Open an Emergency Savings Account

Begin immediately to save 10% of every dollar you make. This will continue even after we complete this first step. However, the immediate objective is to create an emergency fund of cash that amounts to 1 to 2 months of living expenses

Go to your local Credit Union – every city has them, and open a passbook savings account – not a checking account. This account is not for daily household expenses.

Make sure there is no ATM card attached to the account (and if there is cut up the card), you want to make the withdrawal of this money as difficult as possible. We’ve become addicted to instantaneous gratification of our desires, and ATM and credit cards make that possible. You want to force yourself to have to go into the branch to withdraw money. For deposits, mail it in (cost of a stamp) or better yet have the money automatically withdrawn from your checking account (schedule the withdrawal on the day your paycheck is deposited into your checking account).

In choosing your Credit Union, look for one that has been around for 30 to 50 years, tied to a local organization and has financial stability. You will notice that no credit union has been required to undergo any “stress tests” by the Federal government (ask any Bank of American executive about what this means) that’s because they are non-profit institutions that only loan to their members. Credit Union members’ deposits are their “capital” so in today banking environment they are a safe place to park your money.

Even more satisfying is that Credit Unions really do get to know their customers. My credit union is the same way. It’s associated with a labor union, and I’ve never been a member of a union, but they have great rates and fantastic customer service. You can actually call the branch and talk to someone who knows who you are and can get decisions very quickly. To be fair I also get the same great service at my bank, but it’s a smaller regional business bank.

Your emergency fund will begin to accumulate (maybe very slowly), but it will have a dramatic and important impact on your financial life.

Once you are free from the tyranny of debt, you don’t want to go back, and often one of the triggering events to the road to financial ruin is the unexpected expenses (loss of job, health emergency, and family death), this fund will be your first line of defense in helping you through these events. Obviously it won’t cover a catastrophic event, but it will give you a cushion to weather most emergencies.

Most importantly, just the ACT of savings every month and the satisfaction of seeing the amount grow will interject a sense of accomplishment and confidence that you previously did not have.

If you follow my advice (which to be truthful is not mine) to immediately set aside 10% of your income for savings you will not miss it. If you can structure the withdrawal to immediately come out of your paycheck or checking account on the same day it is deposited you will so learn to never even miss it. The more automated you make the process the easier it is to implement.

I personally have several withdrawals taken from my account every month, and until I actually go back and look at my bank statements, I do not realize that the money was “missing.” Well, it’s not really missing, you are simply following an ancient money making rule that if followed will make you rich over time: “A part of all you earn is yours to keep.”

In George S. Clason’s multi-million copy best seller, “The Richest Man in Babylon” written in 1926, the first step to wealth building (and security) is the savings of at least 10% of your income. In his book, he uses the parable of a young man who desires to be wealthy, but is thwarted by his own misunderstanding of simple principals of savings and investing. The very first step toward financial independence is to “start thy purse (wallet) to fattening” by setting aside 10% of every dollar you make.

Clason states: “if you have not acquired more than a bare existence in the years since we were youths, it is because you either have failed to learn the laws that govern the building of wealth, or else you did not observe them.”

I could have used any number of books that advocate the same philosophy, but I read this book about 20 years ago at a time when I needed good fundamental financial advice. The book is still relevant today. I recommend it. It’s a quick read – 142 pages – you can read it in a couple of hours.

So how do you determine what you need in your emergency saving account? Simple: First pay yourself first. The goal is to live below your means – not spending every penny you make. That’s why automatic withdrawal is so key to success in this area.

Note: Many of you will also ask about tithing to your church. The Bible teaches that you must tithe 10% of your earnings. How does that affect your savings plan?

Here, I have no set rule for you to follow, but would only offer you these suggestions. First, your biblical obligation trumps any advice I have to offer here, but that does not mean you can not do both simultaneously. Further, if you were not tithing before bankruptcy since you had no money left over after juggling your debts and you find it necessary to first establish a security savings account and than commence regular tithing afterwards than that’s ok too.

The key here is to live and save within the mandates of what you believe, but start to do something immediately.

The concept of “pay yourself first” has been around a long time and is idea is probably not new to you, but you must make savings automatic. Either set up an automatic withdrawal from your paycheck or your checking account. Once you established the automatic withdrawal, you will hardly notice the difference, but if you wait until the end of the month to add to your savings you will find that there is “more month than money” – so unless you are extremely disciplined (which I know that I’m not – sure I can save money each month), but why just not make it a non-decision. After a couple of pay periods you will not even notice.