Few, if any, of us escape life’s financial challenges. Whether it’s lay offs at work, unexpected medical bills, or the loss of a spouse’s income, having insufficient reserve funds to pay even one or two months’ worth of our bills can drive many to impossibly strict budgeting, the loss of real property, and sometimes even to bankruptcy.

As important as any other item in your budget, building an Emergency Savings Account with funds sufficient to pay three to six months’ worth of your monthly bills, can provide the financial buffer required to survive while you get back on your financial feet.

So, even while you’re repaying your current debts, budget for regular deposits into your Emergency Savings Account at least until you reach the level of three-months' worth of expenses. Many financial planners even suggest having six-months’ worth of expenses in such a savings account. To be sure, you should consider how long it might take you in your particular career and position to find and secure another job should your current income cease. Positions in some professions take longer than others to find.

Early on, consistency is much more important than quantity, so even a $10 deposit each month is a good start. Many tend to spend whatever “surplus” money they notice in their checking account, so take out the savings amount as soon as you deposit your paycheck. To simplify things, have your bank or credit union automatically transfer $10 or more from your checking account to your savings on a specific day of each month. When the money is out of your checking account, you’ll be less tempted to spend it.

Once you have reached your target Emergency Savings Account balance, take the monthly amount budgeted for this account and begin applying it toward any consumer debt you may have. Once you’re out of debt, that monthly amount should then go towards investments and retirement planning.

To summarize:

1. Create and live by a monthly personal or household budget.
2. Open a new savings account – this will be for your Emergency Savings Account.
3. As soon as you get a paycheck, deposit the Emergency Savings Account money into your bank, even if it’s just $10 per month. Increase as your budget and your income allow.
4. Determine how much you pay out each month for expenses.
5. Keep depositing money into your Emergency Savings Account until you have a balance equal to at least three months worth of expenses.

Todd Christensen
Director of Education
Debt Reduction Services
(208) 378-0200 x 906
http://www.DebtReductionServices.com

A certified credit counselor with small business ownership and group facilitation experience, Todd Christensen directs the education department at Debt Reduction Services, a Boise-based national nonprofit credit counseling agency.

Todd develops the client education and community outreach programs as well as producing materials that teach personal finance skills to individuals from all walks of life. He frequently visits local schools to teach wise credit usage; he regularly counsels individuals and small groups on establishing a “doable” household budget; and he facilitates workshops on the development of effective spending behaviors.

He is available for conversations, presentations, interviews, and other opportunities to discuss building basic money management skills in youth and adults.

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