Emergency Fund

An emergency fund is the money you set aside should something unexpected come up, like losing your job.  There are varying opinions among the experts about how much should be set aside. 3 to 6 months worth of expenses is the old school train of thought. Newer ideas are tending toward having 1,000 or 500 dollars in cash readily available. Obviously you want to keep this cash in a high yield savings account. I use ING Direct.

Here is where I’m going to go a little off track and probably get scoffed at by other personal finance gurus. Because I have a fair level of dept, I hate to see $1,000 sitting to the side earning 1 to 2% interest while my credit card balances are getting pounded with 16+%.  I do keep a little bit of cash handy, but not much maybe only 300-500 dollars.

Should an emergency come up, I keep a few of those checks that your credit card company likes to annoy you with around. These almost always have a transaction fee (usually around 3%), so don’t use them unless it is an absolute emergency.  The last thing you want to do is miss a payment on something that is reported to your credit report like another credit card. The affects of this can take a long time to work off.

Ideally you would find a check that has no transaction fee and a sweet promotion for the balance. Capital One often offers these. If you find yourself in a complete bind, use these checks to escape without damaging your credit score. And once the hardship works its way out you can begin to focus on paying this debt down.  Feel free to post your comments on this.