Continuing our series of chapter by chapter review of the Automatic Millionaire by David Bach (Click here for the introduction and links to the other chapter reviews.), This chapter is about the importance of emergency funds and how you should have it earn some interest without too much risk.
This may sound like common sense to you, but David highlighted an example that one of his clients actually hid the emergency funds in his backyard! Just remember that your emergency cash should:
1. Allowed to earn interest
2. Almost no risk of capital depreciation at any given time
3. Very liquid
Here are the action steps:
- Commit to building an emergency fund: The suggestion was for 3 months??worth of expenses. Individual situations may vary, but 3 months should be a good starting point
- Decide to earn interest on your emergency fund: Enough said??/li>
- Open a rainy day money market account or a US savings bonds rainy day account: These are all good suggestions, and the online savings account are pretty good choices too. For those that follow this blog, you know I use Etrade Online Savings account
- Your rainy day account should be funded AUTOMATIC in a set schedule until it is big enough for you to feel secure: Without it being automatic, it is very hard to keep up.
The next chapter is titled: Automatic Debt-Free Homeownership which includes perhaps one of the most concrete money saving tip in this book. The tip can potentially save you tens of thousands of dollars! Come back regularly to check to see when the article will come out!
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