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Build your emergency fund

Building an emergency fund is a top priority. Right now.

You're not alone if you're thinking ... "I'm maxed out on my credit cards. I've created a spending plan and found that my income and expenses are just about equal. I have no emergency fund. And I really can't see myself squeezing out the extra funds right now. My goal is to get out of debt."

Nevertheless, a cash reserve is vital to your financial health. It will keep you from sinking to an even greater debt level during a crisis. The cause of a cash crisis can be as major as losing your job to a more minor, but unexpected event such as a car repair. You don't want to pull out a credit card to tide you over in an emergency unless you can pay it off in the next billing period. Otherwise, by the time you pay the interest, which grows daily, you can easily end up spending more than double the original cost.

An emergency fund should equal three to six months of living expenses, and be kept in cash.

Treat the emergency fund as a bill. Pay your account every month or every two weeks.

Stashing money in an easy access money market account takes discipline. Once you deposit your paycheck into your account, there are so many demands coming at you that it's hard not to spend it. You need to pay yourself first and determine not to touch it for anything less than an emergency.

Read this story for strategies on where to stash your cash to earn a better yield. Use this calculator to figure out how much you should save monthly to reach your goal.

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