, Rachel! P.S. Love your blog!

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