7 steps to an emergency savings account

by Jim Sloan

The secret to saving: Pay yourself first

With many Americans struggling to pay the bills, cut down their credit card debt or get by on a smaller salary, it may seem foolish to advocate putting money into personal savings accounts. Isn't a savings account something you should think about when you're flush with cash?

Not in these uncertain times.

Saving accounts for emergencies

According to The Sacramento Bee newspaper, more than a third of us are putting less money into our savings accounts, online savings account or money market account now than we were a year ago. More than half of us are pessimistic about the economy turning around.

But perhaps the most surprising statistic: Only one in four Americans has saved enough in their savings accounts--be it a high-yield savings account or an online savings account--to cover their household living expenses for six months. These so-called rainy day funds or emergency accounts are critical during a time of high unemployment and economic insecurity.

7 steps to short-term security

That's why it's important for all of us to start building the best savings accounts we've ever had. Here are some tips:

  1. Start, even if it means starting small. Even setting aside $10 a week into your online savings account helps you in the long run. Make it a habit and stick to it.
  2. Focus on a goal and work to reach it. One goal would be to figure out what six months of living costs you--figure in grocery bills, rent or mortgage, insurance, utilities and everything else and come up with a figure. That's your goal. Work toward it.
  3. Set aside 10 percent of your monthly salary for your emergency savings accounts. In a year, you'll have more than enough for a few month's worth of living expenses.
  4. Treat saving like any other financial responsibility. It's a bill. Pay it. Make it the first bill you pay and then pay the remainder.
  5. Save automatically. When you set up direct deposit for your paycheck have a portion automatically diverted to your savings account. Most direct deposit forms allow you to do set up several transactions each time you get paid, so set up at least this one. Once you don't have to think about it, it takes care of itself.
  6. Find a "money buddy" who you can confide in and share success with. Your money buddy has to approve any transfers from your savings accounts, so give them online access to your accounts. Everyone works harder when they think someone is watching them.
  7. Log any windfalls. Windfalls are trees that have blown over and they save pioneers money and time because they didn't have to chop them down. Put all your cord-wood - including bonuses, gifts or over unexpected dividends.--into your emergency savings accounts.

That should get you started improving your savings rate. If you need additional strategies for starting the best savings accounts, consider freezing your credit cards in a Ziploc baggie filled with water--the time it takes to defrost it might be just the cooling off period you need to reconsider the expense--or paying for everything with cash. People who buy with cash tend to spend less than those charging their credit cards.

Disclaimer:This content is not provided or commissioned by American Express. Opinions expressed here are author's alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.

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