First, let us establish that there are two types of savings: short term and long term.

Short Term.  This is for easy access to cash that is needed right away.  You should use this money for repairs on vehicles, appliances, or other unexpected emergencies like insurance deductibles.  You should have at least two or three paychecks of short term savings available.  Or, shoot for about $1,000.00 to $1,500.00.  You could also keep this amount in cash in a safe place in your home.  Just keep in mind that you will need to protect it and keep the fact that you have that amount of cash on-hand a well guarded secret.  Otherwise you will find yourself being influenced by well-intentioned family or friends to spend it on things that do not qualify as a legitimate expense.  If you have to use it, replace it as soon as you can so that the money is there the next time that you need it.  Short term savings is important for peace of mind.  If the need is unexpected, then this is your account.

Long Term. savings should be allocated for major purchases and/or higher interest growth as in a CD or Money Market account. Major purchases that qualify would include automobiles, major appliances, or a down-payment on a house.  Also, medical expenses that are not completely covered by the short term savings could be paid with this money.  An account that is considered long term savings should have between three and six months equivalent of your income in it.

How to Fund These Savings Accounts.  The short term account should be funded as quickly as possible.  Any means possible will do.  A garage sale, bake sale, sale of items on Ebay, etc.  Whatever you can do to put money into this account will suffice.  Be creative and get it completed as soon as possible.  The long term account will need to be funded over a longer period of time and AFTER the short term account is in place.  You will have to place this in your budget in order to allocate an amount to go into this account until it is completed.  Set up a goal of about six to nine months to complete.  If this is too aggressive for your budget or income, then lengthen the time to make it more realistic.

Life’s unexpected events will still be unexpected, but at least you will have the cash to deal with them in a sane manner.

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