Fool Proof Ways to Build an Emergency Fund

Are you prepared for a rainy day? Could you meet all of your financial obligations if you were hit with a sudden medical illness that kept you out of work for a few months? Sadly, most families can’t. The good news is that it is very easy to do using resources already at your finger tips.

First let’s define emergency fund so that you’ll have a better idea of its purpose and why having one will give you peace of mind in times of difficulty. An emergency fund is a sum of money, ranging from three to six months of your living expenses, that you can use if you experience a sudden loss in income. Living expenses consists of any bills that you must pay each month including your mortgage, car payment and insurance, utilities, credit cards and other consumer loans.

So how can you easily build one? Why not start with your 2007 tax refund since it is February and February marks the beginning of tax season. Mid-year 2007, the average 2006 federal tax refund was $2548. That’s a good amount of money to help jumpstart an emergency fund. If you are expecting a tax refund from the feds or your state government this year, this is the perfect opportunity for you to build your emergency fund quickly. Because tax refunds can be directly deposited in to your checking or savings account, the money never has to touch your hand which should deter you from spending it frivolously.

Another easy way to build your emergency fund is with the upcoming tax rebate check. That’s right, the President and the Congress are currently considering giving tax payers a tax rebate in 2008 in an effort to stimulate the economy and prevent a recession. In past years tax rebate checks have ranged from $200 to $400. Not as big as an income tax refund, nevertheless it is money you weren’t expecting that could be tucked away into your emergency fund. While the President wants you to spend this money to help stimulate the economy, you should think twice before doing that. If you don’t have enough money saved to help you when you are in a crunch this is yet another great opportunity for you to build up your emergency fund. Keep in mind though this is not a done deal yet, so pay attention to the news media. We are likely to hear something very soon.

So now that you have it, where do you stash it? Your emergency fund should be easily accessible which means it should be stashed in a money market account, interest bearing checking account or a savings account. Since it is for emergencies you should direct your funds towards an account that gives you a little something, interest wise, but offers flexibility so that you won’t have any problems getting your money if you need to do so in a hurry. Many online banks offer very competitive rates as compared to your traditional banks, so keep that in mind.

It is not difficult to build an emergency fund. And the ideas discussed in this article are not new. In fact it may seem like common sense, yet all of us, including me; often times need to have our attention redirected to resources that we tend to overlook. You don’t have to dream up any big ideas or grand schemes to come up with the money, but you do have to do prepare yourself mentally to set the money aside.

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Michelle Sharrow

Michelle P. Sharrow, MBA author and editor of Family Finance, is based in Waldorf, Maryland, she holds a Masters Degree with a concentration in Finance. Michelle provides a monthly column on ways to help families maintain their finances and stick to a budget titled, Budgeting and Savings for Families.
Michelle Sharrow SharrowFamily FinanceFool Proof Ways to Build an Emergency Fund By Michelle P. Sharrow, MBA Are you prepared for a rainy day? Could you meet all of your financial obligations if you were hit with a sudden medical illness that kept you out of work for...Parenting Advice| Family Fun Activities for Kids