Financial Checklist Plan - Part 1:
Establish a Personal Reserve Fund
If you had a $1000 immediate need for a true emergency, could you handle this need without borrowing money?
The short answer for 79% of American is "No." It's amazing how poorly capitalized most of us really are. But that need not be the case. The first item to check off of the Financial Checklist Plan is to establish and build up a Personal Reserve Fund. This will be your personal fund that will self insure you against all the craziness and crises that life can throw our way. Here's how this works: |
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Step 1: Open a NEW additional bank account where you will place money for your personal reserve fund. Don't worry about whether this bank account will earn any interest, but do make it a free checking fund that won't zap you with any fees. A money market account could also be considered here. If an emergency does occur, you will need to have immediate access to the money in this fund, so make sure to get checks and an ATM/Debit card.
Step 2: Fill this fund with $1000. Your first goal is to get $1,000 in this personal reserve fund and try to do this within a 3-5 week time frame (or sooner if possible). Do this by selling things you don't really need. Have a yard sale. Sell on Criagslist. Pick up a 2nd job. Do what you must to build a balance in this special personal reserve bank account of $1000. While building this balance, pay only the minimum due on all debts and discontinue saving money for retirement or college. If you don't have a personal reserve fund, you are skating on the edge of constant crisis and things like retirement and college can be dealt with when your finances are in better order down the Financial Checklist.
Step 2: Fill this fund with $1000. Your first goal is to get $1,000 in this personal reserve fund and try to do this within a 3-5 week time frame (or sooner if possible). Do this by selling things you don't really need. Have a yard sale. Sell on Criagslist. Pick up a 2nd job. Do what you must to build a balance in this special personal reserve bank account of $1000. While building this balance, pay only the minimum due on all debts and discontinue saving money for retirement or college. If you don't have a personal reserve fund, you are skating on the edge of constant crisis and things like retirement and college can be dealt with when your finances are in better order down the Financial Checklist.
Step 3: Make an ironclad agreement with yourself that you will not touch the money in your personal reserve fund for anything except a true emergency need (this is a very short list). Examples of emergency needs include: Paying a unexpected health care deductible, making an unexpected repair to a car, surviving if unemployed, etc. Examples of how NOT to use a personal reserve fund (and there are many) include: paying for expected expenses, eating out, buying a TV. Buying a new blouse to be fashionable is not an emergency!
Be intense in making this first priority happen. The success of the Financial Checklist Plan depends on starting out with a funded Personal Reserve Fund.
Next: Once your Personal Reserve Fund is funded with the initial $1000, move to Checklist item 2: Eliminating Personal Debt
Be intense in making this first priority happen. The success of the Financial Checklist Plan depends on starting out with a funded Personal Reserve Fund.
Next: Once your Personal Reserve Fund is funded with the initial $1000, move to Checklist item 2: Eliminating Personal Debt