One thing that you can never be sure of in this world is what will happen tomorrow. In fact, we really cannot be sure of what will happen later on today – not even in the next hour. If we could know, then we could also be sure to avoid those things that are not going to be pleasant to us. To help us to be ready for those events, everyone should have an emergency savings fund of some sort – to be sure that they are as ready as is possible.

All of us know that our society is built on the exchange of cash, and this means it is cash that you will need when you are faced with that emergency. Here are some tips about how you can set up an emergency fund – in a savings account.

Understand Why You Need an Emergency Fund

The first step you want to take is to understand what your needs are for emergency funds. If you are like me, you probably never gave it a lot of thought – who wants to think about things like that? The truth is, though, that by spending a little time thinking about it, it will enable you to understand just how important it really is. So – you don’t want to be in too much of a hurry to pass over this section.

Emergencies can take all kinds of shapes. They can range from very simple ones – to those that are almost beyond the imagination to comprehend – like the one that occurred not long ago in New Orleans. Here are a few possible emergencies that are experienced from time to time around this country – all of which you will need an emergency preparedness savings account for if it happened to you:

• Floods
• Earthquakes
• Tornadoes and hurricanes
• Tidal waves
• Accidents
• Medical emergencies or illness
• House fires
• Unemployment
• Emergency travel

Determine How Much You Will Need

Note that in some of these cases, your home could be destroyed. If that were to happen, you would need to be able to have a place to live for a while. If you have a home business, then your income may be destroyed at the same time. You would need living expenses for several months, plus some way to regain an income – whether it means getting new equipment, or just getting a new job.

Another possibility is a car accident. Remember that you probably have to pay a deductible before your car insurance company will pay anything. This means you would need to pay the deductible for everyone on the policy, plus the deductible on your car, before you get a dime – if your whole family is hurt at the same time.

Also, don’t forget that your insurance company probably works on a reimbursement policy, and this means that you will have to pay out of pocket for some time, and then be reimbursed at some point in the future. You will have to have enough money saved to support yourself during this time. As you can see, a safe amount to have in an emergency savings fund would need to be a couple of thousand dollars for a family, but having at least one thousand dollars would be a good starting place for many people.

As a rule of thumb, it is a good idea to set aside at least three month’s worth of income – but six month’s worth is better. If you are self-employed, then it is recommended that you set aside up to a full-year’s worth of income. Besides just saving money, however, a self-employed person should also have a back-up plan to resort to in an emergency.

Put It into Your Budget

After you decide how much would be a good goal for you and your family, you want to set aside an amount each month – in your budget – to build up to that amount quickly. This is a very important item in the budget and should not be delayed – if possible. The main reason is that the damage that can occur to your financial situation can be very serious – and long lasting.

Probably the easiest way to establish your emergency fund would be to have the money automatically go into a savings account for this purpose. This way, you never have to see the money, and you do not need to make any effort to put it into the account, either. After you have the amount you want, let it continue to build up, but take the extra money every few months and either invest it or put it into a retirement account.

Make a Separate Account

You want the money in your emergency fund to be available – but not too available where it constantly runs the risk of getting spent on trivial things. You should look at it like a life preserver – it’s only there for one purpose – an emergency.

When you decide to create an account for your emergency funds, remember that you need to have access to it quickly – it must be rather liquid. Also keep in mind, though, that if a natural disaster takes out your home – that it might also take out the local bank, too. In some rather recent disasters, some people found this to have happened to them. This makes it essential to try and keep your money in a larger bank, and in one that has branches outside of your local area.

You might start out putting your money into a savings account, and then turn it into a CD when you get over $500, or $1,000, in order to gain a higher interest rate. Saving money in a CD will also help prevent you from drawing into it too often since there would be a penalty for early withdrawal.

As you think about creating your emergency fund savings account, be sure to shop around some for

the best interest rates. Banks post their rates online, so it is easy to see what they are offering. Also, find out if there is a monthly service charge for the account – some will give it for free. Here is a Website where you might want to go to start finding which bank has the best interest rates.

Replenish it when Used

If you should ever have to use money from your emergency savings fund for any reason, be sure to start replacing it as quickly as possible. You never know when you may need it. An emergency fund of any kind is only useful if it is there when you need it, so replace the money quickly.

When to Start an Emergency Fund

You may be one of those people who are in debt and you are wondering what to do first – pay off your debt or start a disaster preparedness emergency fund. If this is you – or even if you had not thought of it yet – let me say that you should start an emergency fund right away. Keep on paying at least your minimum amounts on your bills, but definitely put something into an emergency fund now. Emergencies wait for no one, and it will only take one emergency to destroy you financially – especially if you already have debt.

