Create An Emergency Fund To Stay Out Of Debt

When I bring up emergency funds some people start laughing. Why am I advising them to save money when their paycheck is already coming up short? After creating a budget, an emergency fund is my second most important step to financial freedom. Without one you will always be in debt. Why? What do you do when your car breaks down or you have unexpected medical bills? You pull out your credit card. If that is already maxed out you head over to your local payday lender and grab some quick cash. Problem solved? No!

Flagler, CO 5/17/11

Pull out a list of all your creditors and how much you owe them. How much of that debt started out as an emergency expense? Did you stick to the plan? Use the card for emergencies and pay it off before something else comes up…of course not. You’re only human and the temptation to spend is hard to resist. Constant marketing surrounds us and the pressure to spend has never been higher.

Don’t make things worse. Create an emergency fund and plug the problem. If you’re completely drowning in debt consider filing bankruptcy and starting over fresh.

If you’re ready to get started keep reading. If not, click here.

Creating an Emergency Fund In Four Steps

1. Open A New Savings Account: Don’t use an account your already have. Open a completely new account. Try to get something without fees and high interest. Make sure you can pull a majority of the money out within 24 hours. If you don’t need the money fast it may not be an emergency.

2. Figure Out How Much You Want To Save: Most experts say save three to six months of your income. For most people who are already in debt that isn’t realistic. Set a small goal of $1,000 and aim higher once your there.

3. Start Saving: The easiest way to build an emergency fund is to use your tax refund. If tax time is months away don’t wait! Look at your budget and work it in. Automatically deposit a set amount into your emergency fund every month. I don’t care if it is just $20 a month. Just get the ball rolling.

4. Only Use The Money For an Emergency: If you need a new car start budgeting for a new car. If your car breaks down look at your other options first. You may be better off getting a ride or using public transportation until you have saved up enough to fix your car. Be proud of yourself for building an emergency fund. Don’t force yourself to start over for a wasteful expense.

  Tags: Bankruptcy, Financial Freedom