Donell Edwards, Blogger
About Donell Edwards: Donell Edwards is President of CWR Media and is also founder and publisher of The College World Reporter (CWR) magazine and CWR World News & Information Service. He is also a professional speaker, freelance writer, and entrepreneur.
Know Your Money
Wednesday – April 30, 2014
Knowing Your Personal Finances
Starting An Emergency Fund: The Challenges
By Donell Edwards
Starting an emergency fund is a must to ensure personal financial stability. However, there may be a number of challenges for some in taking the steps necessary to set up an emergency fund. We will discuss those in today’s post, in addition to why an emergency fund is so important.
Life is filled with surprises and all of them are not good. Loss of employment, injuries, accidents, deaths, births, fires, health issues, family problems, floods, tornadoes, burglaries, and a plethora of other surprises can cause havoc on a person’s budget and personal finances.
Although there is no way to have a contingency plan for every unexpected life event, it is wise to plan for the unexpected in such a way that it provides us with the maximum protection available.
Building an emergency fund so that we have money available and ready when a major vehicle expense occurs, or an appliance needs to be replaced, or when health issues cause unexpected expenses, or when for various reasons we may become unemployed, or a number of other things that may happen, an emergency fund will help us through these situations without experiencing financial disaster.
However, in order to start an emergency fund takes sacrifice, just like we discussed in our post yesterday. It means reducing or eliminating some of the things we do and enjoy. It means finding ways to save on purchases and always being conscious of the need to spend wisely.
So, the major obstacles to getting started are our views of spending and our willingness to change, and being willing to make sacrifices. Some also have to contend with not having enough income to get started. If you are in that position we encourage you to continue working to get to the point where you can start an emergency fund, and until then, whenever you do have anything that you can set aside get in the habit of saving. Begin changing your mentality about money and spending.
There are a variety of opinions on how much should be put into an emergency fund, whether to pay off debt first, how to get started, etc. We offer three articles for you to consider in our Must Reads at the end of this article. The key point is to use what works best for you, but make sure that you do start an emergency fund.
Another question is where to save the money in your emergency fund. I am not a fan of savings accounts because the interest is too low, and with many banks, if you do not read the fine print you will get hit with all kind of charges and will actually lose money instead of earning interest.
However, getting started, using a savings account may be your best option. I do recommend looking into saving with a credit union first rather than a bank. The interest rates for many credit unions is higher than with banks. Another option is looking into purchasing Certificates of Deposit (CDs). Check with your bank or financial adviser and compare the interest on CDs with the interest on savings accounts and decide which is best for you.
Another word of caution. The purpose of the emergency fund is to help in case of actual emergencies. It is not a savings account for vacations, for major purchases, or anything other than real emergencies. So, money put in the emergency fund should be left there until an emergency occurs.
As Financial Literacy Month comes to an end, we are reviewing Money Management International’s Thirty Steps to Financial Wellness. Today we review steps 21 through 30.
- Document your spending
- Identify ways to reduce spending
- Save money on groceries
- Share a tip for change
- Document your desired spending
- Protect yourself by performing financial check-ups
- Understand the cost of credit
- Assemble a financial team
- Appreciate the benefits
- Moving forward
If you have questions or need help we are just an email away. Send your questions to Info@KnowYourMoneyGlobal.com
We Would Like To Hear From You. Are There Any Brave Souls Out There Willing To Share?
If you would like to share with our readers how “bad” spending habits have affected you, anonymously or otherwise, for our upcoming special, “Confessions Of Spendaholics,” please send your experience to firstname.lastname@example.org.
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Disclaimer: I have a Bachelor of Business Administration degree but I am not a financial adviser. However, I have acquired years of knowledge about personal money management through my life experience working through my own personal finances that allows me to share that knowledge with readers of Know Your Money. The Know Money Blog posts written by me are my common sense observations and opinions and are for informational use only. Although my blog includes contributions from experienced financial professionals, please make your own financial decisions based on personal research or contact a financial adviser.
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