Building an Emergency Fund
If your car’s transmission died, would you be able to pay for it? If you lost your job, how long could you pay your bills while unemployed?
For most people, the answer to unexpected financial difficulties is to whip out the ol’ VISA. While a credit card can save you from a temporary problem, prolonged use digs you into a deeper and deeper hole.
The best way to prepare for a financial hard times is to establish an emergency fund. What is an emergency fund? An emergency fund is just what its name suggests — a fund for financial emergencies. An emergency fund is not a vacation fund or a plasma TV fund. (You certainly should create a fund for discretionary purchases, rather than placing them on your credit card, but remember that an emergency fund is money set aside for bona fide emergencies only.)
By placing three to six months of living expenses in your emergency fund, you will be well prepared for just about any financial problem life throws at you. If you lose your job, your emergency fund will allow you to find a replacement job with minimal stress. If your car breaks down, the repairs won’t put you in the poor house.
Your budget may already be tight, but diverting part of your income to your emergency fund is cheap insurance. Most banks allow you to automatically transfer money to your savings account. If you have your savings automatically taken out of your paycheck, you probably won’t even miss the extra money! Once you build up your emergency fund, you can use the money you were saving for other discretionary funds, such as a vacation fund or a new car fund.
If you’re going to have your money sitting in a bank account, why not make your money work for you? While you can set up your emergency fund at almost any bank, we recommend that you use ING Direct. ING Direct’s Orange Savings Account pays higher interest than almost any other savings account on the planet. At the time of writing, ING Direct is paying 2.35% APY on their savings account. That’s more than many banks pay for CDs! There are no minimums, and you can control your account and transfer money quickly and easily online. Open an ING Direct Orange account today.
