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Family & Money: Planning For The Unexpected
By: By Sharon Epperson | 13 May 2007 | 02:40 PM ET
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Sharon Epperson

Ten Ways To Save For The Unexpected

You want to be a smart saver. You need to plan for uncertainty -- not just the certainty of retirement or your child’s college education, but the unexpected. What will you do when the unexpected happens – you lose your job, the basement gets flooded, the boiler breaks, a medical procedure you thought would be covered by insurance is not – where will you find the extra money to pay for it? A survey by SMR Research a few years back found that more than 40% of Americans have less than $1,000 in liquid, non-retirement savings accounts.

A credit card is no substitute for an emergency fund. You need to have an emergency financial plan. Your best bet is to try to squirrel away three to six months worth of living expenses for emergencies. You may need more or less depending on your lifestyle. So here are ten ways to help you build that cushion:

1)      Skip the “extras.” Stop dining out on the weekend for a month or two and invite friends over for a potluck or make dinner at home. You could probably save $100 every month.

2)      Cut back the money you keep in your no-interest checking account and put it in a money market account or high-interest savings account. HSBCDirect and EmigrantDirect, for instance, offer online savings accounts with 5.05% annual percentage yields. At ING Direct, the Orange Savings Accounts yields 4.5%.

3)      Treat the emergency savings like a bill. Write a check to your money market account every month and put “emergency reserve” in the memo section.

4)      Or if you do your banking online, have a set amount of money directly deposited from your paycheck every month into your high-interest savings account to cover that emergency fund “bill.”

5)      Once you’ve paid off a credit card bill or other debt, continue making those “payments” into your emergency fund.

6)      Stop using your credit cards. It’s a lot easier to get rid of outstanding balances if you’re not constantly adding to them.

7)      Limit your access to your emergency fund. Keep this reserve in a separate account, or better yet, at a different financial institution than your checking account. You’ll be less likely to dip into the fund if it’s more difficult to access the money.

8)      Boost your savings with a bonus. If you get a raise or bonus at work, put that extra money in your emergency fund.

9)      Make it a family affair. Get the whole family involved in the savings game by encouraging your children to save a portion of their allowance or earnings. You could even offer to match their contributions to the family’s emergency reserve.

10)    Once you’ve reached your savings goal, review it. Make sure you’ve saved enough in case you’re expenses have increased (or, lucky you, decreased.)

Budget for disasters because that’s what can knock you off your savings strides. Making sure you have the funds to cover the basics if the unexpected does happen will put you on the path to the big payoff!

Adapted from CNBC Correspondent Sharon Epperson’s new book, "The Big Payoff: 8 Steps Couples Can Take To Make The Most Of Their Money – And Live Richly Ever After" (HarperCollins)

© 2009 CNBC, Inc. All Rights Reserved
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