You know you need one, but you just haven't gotten around to it, right? As a homeowner, you simply can't afford to put it off any longer; even in a low-maintenance year, just doing small projects around the house can easily cost $1,000 or more. That's where your liquid cash savings come in; you want to be able to pay for those repairs out of your pocket, not with a high-rate credit card. Keep in mind that a $1,000 credit-card balance at 15 percent interest will cost you an additional $400 if you make only the minimum payment each month.
And don't think of your home insurance as a smart bail-out plan. Even if you have minor damage that is covered by your policy, it is foolish to make claims of just $1,000 or so. Insurance is meant to protect you from major losses—a devastating fire or a tree crashing through the roof—not the small stuff. When you make repeated small claims, your insurer is bound to jack up your premium, or even refuse to renew your policy. I think it's smart to boost your deductible to $1,000 or more; that way, you won't be tempted to use the policy for minor stuff, and, better yet, your annual premium might be lowered by 10 percent or more.
So that brings us back to the emergency cash fund. Check out the AmericanDream savings account at emigrant-direct.com, an online bank that currently offers 5 percent interest and has no minimum requirement for your initial deposit. The best part about this account is that your saving can be completely automated; you choose how much—and how often—you want to have money electronically transferred from your checking account into this account. Save only $100 a month and, with interest, you will have $2,529 in two years.
Oprah & Friends host Jean Chatzky asks Smart Money's Barbara Goodman what it takes to retire well before age 65.
Please note: This is general information and is not intended to be legal advice. You should consult with your own financial advisor before making any major financial decisions, including investments or changes to your portfolio, and a qualified legal professional before executing any legal documents or taking any legal action. Harpo Productions, Inc., OWN: Oprah Winfrey Network, Discovery Communications LLC and their affiliated companies and entities are not responsible for any losses, damages or claims that may result from your financial or legal decisions.
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