Swiss army knife of personal finance!

You can't predict what will happen with you tomorrow. Life can go seventeen different ways from Sunday, and you have to be prepared for it. Being prepared financially for life's turns takes a number of steps which over the years I've identified and implemented in my life. Hopefully, by sharing them with you, I can help somebody to be prepared financially for tomorrow.

Here's our Swiss army knife of personal finance!

 

Tool #1: Well-funded checking account

Frequency of use: Every day

Why we need it: Our well-funded checking account is the first line of defense against financial disaster. It takes hits every day from all sides whether it is a utility bill or grocery shopping.  While we usually spend every dollar we make either through consumption or saving it, our goal is to never run out of funds in our checking account. Instead of using overdraft protection to save our asses, we've decided on a minimum amount of money we need to have in our account. To grow this cushion, we've avoided spending money on some of the frivolities. Little by little, our checking account has risen to the point where it never dips below $1,000 although it always fluctuates up and down depending on bills and our income.

BONUS: Well-funded checking account can also save you monthly banking fees as many banking institutions waive their fees in exchange for minimum balances.

 

Tool #2: Emergency fund

Frequency of use: Two or three times a year

Why we need it: Emergency fund is a small pile of money that sits in a separate savings account away from our main checking account. Emergency fund is the second line of defense. It's meant to catch heavier blows to our finances that our checking account would not be able to sustain.

Traditional financial wisdom calls for a minimum of 3 months worth of expenses saved up separately for this purpose. Everybody is different though, and some people choose to have 6 months or even more than a year worth of expenses saved up.

We already had to dip into our emergency fund several times since we've started it. Once our car broke down on our trip to Vancouver and had to be towed almost 100 kms back home followed by a nasty repair bill from our mechanic. On a different occasion, our dryer decided to call it quits which required a visit from a repairman.

As far as financial disaster, emergency fund is a much better option than using credit as it is always available and doesn't cost you anything. If you don't have it, I would start one yesterday.

 

To read the complete story to find out other tools in our Swiss army knife of personal finance please go here: http://moneyramblings.com/surviving-financial-disaster/

Also, let’s chat on twitter: http://twitter.com/MoneyRamblings

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.