Life is full of surprises, both nice and not-so-nice. An unexpected illness or major car repair can cost big bucks, and when you buy your first home you face even more sudden, unexpected expenses. You could keep a credit card to use in a pinch, but an emergency fund is an even better idea.
One easy way to start one of these handy funds is to pick one source of money and put that cash into an "emergency" savings account. For example, Emily waited tables during college. She used the paper money from her tips to pay her expenses and put all of the change she made in tips in a coffee can. When the coins built up, she rolled them and deposited them in a savings account. She assigned the savings account as the backup to her checking account, so if she had an emergency expense, she could pay with her debit card. Not only did she avoid paying interest on expenses like car repairs, she earned interest on the savings account.
Can technology improve your financial willpower? Next we'll look at automatic deposit.