When my husband and I tiled a large floor in our house we wore cushioned knee pads. Not only did these pads allow us to be more comfortable during the long job, wearing the pads protected us from lasting damage to our knees.

A rainy-day fund is a cushion of cash that may protect you from long-term financial damage and make life a bit more comfortable. Typically, this cash is used when life goes awry, such as the sudden breakdown of furnace or refrigerator, or a job loss. The longer you live, the more you know, there's always something.

3-6 Months- There is no magic number, or particular amount, recommended for this emergency account but generally saving 3-6 months of your income is suggested. Some financial experts even suggest 12- 18 months of savings.

So, you say, a rainy-day fund sounds great, but how do you actually get this baby started? There are several strategies and this is where you need to decide which method works best for you.

Save automatically- One idea is to have regular contributions made automatically from your paycheck into an account dedicated to emergencies. What I mean by 'dedicate,' is that you don't use this fund as a play account and once it reaches an amount that is more than you typically save, your eyes light up and out you run to buy an item you've envisioned in your home. Not with this cash, buckaroo.

Build $1000 fast- Another strategy for building your rainy day fund is to sacrifice other spending and stash money with determination, more quickly building to a $1000 reserve. For goal-oriented folks, this method may help you feel like you've achieved a certain safety level. Adding subsequent money to this fund then seems easier.

Use unexpected cash- With either of these savings styles you may use 'unexpected' cash, from a tax refund or overtime, to add to the reserve account. Depending on how much you can set aside each period, saving this money could take years. So be patient and keep your eye on the long-term goal.

Of course, there are a few financial people who suggest that you do nothing until you have an emergency account fully funded. When I have dieted with that kind of all-or-nothing philosophy it has frequently resulted in later food kookiness such as binging. That's not good. So, I think balance is better. But once again, you do what you think is best.

Where to stash the cash- As your reserve grows where should you put the money? Well, since the purpose is accessibility and certainty, you might have money in one or several accounts. An account at a bank or credit union, and you might also have CD's, mutual funds or brokerage accounts. It really depends on how much you eventually save and how much certainty versus interest earning you'd like. You certainly don't need a year's worth of income tucked under the mattress.

Doing something, anything really, towards the goal of creating an emergency savings account, would be better than just thinking about it. Enough said.

Marion R. Syversen, MBA - President
NorumbegaFinancial
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Marion@NorumbegaFinancial.com
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