It is one thing to be able to say that you want to have better control over your finances, but something else entirely to actually have that control. Most people would like to be able to say that, because they don’t want to admit that their finances are out of control. Most of us really would like things decent and orderly – and a budget will help you to have that order.

This was a problem I faced when I saw that my own finances were getting the best of me. I knew it was time to get my financial things together, since things just could not continue the way they were going without great consequences in the near future.

What a Budget Can Do for You

A budget – I already knew – could help me to see where my money was going – and to know where it would go in the near future. Even better than that, though, was that a budget would enable me (and you) not only to be able to set some money aside into savings, but it would also give me better control – the control I needed.

How a Budget Works

Budgeting your money enables you to see at a simple glance – if you keep up with it – just how much money you have available at any time for that budgeted area – food, as an example. It also lets you know how much you need out of your upcoming paychecks for the month where your money has to go out toward bills.

As you learn to look at your budget and not your checkbook, you will quickly understand whether or not there is extra money to buy an extra item with – or if you should not buy it. The accounting lets you know, and it takes the guesswork out of it.

How to Set Up a Budget

A budget is not really hard to set up. What I did was to take my checkbook and wrote down all of my recurring bills – every one of them. Then, I listed all my bills that change from month to month (like the electric bill, heating, etc.) for the past 6 months and put them together so I could average them. I first made sure that I had some winter bills in there and some mid-summer bills to account for the air- conditioning – this would give me the extremes.

Then I looked over my credit card bills and wanted to find out if there were any regular expenses I had missed. It is important that everything is included. Here are some things that you might want to make sure are in there:

• Rent / Mortgage payment
• Food
• Electric
• Gas / Oil
• Water / Sewage
• Trash removal
• Phone – landline
• Phone – cell phones
• Car payment (s)
• Car insurance
• Credit Card payments
• Health Insurance
• Life insurance
• Other insurance
• Clothing
• Car Maintenance
• Gasoline and Oil
• Cable / Satellite TV
• Internet Service
• Education expenses
• Taxes
• General Household
• Medical / Dental Expenses
• Home Business Expenses
• Subscriptions (Newspaper & magazines)
• Memberships
• Home Maintenance
• Entertainment
• Other

After all these things, I also had to try and figure out how much I and other family members were spending in cash each week and month. This can be difficult. In order to be sure, I had to go for a month and get receipts for everything – from everybody.

Once there is a total understanding of where all the money is going, then you also need to know what money is coming in. Besides your regular paycheck, this must include everything like alimony, retirement, gifts, child support, etc.

Then, subtract all of your expenses from your total monthly income, and this will let you see how much money you actually have to work with for extra things. If there is no balance, then you must immediately find places to cut down on your current expenses so that your bills are less than your income – or you are headed for serious trouble. If there is not much left after bills, it is also strongly recommended that you reduce your bills somewhere.

What Your Budget Needs to Include

Now comes the hard part – it has been rather easy up until now. After you subtract all your current monthly expenses, you want to add into your budget amounts for:

• Emergencies
• Deductibles
• Medical and Dental

Each of these things is things that you always want to have cash on hand for – when there is a need. If you have young children, the need will probably be sooner than later.

Besides this, though, you also want to add in a savings plan – both short-range and long-range. Short range refers to those things that you need to save up for – possibly for a few months – like a washing machine and dryer – or for some electronics. Long range refers to those much larger items that you may need to save years for – like college, a special vacation, a motorcycle, a boat, a house, etc. It has been long recommended that you should try and save about 20% of your income.

What a Budget Needs

After you have your budget set up, and you know what money you have for extras, then it comes time to fine tune it. You keep a record of your actual expenses each month, and note how often you regularly go over – or under – your allotted amount. Where there is considerable difference, you want to adjust your budget accordingly. For instance, after you make your budget, suppose the electric company raises its rates by 8%. This means, if your budget is accurate, that you should add 8% to the total amount for electricity – or, cut back on your use of electricity to try and compensate for the raise in costs (trial and error).

It is also a good idea to review your budget after the first month and then again about two months later – to see if some adjustments need to be made. After that, look it over about every six months to determine its adequacy for your needs.

What a Budget Requires

Household budgets look great on paper. It makes you look organized. But unless you actually have the discipline to stick to it, it is just so much ink on paper. It is not the numbers neatly recorded that will make it work – but your determination to limit yourself to those numbers.

Household budgets are merely a tool to help you control your finances and be able to control and save money. You can make a budget on your own or buy some home budget software for the purpose.