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.