The news is full of heartbreaking stories about people losing their homes, going bankrupt and facing financial ruin. If you don’t want to be among them, it is time to take a hard look at some steps that you can take to insure yourself against financial ruin. One of the best things that anyone can have is an emergency fund.

Whether you miss a few days at work, lose your job or have an emergency that requires a lot of money, having an emergency fund is a lifesaver. While you can use a credit card as an emergency fund, we generally don’t recommend this, due to high interest rates. That doesn’t mean you should bury your fund in the backyard, but you may want to consider placing it in an interest bearing account to further increase what you have saved.

An emergency fund is not a savings account per se, but rather a fund that you can pull from when things get bad. You don’t need to have $10k socked away, but a few hundred can’t hurt. Here’s an easy guide to help you decide how much money you should have in your emergency fund: Monthly Salary x 3 or Health Insurance Deductible

This means putting aside the equivalent of three months pay. Six is best, but three is attainable by most people. Let’s take a look at a few ways that this kind of emergency fund can come to the rescue:

1. You lose your job.

Unless you qualify for unemployment, this situation is usually pretty dire. If you are in a field where there are not a lot of openings, it can be even worse. If you had an emergency fund with three months of your old salary put away, this would give you breathing room to spend three months looking for a job without feeling any monetary pinch.

2. Your car breaks down.

Let’s say your transmission decides to fall out tomorrow. Could you pay for a full replacement? If not, then an emergency fund is very important. You can use it for just about anything, but auto repairs are one of the most common reasons people use their emergency stash of funds.

3. Your mortgage payment goes up.

If you suddenly switched to a variable rate mortgage, your monthly payments are going to go up. Most have reported anywhere from $20 to $300 a month if not more. That emergency fund will come in handy in bridging the gap until you can either refinance at a lower rate or find a way to make ends meet.

4. You have a health emergency.

Even if you have health insurance – do you have enough money put aside to make the deductible? A lot of people have fallen into the trap of getting a $2500 or even a $10k deductible to make their monthly payments lower. This means that if you had an appendicitis attack today, you’d have to come up with that much money before your insurance takes effect. With an emergency fund, it’s no big deal to make that deductible and get the treatment you need.

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Originally posted 2008-09-03 05:10:11. Republished by Old Post Promoter

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