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Wednesday, December 27, 2006

Baby Step 3 - Build a fully funded emergency fund of 3-6 months of expenses!

At this baby step, you are completely debt free except for the house! Congratulations! You are now on your way to building wealth! In this baby step, you will take your $1000 emergency fund and extend it to 3-6 months worth of expenses. Notice that this is expenses and not salary. If it takes you 500 dollars a month to live, then that is 1 months cost of living.

Now instead of paying extra to your smallest debt each month, you will now take the money and put it in the bank. This money will be an emergency fund and should not be touched except for emergencies. Just because you wanted to go on vacation this year doesn't mean that you should take money out of this account, you should have a seperate account for that. I prefer either a money market account or a high yield savings account. Some great high yield savings accounts on the internet are E-Loan, ING-Direct, GMAC, AmboyDirect, and EmmigrantDirect.

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