How to Set Up an Emergency Cash Account

An emergency cash account allows you to be prepared for life's financial mishaps.

Financial gurus such as Dave Ramsey, Robert Kiyosaki and Suze Orman suggest you maintain an emergency cash account. Often when faced with an unexpected major expense such as an illness or car repair, individuals must pile debt onto their credit cards. With an emergency cash account you can pay cash for unexpected expenses, avoiding further debt or high-interest payday loans.

Difficulty:

Moderate

Instructions

1. Choose a target balance for your emergency cash account and start saving toward it. Dave Ramsey's book "Total Money Makeover" suggests having $1,000 in your emergency cash account at all times. That amount will cover many unexpected expenses.

2. Open an account that can be liquidated quickly and with minimal fees. Avoid CDs, IRAs and other long-term investment vehicles, because you will be charged a penalty for withdrawing from them.

   Open a bank savings account that allows at least one withdrawal per month without fees. Choose an account that does not require a monthly minimum balance or a monthly fee. Visit Bankrate.com to find a list of savings accounts suitable for holding emergency cash.

3. Create a payment plan to build your emergency cash account. You may not have all of the money you need up front, so start with a small amount such as $100 and deposit more biweekly or monthly. Set up an automatic deposit so money is put into your emergency savings account electronically with every paycheck.

Tips & Warnings

• If you have an emergency expense and need to withdraw money from your account, replenish the account as soon as possible. Try always to maintain your targeted minimum balance.

References

• Daveramsey: The Seven Baby Steps

Resources

• Bankrate: Find a money market account/savings rate