One of the basic principles of any sound financial plan is saving money for emergencies. Everyone will suffer a major financial windfall at sometime in their life, such as a job loss, automobile repair or a major medical bill. It’s only logical to save for such events. As much as we would like life to go perfect, it just does not happen. It’s not being pessimistic to save for emergencies, it’s just common sense.

In order to create an emergency fund, you will first have to get some money saved up. Don’t borrow money to create an emergency fund; that defeats the point. You are creating an emergency fund so that you do not have to borrow money when a major financial expense happens. You will have to cut back on some expenses or work some extra hours in order to free up some income to save for emergencies. You can also sell some items which are out of line in your personal financial plan to accomplish this.

It’s a good idea to save for emergencies, but how much should one save? Best selling author and financial counselor, Dave Ramsey, tells us that a person should save about 3 to 6 months of expenses. You can save closer to three months if you and your wife are both working, have stable jobs, no major medical problems, and your life is just okay. You should lean closer to the 6 month mark if you are the sole income provider for the family or if you have a history of medical issues or any other reason that might cause a large financially windfall unexpectedly.

Once you begin saving money for emergencies, we need a place to put it. You don’t want to put it in dollar bills under your mattress because you are losing purchasing power to inflation. A high-performing high-class money market account is the way to go. These are currently earning about 4% to 5% interest annually. When choosing a money market account, be sure to get one that has check writing privileges so that you can get access to your money when you need it.

When you have your emergency fund in place, you are now one step closer to being financially secure. Emergency funds will only work well in coordination with a budget. Proms, engagement rings, new clothes, braces, new cars, new televisions and the like are not emergencies. Emergencies are major automobile accidents, unforeseen medical expenses, and basic living expenses because of a job loss. Once your financial situation is in order again you can start rebuilding your emergency fund.

Do not use a home equity line of credit, a credit card or any other source of credit for an emergency fund. What happens if we don’t save money for these events and end up using a line of credit to pay for an emergency? You are going to be cash strapped when you need money the most. You will end up borrowing money at the time you can least afford to. Instead of having no money, you will have no money and a new payment to worry about at the end of the month.

Many people who have a car insurance against their business cards fail in dealing with mortgage effectively, ultimately having to put up their homes for sale.

• A Realistic Look At Financial Security
• Make 2008 Your Year for Personal Finance
• Don’t Let Irregular Expenses Wreck Your Budget (or Drain Your Emergency Fund)
• When should you start an emergency fund?
• When is the right time to start an emergency fund?