2009's Must-Have #1: The Emergency Fund

It's high time that I stopped procrastinating and started getting this blog in shape. It's 2009, a whole new year, and it's time for the harsh reality that I am dealing with to act as a kick in the pants for the rest of you. So let's get to it.

January 5, 2009. D-Day. Or maybe L-O Day. One week ago today, I was laid off from my job with no notice. Yep. One day I was employed, the next day my life was sweatpants and free time. So for now, the job search is in full swing, but in the meantime, my mind has turned to financial security in an unstable world.

You see, to a certain extent, I was caught with my pants down. Although I was making a fair amount of money, I neglected to turn my attention to saving for a rainy day until three or four months ago, meaning that in my time of turmoil, I do not have that mythical beast, the Emergency Fund, on my side. Luckily for me, a sizeable tax return and a few other things will play out in my favor and I should be okay, provided a job turns up in the reasonably near future.

But enough about me - time for you to learn from my mistakes. Without further ado, I give you Step One of Susan B. Anthony's "5 steps to a healthier fiscal year in 2009." (Bad title, good steps.) People, these are easy. Not Suze Orman "give me 7 days of your life and I'll guarantee you $3000 ten years from now" easy. Real, honest-to-God, quick and dirty things that will change your life. Period.

(1) Emergency Fund.

Okay. Most of us have heard about this one. You're supposed to have three, four, even six months of living expenses squirreled away for a rainy day - or, in my case, January 5, 2009. This is not hard. It's simple, it's easy, and it's important. So get started.

Right now, while this blog is open in one window, open a new page and log onto ING Direct's webpage (www.ingdirect.com) or HSBC Direct's webpage (www.hsbcdirect.com) or go to any other online bank and sign up for a free savings account. Or, alternatively, use the one that's probably offered by your bank in connection with your savings account, although my advice is to use a different bank for your emergency fund than you do for your normal banking. Trust me on this one. Sometime in the future, you will have blown through your paycheck a bit faster than planned and it will feel like an "emergency" when your friends want to go to the bar and you don't have the cash. If it's linked to your checking account, it's a little too easy just to transfer $50 over to your checking account and head for Ye Olde Pub. Do that a few times and you risk making a serious dent in your rainy day fund.

So set up the account. It should take you about 15 minutes. Type in your information and voila! You now have a savings account. You have just completed the hardest part of the process.

Next up, funding the account. If you search on the web, people will say that you should save 10% of your income for emergencies. I say if you are capable of doing that, great. Personally, I think that at age 20-something, with a job that probably nets you just enough to pay the rent, your student loans, buy groceries, and pay that pesky cell phone bill, it might not be realistic to pull off a number as high as 10%. So pick your number. 5%. 3%. If you don't like thinking in percentages, just pick a dollar amount that you can deal with dropping from every paycheck. Once you think of a number, increase it ever so slightly. For example, you're thinking $40 per paycheck. So make it $50. You're thinking 5%. Make it 7%. Generally, people think they can't afford to save as much as they are able to. So push yourself a little bit - even if you feel a little pinch, it will be worth it.

Next up is how to get the cash from you to the savings account. Personally, I am a big fan of calling your payroll department and having the money deducted directly from your paycheck. If your company offers direct deposit, it's likely that you can request that your paycheck be split between two or even three accounts by filling out a simple form with payroll. So instead of getting a paycheck for $1500, you'll now get one for $1350 while $150 heads off to join your Emergency Fund.

The second option is to use an automatic savings plan to get the money to your savings account. Most online accounts offer this function. You can tell your Emergency Fund how often to deduct money from your checking account and how much it should take. Obviously, you probably want this to match up to the days you get paid, but it does allow you a bit of flexibility. My only qualm on this front is that you may have too much temptation to mess with your saving plan if your above-mentioned friends head to the bar and your savings deduction is scheduled to take away your beer money.

And that's it. You officially have started your Emergency Fund and you didn't even break a sweat! It's a cheesy refrain but it's true enough that after a few pay cycles have passed, you won't even miss the cash you're sending to your savings account. Honestly. You learn to live without it and you'll sleep a little better knowing that when your personal D-Day comes, you will be able to walk out of your supervisor's office a little freaked out, but confident that you can weather the ensuing financial storm. And that changes the lay-off from a setback into an opportunity.

Emergency Fund 2009. Now that's sexy.