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Amassing Your Emergency Fund

Having stressed the importance of sufficient savings, a couple of tricks may help you amass

this amount a little more quickly. Instead of actually maintaining six months' worth of living

expenses-which to anyone would be a substantial amount-remember that the purpose of

this fund is to be able to deal with any emergency immediately. For that reason, available

credit may be substituted for actual cash as long as the credit is backed up by other cash.

Thus, if you have, say, $10,000 in the fund, you may not necessarily want to keep all that

money in a savings account. Let's say that you have a credit card with a $5,000 limit. You

could invest $5,000 of the $10,000 in something that is absolutely safe, such as a CD

(certificate of deposit) or money market fund. In case of emergency, the credit card would

substitute for that $5,000 until you could get the cash out in a couple of days. Once you

received the cash, you would apply it to whatever amount you had put on the credit card,

paying off that debt. The advantage of this plan is that you haven't sacrificed your cash

availability and at the same time your $5,000 has earned more than it would have sitting in a

savings account.