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Be Wise With Money

Prepare for Financial Pitfalls

Put money in emergency fund & pay off credit cards

That clickety-clack the car has been making just got worse. Can't-drive-the-car worse. The mechanic says it's a $2,000 fix. Ouch.

Nobody is safe from financial emergencies. And most people don't have the cash flow to cover them. That's why financial experts advise having three to six months' worth of expenses – everything you spend money on in a month, not just your bills. (If you're self-employed, you probably want more like six to nine months socked away.)

That's a lot of money to save on top of what you're already putting away for retirement, college and other big-ticket items. How can you save that much more? Hint: Do it slowly.

Figure out wants vs. needs

The first step is figuring out what you really need to spend money on (the electricity bill) versus what you can live without (new clothes). Natalie Kratzer, a Thrivent Financial representative in Hummelstown, Pennsylvania, tells people to write down every single thing you spend money on for one month, no matter how small.

Save & pay down debt

How do you save for an emergency fund if you have debts, particularly high-interest credit card debt? Reilly Fies, a Thrivent member who works in public relations, is figuring that out after racking up a $2,000 credit card balance. Fies talked to Kratzer, who had her fill out a budgeting worksheet that lists her planned income and expenses for the month. Then she tracked what she actually spent. This helped Fies realize she was spending a lot on the breakfast sandwich and mocha she bought on her way to work. She also often ate lunch out.

"Now I pack my lunch more often than not and either eat breakfast at home or bring it into the office with me if I'm running behind schedule," she says.

That saved money is now going to her emergency fund, to which she is currently budgeting 10% of her take-home pay. Once her credit card debt is paid off, she'll up her emergency fund contribution to 30%. "Looking at where I am now versus where it was a few months ago? That's really a good feeling knowing that I have that cushion."

Decide where to put the money

The best places to stash emergency cash are savings accounts or money market accounts. You won't earn a ton of interest, but that's not the goal with this money. Quick access is more important.

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