Build an Emergency Fund

When there's no money how do I create an emergency fund? Ever ask yourself this question? Building savings is always tough. Even if you make a lot. But when you're just scraping by, it can be very difficult. Here are some tools to help you begin accumulating your emergency fund.

1. Overhaul mindset. Saving is not deprivation; instead, it’s preparation for both the good and the bad of life.

2. Set up an automatic deposit into a special account, before you even get your paycheck. Out of sight means out of mind. You probably won't even miss it.

3. Pay yourself first. Building your fund with whatever is left at the end of the month is a formula for failure. Set aside a few dollars before you begin spending on everything else. Ideally you'll save 10% of your pay, but even a few dollars will add up.

4. Be aggressive in repaying your debts. Pay more than the minimum each month.

5. Repaying your debts will provide more money for your emergency fund. Instead of paying others, you'll be paying yourself.

6. Leave home without it. Despite what the ads say, you can leave home without your credit cards. Many people will spend more just because they use a credit card. Plus, by using plastic, it's easier to spend more than you intended. With cash you're limited by how many dollars you have in your pocket.

7. Wait before you buy. Impulse buying is your enemy. If at all possible delay the purchase until tomorrow. Or at least walk out of the store and give it some thought.

8. It's important where you keep your emergency fund. Have one special account for the fund. Preferably at a bank that you don't normally use. That way you'll need to think about any withdrawls.

9. Don't forget to have fun. Sure things are tight. But it doesn't cost much to watch a sunrise or take a walk in the park. It's good for your state of mind.

10. Reward yourself. Building an emergency fund is not an all or nothing thing. If you've saved for six months you've done something good. Periodically reward yourself even if you still have a long way to go.

11. Respect your emergency fund. You want it to be there when you really need it. Don't elevate every desire to buy something into a fake 'emergency'.

12. Don't play with temptation. Avoid malls, catalogs and sales flyers.

13. Compound interest is your friend. Each month your emergency fund will earn a little more just by sitting in the bank.

For most of us it is possible to create an emergency fund. It may mean some sacrifice. Or postponing purchases. But the reality is that emergencies do happen. And, when they do, being able to pay from your emergency fund makes them much less expensive than if you had to put them on a credit card.

Gary Foreman is a former financial planner who currently edits The Dollar Stretcher.com website. For more great advice visit their money section.

(This article comes courtesy of our friends at The Dollar Stretcher)

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