How is your Emergency Fund?

Last week was a scary time for many military and civilian federal employees. As government funding threatened to run out and congress debated budget cuts and funding for social service programs, there was a great deal of uncertainty surrounding whether or not members of the military and civilian federal employees would be receiving a full paycheck. Luckily, our leadership in congress was able to come to an agreement which will keep the government running and paychecks continuing to go to the employees who depend on them.

But what if congress had not come to a resolution? Many military and civilian employees would have been left in the lurch. How many would have missed important payments or been unable to support themselves? Far too many, I'm afraid.

If there is any silver lining in the drama of the past week's uncertainty regarding military and federal pay, it is this: It has reinforced the need for all of us to have a well funded emergency fund in an easily accessible, interest bearing account. If you don't yet have an online bank account consider the online savings bank ING Direct, where you can currently earn a $50 bonus when you open an Electric Orange℠ checking account.

If you already have an easily accessible emergency fund, it may be time to ask yourself whether it is sufficient for your family's needs. I think that for many of us, the answer is no.

At compounding returns, we have often advocated working to build an emergency fund worth 1 year of living expenses. If this sounds like a lot, consider the fact that in recent years, the average job seeker required around 30 weeks to find new employment following a termination of employment.

It can be overwhelming to set that kind of a savings goal all at once. That's why we recommend scaled savings goals in building your emergency fund. Books like the The Total Money Makeover: A Proven Plan for Financial Fitness recommend an emergency fund of at least $1,000 before you begin paying off debt. If you are just starting to learn about personal finance, and don't yet have an emergency fund, $1,000 is a great starting point.

But what if you do have an emergency fund? Set a new savings goal. Challenge yourself to save another $1,000 or another month's worth of expenses.

Better yet, make saving automatic. Automated savings plans are one of the greatest things that internet-based banking brought about. Take a look at your budget, and divert as much cash as possible into your online savings account on a monthly, recurring basis.

If you are new to automating your finances, read automating your finances for more information.

The recent budget squabble proved that even stable careers like the military and federal government are only a whim of congress away from missing a paycheck.

As an active duty military member, it it was a call to action. It restored my family's commitment to building our emergency fund. To that end, we've started to divert even more money into ING Direct with our automatic savings plan.

How has the budget scare changed your financial habits or priorities?

For more savings strategies, check out the Totally Money Blog Carnival.