Start Your Savings 1: Build an Emergency Fund

In this series we are discussing various savings accounts and how to possibly fund them. To get the rest of the series click here, or subscribe to our RSS feed. The post will be delivered as soon as they are made available!

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I will say that I am extremely biased on this topic. It seems to me, from the research that we have done, is that there are two schools of thought. Either you pay off you high interest debt, then build your savings, or you get a specific amount saved before you begin paying more than the minimum payment on your debt.

Having been in a situation where the income suddenly disappeared, I am now a firm believer in having an emergency fund. It would have been nice to have a cushion to fall on when things went haywire. We have started our emergency fund, but we have a long way to go to reach our goal. When you first begin, I recommend setting your goal to be enough to cover at least one month of expenses.

The first step is finding the money to place in the fund. We had a zero budget when we began, which means everything we had coming in (and then some!!) was going back out. Here are some of the ways we have “found” money to save:

  1. We created a budget. The list included all of our expenses that we had gathered. I am working on a spreadsheet budget, and as soon as I get it finished and uploaded we are going to do an entire post on budgeting. Once you have created a budget, any amount that is not used in a category (providing all other expenses are covered) can be placed in your savings.
  2. We started a change jar. We placed a simple mason jar on our kitchen counter and place all loose change (other than quarters) in the jar. Our first month we had around eight dollars. If you use your debit card for most purchases (as we do), this will not add up quickly, but every little bit will help.
  3. Look for ways to lower your expenses. For a list of general ideas on how to save on expenses check these post. Again, whenever you are able to lower an expense, place some (if not all) of the savings into your emergency fund.
  4. Sell unused items. Anything that has value, that you are not using or personally attached to, get rid of. This was a two fold bonus for us. We made money for our savings, and the extra space and clutter free rooms really made a positive difference in our house. Ebay is one place to start. Although, I do not recommend selling anything that will not bring at least five dollars. It is not worth the time and effort to list items and pay the associated fees for less. Ebay has great research tools available to see what most items are selling for.
  5. Take on additional work. This is not a favorite choice, but it is an option. Either volunteer for overtime or extra work at your current employer, or find “odd jobs” to help people with. Unless circumstances are dire, I would try to find other ways before taking additional time away from family.

Once you have a little extra money, the next matter to consider is where to save it. Here are some of the choices we considered.

  1. Our local bank. If you need to have the money immediately available, then this is your best option. You can walk in and withdraw your money if need be, but you are going to pay for this luxury dearly. I am not talking about an actual expense, but rather in lost interest. Our bank currently only pays 0.5%. Our bank also requires a minimum balance, or you are assessed a $3 fee every month your balance is below minimum.
  2. Online savings accounts. These accounts are insured just like your local bank accounts by FDIC. There are many options available, and the interest rates will vary, but we chose ING. At the time of this posting their rate is 3.4% APY. While there are banks that are paying higher, all of our research lead to the fact that ING has phenomenal customer service, and an easy to use site. We were not disappointed.
  3. Interest bearing checking. This was an option for about two minutes for us. First of all, most require a minimum. Secondly, we decided that this was to be a savings account, and even though we wanted to have “quick” access, we did not want immediate access. We know enough about ourselves at this point to know that we could find an “emergency” (we should buy that limited edition thingamajig, they might run out!) if we had instant access.

Even though there are many other options available, those are the only ones we considered. As with most avenues in personal finance, patience is a key factor. It may not make you feel like dancing in the street, but that $4.40 deposit (yes, we have made one) will get you closer to your goal.

Do you have an emergency fund? How do you save for your fund? Where do you invest the money? We would love to know!

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3 Responses to “Start Your Savings 1: Build an Emergency Fund”

  1. Start Your Savings 1: Build an Emergency Fund Says:

    […] unknown wrote an interesting post today onHere’s a quick excerptWe made money for our savings, and the extra space and clutter free rooms really made a positive difference in our house. Ebay is one place to start. Although, I do not recommend selling anything that will not bring at least five … […]

  2. Debt Says:

    An emergency fund will always come in usefull

  3. joetaxpayerblog Says:

    I am from the pay the cards back first camp. I think owing money at 15% or more is a killer. Of course, every one has to know their own comfort level but that’s how I paid off the debt. I’d also suggest two things. Funding a 401(k) up to the matching funds should come first. Then, consider putting the emergency money in a Roth IRA. You can withdraw it for the emergency but if you have no need for it, it will jumpstart retirement saving.
    JOE

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