Manage Your Debts

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Why You Need an Emergency Savings Account

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It seems as though the tighter your money situation becomes, the more expenses find their way into everyday life.  This is when the car suddenly needs new tires or the computer monitor gives up the ghost.  It's Murphy's Law but you do not have to be powerless against the assault of expenses.  The solution is to create an "Emergency Stash".

Your Emergency Stash is your emergency savings fund where you keep money for these random expenses.  Rather than trying to pay for them out of pocket or by using a credit card, the Emergency Stash has the cash you need.  While it should go without saying, your Emergency Stash is only for emergencies.  Sales at your favorite store, car payments, and nights out on the town do not qualify as emergencies.  This money is only for those random, unforeseen occurrences that demand money now.  In a word, "emergencies".

Setting Up Your Emergency Savings Account

One of the best ways to create your emergency savings fund is to open an account with a financial institution that has high interest rates.  The emergency savings fund will usually just "sit" in the account, so a high interest rate will allow it to build small amounts on its own.  If the institution you choose does not offer a debit card, find out if it is possible to link an existing account to the new one you set up.

Supplying Your Emergency Savings Account

Now that the account is set up, your task is to supply it with cash.  The best method is to do this is to get it at every payday.  Immediately after cashing or depositing your check, set aside a predetermined amount and deposit it into the emergency savings account.  You can often have this automated for you by using direct deposit and having your employer divert the specified amount to the emergency savings account.  Do this until your emergency savings fund has reached an amount that you feel is comfortable.  This amount should not be less than $1000.  In these times of nonexistent job security, it may be a good idea to have several months’ worth of expenses in your emergency savings account.

Using Your Emergency Savings Account

A debit card linked to you emergency savings account is a double-edged sword.  If gives you quick access to the money in the case of emergency but at the same time it gives you easy access to the money in every other situation.  You know yourself.  If you do not believe you have the discipline not to use this money for anything but emergencies, keep the debit card inside something that locks and out of your wallet or get an account that does not offer the card.  After using the fund, immediately start replenishing the amount used.  This will keep the fund stocked for the next time the wolf comes knocking at your door.

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