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Financial headache No. 1: How do I pay for that unforeseen expense?

People who’ve had large and unforeseen expenses arise can probably either tell you how happy they were that they had emergency funds, or how difficult it was to find the money to cover expenses.

People who’ve had large and unforeseen expenses arise can probably either tell you how happy they were that they had emergency funds, or how difficult it was to find the money to cover expenses.

As with most finance-related issues, pre-planning is a key factor in successfully weathering the storms we are all sure to face in life. Most experts agree that saving three to six months’ worth of expenses is a good guideline.

Start small

If you currently don’t have an emergency fund or find it difficult to save money, the key is to start small. Realize that accumulating one month’s worth of expenses will take some time, let alone three to six months’ worth. If you set your immediate goals to be small and manageable, you will have a better chance in reaching them.

The best way to get started is through your financial institution. Open a separate account and begin to save with this first. Get into the habit of making regular deposits into this account. Whether it is weekly, biweekly or monthly, create a schedule and stick to it. Setting up an automatic transfer to this account can be very helpful in taking overthinking out of the equation.

Begin with a small amount. Maybe $10 a week initially. While this won’t add up all that quickly, the important thing is to start putting something away and to make it a habit. After a few weeks, you will grow accustomed to that $10 missing and you can increase it to $15 or $20. When you are comfortable with the increased amount, increase it again.

Where do I keep it?

Start with a savings account because it is simple to use and generally does not cost anything. The convenience factor is what is important when getting started. As your account grows, you may want to find an account that can earn reasonable interest so that your money is working for you. The next best options to look into are money market accounts or certificates of deposit (CDs).

It is important to keep this emergency fund in a place that is fairly liquid, which means you can easily access your money in the event of an emergency. Don’t have this money tied into stocks or mutual funds because the volatility of the market could cause you to lose money over the short-term.

Credit unions offer a variety of savings vehicles to help you get started. Their rates are generally higher and fees are generally lower than bank rates. For more information, visit www.belco.org or any Belco branch location.

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