11/12/2010

Building Your Emergency Fund

The success of any long-range savings plan depends on consistently putting money away and leaving it there.People who are living on a lean-and-mean budget will have the toughest time setting aside money for emergencies. For beginning and more advanced savers, nothing is more important than the emergency fund. As the cornerstone of your savings plan, an emergency fund is your protection against unexpected, but inevitable, expenses.


Figure out your goal & a place to save. Having an emergency savings fund may be the most important difference between those who manage to stay afloat and those who are sinking financially. That's because maintaining emergency savings of $500 to $1,000 allows you to easily meet unexpected financial challenges such as a car repair or medical bill and avoid high interest, short-term loans.
 
Treat the emergency fund as a bill, and make sure to pay yourself first. If you don’t have much to save, it doesn’t matter — the important thing is just to start. Even if it’s only $25 per paycheck, just start. The savings will build. If you have discipline problems, there are accounts where you can have the amount deducted directly from your paycheck, before it’s deposited into your checking account.Individuals who save automatically are more than six times more likely to be successful long-term.
 
Quite often, people who don’t have an emergency fund see the idea of having to save up money as some form of punishment – Wrong. Having an emergency fund gives you more room to breathe if something does happen, instead of having to squeeze the expense onto a credit card, or beg a friend for extra cash.
 
If you want to have a savings account for big splurges, that’s great – start a “splurge fund,” too, if it makes sense for you. Many people see the emergency savings as being too tempting. They see that extra $500 dollars in savings as a trip, or a TV... and that's exactly what they spend it on.  It’s important, though, to just leave the emergency fund completely alone until you need it. Don’t even look at the balance until an actual emergency occurs.
 
Track your progress. By enrolling as a Virginia Saver, you can utilize the Virginia Saves Savings Tracker for free to record deposits and monitor your progress. If you’re not sure where to find the money to start saving, cutting down expenses can be easier than you think. Institute a “no-spend day” and for each dollar you don’t spend, add to your emergency fun. Stay tuned for next week for even more ways to save on everyday expenditures!
 
Some Tips to Help You Start:
  • Start Small- Build High: one great way to start is to set a goal that’s more reasonable. Make it your initial goal to have an emergency fund of just $250 or $500.
  • Focus on the Little Changes: Small ways to save money are everywhere. Packing your lunch, carpooling to work with friends, and transfering one monthly spluge like dining out to your savings by staying home can result in big savings.
  • Set Reasonable Milestones: Once you reach your smaller goals, set larger ones. You can build wealth!

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