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Wednesday Welcome: Find the Money for an Emergency Fund

This week we welcome Bill Somerville, a writer for the website Money Crashers. He’s here to give you some ideas for building your emergency cushion — as you know, I think having emergency money on hand is one of the keys to financial success (it’s even a Money Rule — #15: Emergencies Happen).  

piggybankchangeUnemployment remains high, no one is exactly sure what the Affordable Care Act truly means for healthcare costs, and the last government shutdown caused hundreds of thousands of workers a temporary job loss. During times like these, you have to protect yourself financially, and step number one means creating an emergency fund. If you’re currently dealing with credit card debt, student loans, or high monthly expenses, you may think an emergency fund belongs on the back burner. Don’t make that mistake. With just a bit of planning and forethought, you can devise a plan to both establish the backup money you need and to watch it grow in the right financial product. Do so, and your finances are going to be resistant to nearly any financial fluctuation or calamity. Here’s how to get it done.

1. Cut the Cost of Your Food Bill
If you’ve never thought about clipping coupons before, then you’re simply missing the boat when it comes to saving on groceries. They’re in the Sunday paper, but they’re also in your smartphone if you download apps like Yowza or RetailMeNot, and they are available at food manufacturers’ websites as well. Just commit to not using a coupon for something you wouldn’t normally buy – that’s spending money as opposed to saving it.

2. Reduce Other Monthly Bills
Take a look at your current satellite or cable TV package, and then compare it to the next lowest plan. If you won’t be missing out on any of your favorite channels, downgrade. Then do the same with your mobile phone. Contact your provider to see if there’s a minutes or data plan available for less money that still meets your needs. Similarly, if you don’t use the Internet a lot, you might be able to save by downgrading your connection speed at home. [Note from Jean: If you haven’t already, download my free report to help you save on common household expenses like cable, cell phone and utilities.]

3. Review Your Home Mortgage
Do you know what you’re currently paying in interest on your home mortgage? The refinance rate for a 30-year fixed loan is just over 4%, so if you’re significantly higher than that, check out refinancing options and you may be able to reduce your monthly payment by hundreds of dollars. Go to the Zillow website and click the “Find A Pro” tab. Enter your zip code and read the reviews for agents that come up in your results. Email a few of the most reputable, and see what they have to offer.

4. Limit Your Personal Purchasing
How much money do you spend at convenience stores for snacks and sodas, newspapers, lottery tickets, and similar items? These can either be eliminated or gotten elsewhere for a lot less money. If you’re in love with new electronic gadgets, how bad off would you be if you halted all purchases for six months? It’s answers to these questions that can help you significantly cut back on ancillary, non-essential purchases.

The tough part is done. To truly make your effort pay off, however, you have to wisely invest all that money you’ve saved. A 0% APY savings account won’t do much for you, but, on the other hand, a risky security could result in your funds being wiped out by market fluctuations. Here are two safe, but dynamic, investment options for your emergency fund.

1. Savings Account
You won’t break the bank in earned interest when you put your emergency fund into a savings account, but you won’t risk losing it either. Savings accounts at many local banks earn 0% interest, but online options generally offer better rates. GE Capital Bank currently features a 0.90% APY, and the savings account offered by American Express comes with a 0.85% APY. These accounts all feature FDIC insurance as long as the bank carries it, each account being protected up to $250,000. Also, be sure to look for the best banking promotions to get the best sign-up bonus deals.

2. Money Market Account
A money market account is offered by banks and credit unions and lets you earn a modest amount of interest, usually in the range of 0.60% to 0.90% APY. Some require high minimum opening deposits, but others can be as low as $25 – Bank of America is one example. Ally Bank and Capital One 360 are both online banks which offer money market accounts with reasonable interest rates. These also come with FDIC protection, generally up to $250,000.

About Bill: Bill Somerville is an online contributor who writes about money management, including smart shopping and investing strategies.


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