Credit card issuers and HELOC lenders are like fair-weather friends: They cozy up to you in good times, but when the economy heads south, they abandon you faster than Usain Bolt runs the 100 meters. I hope the clear takeaway from recent events is that you need to set aside savings for emergencies, so you are self-reliant, not exposed to the lending whims of the banks. Here's how to be safe, not sorry:
- Opt for a federally insured account. Set up a savings account at a bank covered by the Federal Deposit Insurance Corporation or a credit union that has the backing of the National Credit Union Administration. Even if the bank or credit union gets into trouble, depositors are guaranteed 100 percent of their money back, up to a basic limit of $250,000 per person, per bank. (You can, in fact, have more than $250,000 of insurance coverage, depending on the types of accounts you have at each bank.) The $250,000 limit is good through 2013. To verify that a bank or credit union is federally insured, swing by a branch; there will be a sticker on the door confirming its membership. Or check on the status of your bank or credit union and learn whether your deposits fall under the coverage rules by going to myfdicinsurance.gov or webapps.ncua.gov/ins/ .
- Set up automated deposits. If you wait to see how much money you have left at the end of the month to put toward savings, the answer may be zero. So set up an automated monthly transfer from your checking to savings account. Once you lock into that commitment, you'll be forced to scale back spending to make ends meet. I know that's not fun, but it is the only way to make your family safe.
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- Be patient. It may take you months or even a few years to build up an adequate emergency savings fund. That's okay. By starting a savings plan today, you move closer to having a robust emergency fund in the future.