Emergency Fund: First Line of Defense

I have no military background whatsoever.  However, my experience on the battleground of personal finance has taught me that you must have a plan for the unexpected.  Things will not always go according to plan.  In financial terms I ‘m saying expect the unexpected.  My washer broke down last week.  The repairman’s labor (15 minutes) and materials set me back $184.00.  This is an unexpected event.  Luckily, I had my emergency fund in place and didn’t have to slap this occurence on the VISA.  It’s these unexpected expenses that can keep you reliant on credit cards and servicing more debt.

What is your plan to deal with the unexpected expenses in your life?  Do you have Mr. VISA as your back up plan?  Would you like to have the money already in place to escape paying finance charges on these purchases?  The emergency fund is your answer.  Emergency fund money needs to be set aside in  a separate account that can be accessed quickly.  I have an online savings account with ING Direct to serve this need.  The account can be accessed anytime and money can be directed to your checking account in a few days.  Having it in a separate account keeps me from raiding it for non-emergencies. 

HOW CAN YOU BEGIN? 

Step One –  Decide how large of an emergency fund you need.  I recommend an amount between $500-$1000 as a minimum.

Step Two Decide how much you can start setting aside each paycheck toward your separate account.  Place this expense in your budget just like your car payment.  Label it “Savings.”  You can start with as little as $25 per pay period. 

Step Three – Go to www.ingdirect.com and open an account.  You’ll be asked to give checking account information so you can start having this money deposited each month.  You choose the amount and the day of the month you want it transferred.

Step Four – Stick to your plan!  Do not touch this account for anything BUT AN EMERGENCY!  A spur of the moment vacation to Florida is NOT AN EMERGENCY!  Legitimate emergencies are car repairs, appliance repairs, high medical bills, etc.  Be vigilant and leave this money alone.  In a few months you’ll be proud to know that your defense plan is moving along and your relationship with Mr. Visa is growing very distant! 

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