The Business of Trucking

Financial planning, Step 2: Emergency fund

If you read my column last month, you know that I have started a series on basic financial planning. The first step was to determine where you are now in your financial life. Now let’s move on to Step 2: the Emergency Fund

There is a good reason to do these steps in order. We could tell you to jump right in and start investing in the stock market, but does it make sense to earn 10% on your money while you owe 19% on a credit card? You would be losing 9%. We are trying to create a solid foundation on which we can build our financial dreams. Each step is important.

So let’s talk about the next step in the plan: saving a small amount for an emergency fund. Ultimately you need to have about six months worth of living expenses saved for emergencies, but for now, if you still have debt, try to save $1,000. Put this in a money market account or an interest-bearing checking account. This way, if you encounter an emergency while paying off debt, you won’t be forced to borrow money. Later, after paying off your consumer debt, you will come back to this part of the plan and save the full six months.

How do you do this if you are having a hard time just paying the bills every month? You have to make more money, cut your spending or, preferably, do both. Hopefully by this point you have learned enough about running your business profitably so that there is extra money in the budget. Let’s say you’re saving $300 a month by following the methods we’ve outlined in this column. You would be able to save your $1,000 mini-emergency fund in just over three months. The idea is that every extra penny saved goes towards whatever step in the planning process we are currently focusing on.

Here’s a tip to help you NOT use the one credit card you have for emergencies. Get an empty can, fill it with water, put your credit card in it, and put the can in the freezer. Since you can’t use the card on the spur of the moment, you’ll have time to seriously think about the purchase you are about to make. Is it really necessary? The choice is yours. Which road do you want to take? Do you want to reach your goals and realize your dreams?

Check back next month, and we will continue with Step 3. In the meantime, check out my newest Web site, (www.cdlofit.com), where you can create your own page, share your photos and videos and stay in touch with family and friends, all for free.