Pay Yourself First: Emergency Account (part 2)

Emergency Account

To completely avoid the two laws of financial nature, you have to create a buffer zone that is designed to save money, but you don't feel guilty touching.  However, that being said, you cannot, and will not dip into this account frivolously.

Emergency Savings Account

Laws of the Emergency Account

You need to setup some rules, specific to the Emergency Account -

1. the only time you can withdraw money from this account is when it is an emergency
2. the only time something is an emergency, is if you are charged a fee by a government official ( ambulance; police; IRS; towed vehicle )
3. any and all credit card charges are to be paid off immediately out of this fund, in total before the due date of the credit card
4. you cannot charge anything to your credit card, unless it is an emergency, because it affects this account

#3 and #4 are your super-discipline rules.  You should never carry a credit card balance and you should hardly ever have to dip into this account.

Being serious about this account will make your expenditures on frivolous things come way down.  By disciplining yourself, you completely eliminate buying stuff you do not need.  If you're reading this article, to begin with, you agree that you need to approach money seriously and want serious information about how to approach money seriously.  That means, any and all spending of money needs to be looked at under an extreme microscope.

This economy has washed away many people's lives.  They spent their way right into poverty and have lost everything.  The lack of discipline on controlling their money sent them right into the poor house. The very thing that they were hesitating to spend money on, i.e. getting a lawyer to review their home loan, was squandered away in buying a coffee every day.  Instead of saying no to their children for little things, they lost their house. Instead of cutting back, they plunged ahead, buying and spending their way right into the poor house. Keeping up appearances was so much more important to them, than sitting down and hashing out a budget to stay afloat for 10 more years.

This is the account that should force you to do all of that. If you set up an emergency account, then you have to set up a budget; a set of rules of daily spending, weekly spending and monthly spending. This is where the rubber meets the road. If you cannot swipe your credit card for anything other than a pure, unadulterated emergency, that will cut back on a lot of daily, weekly, monthly bleeding. You will have to sit down and make a food budget, bill budget and upkeep budget (gas, cleaning supplies).  You will start to see that those Home Ec classes you took in high school, will come right back, front and center. So if bills, food and gas are all budgeted, you will immediately see why you are going in the hole.

You can also take this time to see that you are perhaps spending too much on bills.  This is where you can cut down on bills and renegotiate your bill generating plans with companies.You might also find the need to go to your local government to see why they have allowed certain "public" companies free reign, while receiving tax payer dollars, yet charging customers out the nose, for no foreseeable reason.

With the set bills budget in place, then you can set aside all of the rest of the money to go into two accounts, the first being the emergency account.

The bulk of your extra money should go into your emergency account. This might shock some people. Why? Because you can access your emergency account. The second account you will never touch.

Most of the frivolous spending that goes on in households, are for entertainment.  Briefly, entertainment today encompasses a LOT of things: dancing; drinks; movies; music; the arts; cars; food.  What do i mean by cars and food are entertainment? We have been so indoctrinated that we now do not understand the difference between luxury and basic needs. Basic food is far superior and more nutritious than luxury food. Steak, potatoes and vegetables are far more nutritious than a mocha latte capuccino, pizza and soy infested cake. We also do not understand the difference between a practical car and a luxury car.  Or worse, buying a second or third car for convenience.

Married couples are slowly coming to the realization that keeping the wife at home is far cheaper than having her work, buy a 2nd car, commute to work, buy a new wardrobe and pay day care. Just 90 minutes of sitting down and adding up the expenses lets you know figure this out.

Getting rid of these luxuries frees up a lot of headache, heartache and financial burden.

Next: The Savings Account

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