In part 1, we discussed why you should have an emergency fund. Now that you recognize its importance, it is time to get to work friends.
The proposed method is simple, automatic and painless. You will hardly notice the difference in your day-to-day spending. A few personal finance experts recommend different methods, but my personal experience with this system gave truly great results.
Here are the steps and explanation to take to set up the account;
1) Find an online bank that provides a no minimum deposit account. The account should be outside of your usual banking system. An external account helps to avoid temptation. Plus, you benefit from the fact that these banks do not have brick and mortar to pay, so they usually pass on the savings to their clients. You can find these accounts with ING Bank, Ally and many others. (here is a referral Orange key : 17416168S1 . Yep, you can even make money by referring clients)
2) Calculate your monthly expenses. Doing this is a great exercise. It helps determine where your cash is going. As mentioned in the previous post, take a monthly sum of your ;
- Lodging expenses; rent, mortgage, condo fees.
- Transportation: Public transit, car, gas and insurance.
- Utilities: Anything really needed to keep the house functional. Gas, electricity and your telephone bill.
- Food: All the food consumed during the month minus the frivolous stuff.
- Credit payments: You do not want your credit score to take a hit while you are jobless.
3) Now that you know how much you spend per month, multiply this number by the number of months of expenses needed. You have now your objective. Tip: 3-6 months minimum. If you are self-employed or in a risky position, 1 year is strongly advised.
4) Setup the account to withdraw a minimum 10% of your after-tax pay on your payday. 15% is good, 20% is best.
5) Don’t touch that money and watch it grow.
This coupled with other sound principles, and you will suddenly feel more in control. Consult an independent fee-based financial planner for more details.