$500 in the bank

MSN Money has a great article titled, Why you need $500 in the bank, which is cited in another story worth reading, 3 money tips for every income.

In the money tip for households earning less than $20,000 (below the poverty line of $22,000 for a family of four), Liz Weston says, "Forget, for now, all the advice about saving three to six months' worth of expenses." Yes, that is a worthy goal, but out of reach for a family below poverty. But this does NOT mean a family in poverty is off the hook from saving anything. Liz sets a target of $500 in the bank for emergencies.

Begin with $100 left in the checking account - always. This cushion will help protect against the costly mistake of bouncing a check. One tip is writing a $100 check to yourself, then don't cash it. Record it in the checkbook but then rip up the check. [Personally this would drive me batty since I balance the checkbook every month to the penny, but it works to "trick" some people into not spending that last $100]

Next: month by month put away a little money, say $20 per month, more if you can, into a savings account to reach $400. This will cover many common emergencies like a car repair bill, doctor bill, and replacing a broken refrigerator.

Lastly don't touch this savings unless there is a real emergency. If you do spend it, you must restore it ASAP.

Bottom Line

What happens if you don't have $500 in the bank? You may be forced to use a credit card and pay high interest rates for an emergency bill over months or years. Or use a payday money lender who will charge an outrageous fee. Or fail to pay your rent and risk eviction. Etc.

Everyone, should have at least $500 set aside for emergencies.