The goal: Dedicate 1 hour a day, for 7 days, and improve the health of our finances.
Hour 5 (00:00 – 60:00)
Establish an emergency fund –
While we were getting out of debt, our emergency fund was limited to $2000.
After getting out of debt, we increased the amount of money in our emergency fund to six months’ worth of expenses.
For us, we chose to keep our emergency fund in our ING Direct Orange Savings Account. Other alternatives would include an interest bearing checking account, a savings account with your local bank or credit union, or a money market account.
The emergency fund serves as a buffer between us and the unexpected expenses of life. Without our emergency fund, we would have to depend on credit, should we face an unplanned-for expense.
Opening a new savings account with ING Direct, only takes a few minutes, and due to the fact that ING requires no minimum initial deposit, there’s no reason for anyone to live without a place to keep an emergency fund.
There are several ways to determine how much money should be kept in an emergency fund. For us, we simply looked at our budget, subtracted any items that we could easily do without, and multiplied that number by 6. Due to the recent downturn in the economy, my wife and I are seriously considering increasing the amount we keep in our emergency fund, equal to an entire year’s worth of expenses.
Over the course of this week, I’ll write two more articles about improving the health of our finances. Each article should take just a few minutes to read, and the steps outlined should take about an hour to do. Depending on the health of your finances, you might be able to breeze through the steps in just minutes – or it might take you much longer, if things are in need of repair. My goal, however, is to keep the steps to a minimum, and to make them as easy-to-follow as is possible.
Consider Hour 5. If you will take the time to do all of the steps outlined above, you’ll have established how much you want in your emergency fund, opened an account into which you can begin to deposit your emergency fund, and started the process that will move you away from credit and towards cash. And, you will have accomplished all of these things, in about an hour!