Five Steps to Create an Emergency Fund Starting Today!

Author:

Mr. Goodguy

By Mr. Goodguy © 2010 consultant with Chicago Lakeview Psychotherapy firm, 2nd Story Counseling

You are sitting at home, credit cards maxed, wallet empty with absolutely no money to your name. The rent is due, the cell bill is late and you are not even sure how you are going to scrape up a few dollars to buy your next meal. Your self-esteem is in the toilet and you are filled with anxiety, worry and shame. In short, you are flat broke!

Sound familiar? Perhaps a bit extreme but you get the point. Whether you are 20, 40 or 60, establishing good financial habits is important for your survival in this economy. The very best thing you can do to start 'good money habist' is to set up an emergency savings fund. Here we will explore how to set an an emergency fund up with a mental health slant because a large part of establishing any habit (good or bad) is mental in nature. What follows is the no-sense approach to stashing away cash!

What is an emergency fund?

We hear the term 'emergency fund' bandied but what does it actually mean? In simple terms. an emergency fund is hard, liquid cash that you have put away a in case a REAL emergency happens. An emergency fund is NOT your credit card, is not your 401K plan and not a college fund. And while we are on the topic of 'emergency' a real emergency is not money that you dip into when you are short a few bucks and want to hang with your friends or go shopping.  

So what is an emergency? An emergency is when your rent is due and you don\'t have a paycheck coming in to take care of it because you lost your job.  Think that won\'t happen to you? Then you need an emergency fund right away! Most experts suggest that you aim for a six-month emergency fund however, I am a real person and know that six months may seem overwhelming right now. Better to aim a little lower, at least at the beginning, and make your goal of one month.

Here are 5 steps for how to create an emergency fund:

1. Pay Yourself 10First

Notice I did not say 'Pay yourself first' but 'Pay yourself 10first!' This step means taking 10off the top of whatever you bring home and shipping that money off to an account that you do not have easy access to with a debit card. In fact if the bank sends you a debit card or ATM card, cut it up! You don\'t want such easy access to this money. A very practical way to do this is to setup an automatic savings plan with your paycheck, with some of your money going into your checking account and the '10 going into a savings account.  This may be painful at first but ask yourself this question: How much pain am I in right now being broke?

2. Pretend you never got your tax-refund

Yes, you read this right. Pretend you never got your tax refund. This means when you file your taxes and find out you are eligible for a tax refund, you instruct the IRS to electronically deposit that money into the savings account discussed in step one. You don\'t take part of it or a little of it but instead, take NONE of it. In other words, pretend you did not get a tax refund.

3. Find an old coffee can and make a piggy bank

That\'s right - grab an old coffee can, wrap some paper around it, draw a face on him and some ears. Walla - you have a piggy bank. Sure, you could go buy one but why? The point here is to save money, not spend it. Now take all of the spare change you have during the day from necessary purchases and throw it in your piggy at the end of the day. When he gets full, go to a Coin-Star or whatever coin counting service is in your area and turn it into paper cash. Then turn it into a money order and send it to your savings account.

4. Pretend five dollar bills are fake

I know this sounds as crazy as some of the other points made here but crazy thinking is what got you into this mess in the first place, right? Why not try this trick. Whenever you get a five dollar bill, tell yourself that it is fake. Then take it and stick it in an envelope that is addressed to your savings account. Once the envelope gets full (in a month let\'s say), take the fives out and turn it into a money order. Then stick that money order into the envelope and send it to you know where - your bank (or credit union).

5. Sell crap you don\'t use or need

If you have a bunch of clothes, tools, appliances, computer equipment or whatever and you don\'t use it - sell it! Even if you fetch $10.00 for that old computer monitor, it is doing something for you. The added benefit of this step is that you will also de-clutter your place, which is often the cause of messy finances.

So there you have it folks, five practical and real ways to create an emergency savings account! 

Article Source: http://www.articlesbase.com/personal-finance-articles/five-steps-to-create-an-emergency-fund-starting-today-3951692.html

About the Author

Mr. Goodguy likes to write articles about life and is a consultant to Therapists in Chicago at 2nd Story Counseling 4003 N. Broadway Street. Chicago, Illinois 60613. Tel: 773.528.1777