Why Your Emergency Fund Needs $500

“If you are human, have a pet, kids, a house or a place to live, something is going to happen that will cost you money,” said Cornfield.

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Traditional wisdom says one needs about 6 months of income squirreled away in an emergency fund to be in good financial shape. For many, that number seems astronomical and folks don’t even start because it seems like a battle they can’t win. Though more money is usually better, I’m gonna buck conventional wisdom and say that if six months’ income seems too steep a hill to climb, perhaps your goal should be $500.

*clutches pearls*

It’s not as crazy as it sounds. Every year the Federal Reserve puts out a research study about the financial state of American households. This year, the board found out that the average American wouldn’t have $500 for an emergency. Of course, there are larger emergencies out there but for many people an unexpected expense might be a blown tire, automotive engine work, a broken appliance, or some other emergency expense that might cost around …  you guessed it …  $500.

From The Atlantic:

” …. what was happening to me was also happening to millions of other Americans, and not just the poorest among us, who, by definition, struggle to make ends meet. It was, according to that Fed survey and other surveys, happening to middle-class professionals and even to those in the upper class. It was happening to the soon-to-retire as well as the soon-to-begin. It was happening to college grads as well as high-school dropouts. It was happening all across the country, including places where you might least expect to see such problems. I knew that I wouldn’t have $400 in an emergency. What I hadn’t known, couldn’t have conceived, was that so many other Americans wouldn’t have the money available to them, either.”

 

Obviously, having $500 won’t solve all of your problems but “I’d rather be caught with it”. * in my Xzibit voice*

If you haven’t started an emergency fund, head over to your credit union and open a savings account asap.

 

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PayDay Loans … ugh – 4 Other Options

If you’ve read Money Matters: The Get It Done in 1 Minute Workbook, you know how I feel about PayDay loans. I ran across this PayDay Loan Fact Sheet and I wanted to share it with my readers.

In case you’re not familiar with PayDay Loans here’s what the Fact Sheet says about them:

Typically, a borrower writes a personal check for $100-$300, plus a fee, payable to the lender. The lender agrees hold onto the check until the borrower’s next payday, usually one week to one month later, only then will the check be deposited. In return, the borrower gets cash immediately. The fees for payday loans are extremely high: up to $17.50 for every $100 borrowed(1) , up to a maximum of $300. The interest rates for such transactions are staggering: 911% for a one-week loan; 456% for a two-week loan, 212% for a one-month loan.

That’s crazy right? I know sometimes you feel like your back is against the wall and you have to do what you have to do to put food on the table, but please think long and hard before you choose to take a PayDay loan. Instead of taking this type of loan:

#1 Take money out of your Emergency Fund. These unexpected expenses are exactly what your Emergency Fund exists for.

#2 Clean house. You probably have tons of things in your house you don’t even use. Round those things up and take them to the swap meet. Ask others if they have old items you can take away for them. You’ll pay about $25 to rent a booth, but you’ll be in a place where people come to buy used items. The chances are good you’ll walk away with a few hundred dollars.

#3 Go to your credit union and ask if you can take out a small personal loan. This will provide you with the money you need while costing less and helping your credit score when you pay it off.

#4 Ask a friend or family member. Be clear about how much you need and when you’ll be able to pay it back. These type of loans can damage your relationship if they are not taken care of. Don’t lose a good situation behind money.

Emergencies are always going to occur. Plan ahead and keep at least $500 in your Emergency Fund. Whatever you do, please don’t take out a PayDay loan.

10 Ways to Manage Your Money in 2010

I was asked to write an article for USC’s The South Los Angeles Report and I did. Take a look at 10 suggestions to help you start out 2010 on the right financial foot.

1. Think about the big picture
2. Keep $1,000 in an emergency fund
3. Save for retirement automatically
4. Change the way you bank
5. Have a garage sale
6. Spend only $50 per 2 people in your household per month
7. Start using money management software
8. Create a plan to pay off debt
9. Create spending guidelines
10. Resolve not to get a tax return next year

Ready to do some work on your finances? Buy Money Matters: The Get It Done in 1 Minute Workbook on Amazon.com.

Money Management in 1 Minute: Savings

Money Management in 1 Minute : Savings

                                                                                            

Savings falls into two general categories: short term (in the next five years) and long term (longer than ten years). We will all have emergencies come up, having just $500 available for emergencies may be the difference between paying bills and going into debt. Short term money needs to be available at a moment’s notice to pay for car repairs, tickets, and other emergencies. Long term money can be put into more risky and less liquid accounts because you won’t need the money for a long while.

 

Savings vehicles also fall into a few broad categories:

 

Savings Vehicles

Short Term Appropriate

Long Term Appropriate

Savings Account

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Savings Bonds

 

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Money Market Account

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Mutual Fund Account

 

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Retirement Account

 

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