Step Zero: The Emergency Fund

Your Protective Wall Against Life's Little Challenges
by Charles J.

Pertinent in the path to financial freedom and success is the establishment of your preliminary emergency fund. I suggest about $1000 in liquid capital (cash) in the bank. Once you have set aside this small amount, you should begin your spending plan, keeping in mind that you should spend 90% of it and save 10% for yourself—at the least. Every 10% should go into a high-interest account and reinvested over and over—this is an emergency fund after all. Consider the words of George Cason’s character, Arkad of Babylon, who spoke this law of saving and paying yourself first in The Richest Man in Babylon:

"I too carried a lean purse and cursed it because there was naught within to satisfy my desires. But when I began to take out form my purse but nine times [for every] ten I put in, it began to fatten. So will thine."

Besides, when building your Financial Tower, isn’t it a good idea to build a wall around your progress so that unforeseen plunderers will be discouraged to disrupt your progress? In other words, when troubles arise like this, this, this or even this, would you feel more secure if you have some "just in case" cash to fall back on rather than falling into credit card debt--or worse yet--filing for bankruptcy?

So create a small emergency fund, and then work towards establishing 3-6 months worth of expenses, depending on your comfort level (how long could you survive if you lost your job or house tomorrow?) Well, how much exactly should you save? The best estimate is to find out how much you spend in a month and multiply it by 3, 4, 5, or 6, depending again on your comfort level. Next, you'll see one idea of how to do that.