Budgeting for an Emergency Fund Savings Account
In today's debt filled climate a saving grace for any
family facing a financial emergency is having a well funded emergency
fund. Many people have gotten into financial trouble simply because they
have never learned to save and have relied on high interest credit cards
or personal loans as a substitute when a need for emergency money
arises. Unfortunately saving money in today's rampant consumer driven
society is not something the average American family does well.
The road to financial freedom starts with the ability to manage ones
money and one of the first steps is to build a small emergency fund that
will relieve the need to use credit cards or other types of credit when
an unforeseen financial problem occurs. An emergency savings account
allows you to pay cash in those situations instead of making payments
and incurring the interest credit cards charge.
Staring an emergency fund can difficult for some people. Just finding
extra money to put into this type of account can pose a problem for
those who find their finances stretched to thin. The easiest way to
start finding that extra cash is to start keeping a budget, or if that
word sounds to restricting, a cash flow plan. Very simply a cash flow
plan shows you where all your money is being spent. The amazing thing
about doing this is the amount of money you can free up just by keeping
track of what you actually do with it.
The next question many people ask is how much should their emergency
fund be? In reality it depends on what your current financial situation
is. If you currently have a lot of high interest debt then it doesn't
make sense to have a large amount of money in a low interest saving
account. If this is the case it is best to keep your emergency fund
small, in the $1000 to $2000 range, until you have paid off all your
outstanding debt, except for your house mortgage. The idea is to throw
as much money at your credit card, car loan, student loan, or any other
debt as possible. Once that debt is wiped out you can start saving large
chunks of money to quickly build up your emergency fund.
Most financial people say a well funded emergency fund should contain
around 3 to 6 months of expenses. These would mean a sum of $15,000 to
$30,000 for the vast majority of people. That may sound like a lot but
if you set up and keep a budget you will see rather quickly how much
money you will need on a monthly basis.
Once you have this emergency fund in place it is to be left alone except
for emergencies. A new couch or TV is not an emergency, but you can save
money in addition to this amount for other things. The point is that
this type of savings account gives you the piece of mind knowing that
you can handle any financial emergency quickly and easily without
resorting to falling back into debt. | 
