Are You Prepared for a Financial Emergency?

All three of my brothers have their Eagle Scout awards. When I was growing up, the scout motto, “Be Prepared” was heard rather frequently. And, of course, it can be applied to just about anything in life. Anything at all. And most especially to personal finance.

Having a financial plan is a good idea, and yours should include contingencies for a financial emergency. Start NOW (everything you do in personal finance should start NOW) to begin building an emergency fund. Use an online savings account for the purpose. Your fund should be easily accessible and fairly liquid. This is why a savings account is ideal.

Put as much as you can in each month. Draw up a budget, and include it in your financial plan, setting forth a target for your emergency fund. A rule of thumb is that you should have an amount equal to between three and six months of your salary saved for eventualities. You probably can’t put it all in right now. This is why it is important to put in what you can NOW and work toward the rest. If disaster strikes before you reach your target, at least you have some money saved up and available.

Also, having a bit of cash in a safe place (maybe in the fire safe with your important documents) is a good idea, just in case electronic systems are down and you don’t have electronic access to your account.