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Creating an Emergency Fund

One of the most important steps you can take in getting your personal finances in order is to begin saving money for an emergency fund.

In life, the unexpected happens. Having cash readily available to deal with an emergency can mean the difference between weathering a financial rough spot and finding yourself in debt. An emergency fund is something many people neglect when money is tight, but that is exactly when it should be a top priority. That's when you most need a cushion to deal with the unexpected.

Whether affected by losing a job or a catastrophe such as a fire that destroys a home, a person who doesn't have an emergency fund available to deal with it will almost always go into debt. That can cost hundreds, if not thousands, of extra dollars in interest payments.

How much you need to save for an emergency fund largely depends on your individual circumstances. Even the financial experts disagree on how much you need.

You want a minimum of a couple of thousand dollars. If there is a high demand for your professional services and little chance you will be out of work, you won't need as much in your emergency fund as someone whose career is less secure. Ideally, your emergency fund would allow you to live for three to six months if you lost your job.

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