Plain-spoken best-selling author
and radio host Jean Chatzky has some empowering words
for those having trouble starting an emergency fund:
Small steps count. Breaking down typical defenses
against saving money, she offers a simple plan that
anyone, no matter how cash-strapped, can use to pad
their finances against disaster.
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| At a glance | |
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Why
an emergency fund?
 First of all, why should people have an emergency fund?
 Because
when you don't have an emergency fund or an emergency
savings account and something goes wrong, your only
choice -- or the choice that most people resort to
-- is to put it on a credit card. And then as we've
seen with many people, it typically costs much more
than the original emergency to pay it back. Having
an emergency fund keeps you out of debt, because whether
the emergency is a big one -- a health crisis -- or
a smaller one -- the transmission on your car goes
-- having a little bit of cash set aside for that
purpose enables you to pay for the emergency yourself,
rather than trying to scrounge up assets from some
other source.
How much does it take?
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How much do you recommend people save up? |
I
like to see people have anywhere between three to
six months' worth of living expenses in a liquid emergency
account. Now, living expenses are different from the
amount of money that you spend every month to live.
When I'm talking about living expenses, I'm referring
to the amount of money that you would have to spend,
such as rent, your car payment and the grocery bill
-- which does not necessarily cover the cost of eating
out. Living expenses should also include the total
of a basic trip to the drugstore, but not the kind
of visit to the drugstore where you buy every other
thing you want that's on the shelf.
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