Sunday, September 16, 2012

Except from an unfinished book

Several years back, a friend and I were working on a book about debt. For various reasons, the book was never finished, but I always liked this excerpt from it. It's good advice we should all follow.

Excerpt from Debt Free At Last! 50 Ways to Win Your Financial Freedom

Do you have a saving account? If not, why not? We don’t think there’s any good reason not to have one. You can start one with as little as $20. This is a priority. You must have a saving account as soon as possible.

And you must start saving some money immediately. It doesn’t matter that you’re not socking away hundreds of dollars. It only matters that you have a savings plan that you can handle and control.

You might notice we didn’t say anything about looking at interest rates on a savings account. Do look around for the best rate you can find, but the sad truth is savings accounts rarely pay as much interest as what inflation is taking from you. That doesn’t matter. You want your savings account for other reasons; making money is not its primary purpose.

Its primary purpose is to protect you and your family from financial emergencies. Before you invest in CDs or any other financial products, you should have an emergency fund first. We recommend at least three months salary; more is better, but get some money put away as soon as you can.

What is the emergency fund for? It’s not to buy clothes or birthday presents or designer purses. It’s for real emergencies. Here’s a list of emergencies and non-emergencies:

Paying the deductible on your car insurance so you can get your car repaired after an accident – Emergency.
Getting a tattoo – Non-emergency.
Paying your bills after you’ve been laid off – Emergency.
Buying a new flat screen TV – Non-emergency.
Paying unexpected medical expenses – Emergency.
Repairing your car so you can get to work or job search – Emergency.
Purchasing the latest video game – Non-emergency.
Repairing your home heater after it quits working – Emergency.
Taking a vacation – Non-emergency.
Replacing your prescription eyeglasses – Emergency.
Buying designer frames for your eyeglasses – Non-emergency.

You could possibly turn some of those emergencies into non-emergencies if you’re able to work out payment plans and can tap other resources. For instance, some automotive body shops will waive your deductible or let you pay that amount out since they’re getting the majority from your insurance company. And medical providers usually have some type of payment plan. Investigate your options before depleting your fund. You don’t want to tap your emergency fund unless you have to. It’s there behind you, protecting you and your family from the insecurities of life. If you protect it, it will protect you.

The second purpose of a savings account is to get you used to the idea of saving money. Many people do not have this habit. Money burns a hole in their lives. They have nothing and will never have anything – unless they win the lottery -- because they save nothing. (And if that millions-to-one chance happens and they do win the lottery, you can be assured they will be broke again soon enough.)

You’re not one of those people. You understand the importance of the habit of savings. You take care of your home, car, and your relationships because you want them all to last as long as possible. You’re smart, aren’t you?

The third – and perhaps most important – purpose of an emergency fund is to give you and your family a sense of security. In this insecure world in which stock markets crash and jobs are here this morning and gone this afternoon, you are planning for the future. You are going to see to it – to the best of your ability – that you and your family don’t have to do without clothing, food, or shelter. You’re who stands between them and the problems of financial ruin. They are fortunate they have you because you’re going to take care of them.

Remember this: it doesn’t matter how much you save at the beginning as long as you save some. Five or 10 dollars a week is fine if that’s what you can manage. As long as you consistently save money, you will soon see your savings increase. And that little bit of interest you receive is the cherry on top.

Look at your budget. (We just made one, remember?) See how much you can put into an emergency fund savings account this month, this week, now. Is it more important to have all those premium channels on your TV or to secure you and your family’s financial future? It’s an easy decision to make when you take the long view. And you’re a smart person so the long view is easy for you.

Start a savings account now. Someday – maybe sooner than we hope - you and your family will be glad you did.

Copyright 2012 by Stephen B. Bagley. All rights reserved.

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