Steps to avoid Financial Disaster!

By J. Sutton

Many Americans are living from paycheck-to-paycheck leaving them exposed to financial disaster. The primary cause of financial disaster comes from the lack of planning and having poor financial habits. For this reason, many Americans have been forced to lose or sell their homes, cars and businesses after losing their jobs unexpectedly. How do you prevent this disaster from happening to you?

One way to prevent financial disaster from happening to you is to create an emergency fund to bail yourself out of any potential financial troubles that may occur. This emergency fund could be easily developed by using a well-known strategy called the "10% solution". This particular strategy involves discipline for those of you who have become accustomed to spending or impulse shopping.

In that, I have inserted some guidelines for you to follow:

1. Create a list detailing all of your expenses - Here you could separate the important bills from the least important. Things such as credit cards, utility bills, etc,. should be deemed important. However, your cost for entertainment, food, clothes, etc, are all flexible expenses that could be manipulated to save more money. Once you have determined an adequate monthly average amount for your monthly expenses this should be multiplied by 6 or 8 to get the total amount that you need to save for your emergency fund.

2. You must learn to pay yourself first - This particular strategy is designed for you to pay yourself first outside of any other outstanding debt that you may have. Save 10% of whatever cash that you accumulate and place it in a high interest bearing savings account. Today, there are many savings accounts that allow you to make periodic automatic payments from your checking into your savings account.

3. Create more savings by budgeting your expenses that are discretionary - If you seem to have problems saving and/ or making payments then you must take money from your discretionary expenses like entertainment, clothing, food, etc., and manipulate these expenses to cover other more important costs. This money could be used for some bills or consumer credit card payments until you regain control over your expenses. You could very much budget your cost for food, entertainment, clothing, etc, or you have the option taking another job on the side.

4. Open a high interest bearing money market account - Once you have acquired the minimum amount to open a money market account. Your accumulated savings should be placed into a high interest bearing money market account. The logic behind this strategy is because the money market account accumulates more interest and you would be allowed get money from your account when needed, as well. (Always make sure that your emergency fund is placed in an easily liquidable account.)

5. Do not use this money for spending unless emergency - This money is to be used only for an emergency basis. In that, if you lose your job or get sick you have 6 to 8 months to find another job or get back on your feet. Once you have your fund established, you don't have to worry about any unexpected job loss.

I myself have used this strategy to turn my own finances around and into a positive networth. However, I chose to exercise the option of using 15% to accumulate the growth of my emergency fund. The information I have just given you is a guideline for helping you create your very own emergency fund. So, if you really want to prevent yourself from being exposed to financial disaster then you should start building your emergency fund today!

The book Rich Dad, Poor Dad is a very resourceful book for those of you seeking to prevent or find their way out of financial ruin. The #1 New York Times best seller offers some excellent strategies and tips on getting out of the rat race. The book is very motivational for those seeking encouragement and the inspiration needed to change their financial situations.