Debt Free Destiny

How many times have you heard financial experts discussing the need for keeping three to six months living expenses in a savings account for emergencies?  Sure, it makes perfect sense – if you get laid off, you've got a cushion of cash to hold you over while waiting for your unemployment to kick in or until you find a new job.  If your car needs expensive repairs, you'll have the cash available to have them done without using credit and increasing your debt.

For most individuals or families, though – setting aside three to six months of living expenses is just not possible.  A $400 fund, however, is something that almost everyone can manage to save with some determination and while it doesn't sound like a ton of cash – $400 is often enough to avoid most overdrafts (saving you hundreds in potential overdraft fees thanks to the domino effect most overdrafts cause on a checking account); and enough to handle many of the most common “minor” emergencies people face.

Start With $100 Extra

If you tend to run into checking account overdrafts from time to time, start yourself with an extra $100 in your checking account.  If you don't have $100 “extra”, you can get it in one month's time by setting aside just $25 per week for four weeks.

Once you've got the extra $100 in your checking account, don't use it!  This is difficult for people who generally write checks and pay bills from the account right down to the last few pennies week after week; but subtract the $100 from the check register to decrease the temptation of spending it. When you balance your checkbook, remember to add it back in temporarily.

The extra $100 in the bank should reduce your overdraft fees by giving you a bit of cushion if you make a small error.

Add $300 More

Once you've set aside the $100, make the effort to come up with another $300.  You can do this the same way you got the first $100, by taking a small amount each week and committing to the plan.  You might use a tax refund, sell things on eBay or at a yard sale, having a month of necessity purchases only, and saving change to roll and deposit as additional sources for coming up with the $300.

With an extra $400 available to you, you'll be prepared for insurance deductibles, appliances that need repair or replacing, and many common car repairs.  If you run into situations that cost more than $400, well at least you've got $400 saved to help reduce what you need to come up with to make up the difference!

Once you've got the $400 in your bank, resist spending it.  You might be able to reduce the amount of unnecessary spending by trying to avoid spending the $400 but if it comes down to charging something with credit or dipping into the savings, at least pay with cash and avoid the interest you'd be charged from a credit card.  Replace any money you use from your savings immediately – or make weekly payments until it is “paid in full”.

Emergency Fund

The $400 you've saved will become your “emergency fund”.  By all means, if you found during the process of saving that $400 that you can continue on and keep saving to build up a more adequate emergency fund, go for it!  If you're honestly living paycheck to paycheck and can't reduce your expenses any more than you already have though, the extra $400 in the bank should help eliminate many of the financial emergencies people commonly encounter.