Start An Emergency Fund Of $1,000 For Emergency Uses

Since I was placed under the debt management program, I have been able to save some money in my saving account as emergency fund. So far, there has been around $70 (RM250) in the account.

According to most personal finance gurus, the first thing you should do after meeting basic needs, and while reducing spending is to start an emergency fund.

What exactly is an emergency fund? An emergency fund is an easily accessible amount of money for emergency uses only. It is not meant for buying a new car. It is not to be used to buy a Nintendo Wii. It is not meant to be used to pay for a vacation. It is for use only in case of emergency.

My goal for the emergency fund is to reach the first $1,000 (RM3,500) in a year, that means by the end of November 2009.

Although most personal finance gurus agree emergency funds are necessary, there’s still no consensus on how much is considered enough. Some say you need to save a year’s salary while others think $1000 is more than sufficient.

I think there is no one right answer for it; do what works for you. As for me, I am going to start with my $1,000 emergency fund first.

I like the approach espoused in Dave Ramsey’s The Total Money Makeover: A Proven Plan for Financial Fitness. Ramsey’s very first step is that you save $1,000 in an emergency fund. Then eliminate debt via the snowball method.

What about the advice of building a three- to six-month cushion or living expenses? According to Dave Ramsey, only once your debt has been eliminated and you’ve achieved financial independence that you are recommended to start building a three- to six-month cushion.

It may take me shorter time to reach the goal of $1,000 for emergency fund if some of the income streams come true:

1. My niche blogs and stores are able to bring in extra $500 income every month. Currently, my online income is $900 (RM3,000) per month on average.

Building up niche blogs and stores is slow for me because I write the unique contents myself and use free marketing tools to market my niche blogs and stores.

It’s going to take a few more months before I see a higher steady income from Chitika, Google AdSense and affiliate products. To date, they bring in $2 per day on average. My goal to is to hit $20 per day.

2. Hubby and his buddy’s foot reflexology center might open in January 2009. I have to use might because they are still awaiting if they can get legal working permits for the Thai masseurs. If there aren’t any legal work permits, hubby and his buddy will not open the foot reflexology center.

Hubby has thought of a contingency plan in case he can’t get legal working permits. He may run a small foot reflexology center on his own. Hubby estimates his income will be between $300 and $600.

Studies have shown that those without emergency savings are more likely to accumulate debt. I am one who didn’t have any emergency fund and was deeply in credit card debt.

I have learned my lesson the hard way. Being placed under the debt management program gives me a chance to regain control of my financial situation, therefore I must start an emergency fund, reduce spending and increase income to pay off my credit card debt fast.

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