Here’s a great article to follow up our earlier one on building an emergency fund, from Zen Habits.

Building up an emergency fund, if you haven’t already, is one of the most important things you can do to help your finances.

But you knew that.

It’s common financial advice, actually, but what’s not so common is how to actually do it. Obviously those who haven’t saved up an emergency fund have a difficult time saving money, even if they know they should.

So today we’ll look at some strategies for building up an emergency fund, for those of us who don’t have it so easy.

Why It’s So Critical

I don’t like to use the word “critical” often, because it’s often an exaggeration. But in this case, when we’re talking about the health of your finances, an emergency fund is definitely critical.

If you are having financial problems, the most important steps you can take immediately are 1) reduce your spending by being more frugal; 2) stop getting into debt; and 3) build an emergency fund of $1,000 (and later you can increase that to the standard 3-6 months of income).

Here are a few reasons an emergency fund is critical to your financial health:

1. Stop getting into debt. When an emergency comes up, if you don’t have an emergency fund, the first thing that will be cut from your budget is your debt repayment. You’ll use your credit card to pay for the emergency, and then you’re deeper in the hole. An emergency fund stops the need to use credit to pay for emergency expenses.

2. Smooth out your budget. If unexpected things come up, you don’t have to continually re-factor your budget to pay for these things. With an emergency fund, it makes budgeting much easier.

3. Prevent late fees. If you are living paycheck-to-paycheck, you will come up with times when you have to pay a bill late, or overdraw your bank account. With an emergency cushion, you avoid these financial hits.

4. Get ahead. If you can get a month ahead, your financial stress will drop way down. Instead of always playing catch-up, you can pay your bills ahead of time and sit back and relax.

21 Strategies for Creating an Emergency Fund

If you have trouble saving, it’s not enough to tell you how important it is to have an emergency fund. You need some strategies for doing it.

Please note that you should choose the strategies that work best for you, and perhaps combine some of them if that works better.

1. Start small. If you don’t have much to save, it doesn’t matter — the important thing is just to start. Even if it’s only $25 per paycheck, just start. It will slowly grow each paycheck, and you will be glad to see at least a little in your savings, and will soon be motivate to try to save more.

2. Automatic deduction. This is common advice, but that’s because it works. Set up an online savings account (such as ING Direct or Emigrant Direct) and have it automatically deduct an amount each payday. If you don’t have to think about it, saving will be much easier.

3. Payroll deduction. If you have discipline problems, there are accounts where you can have the amount deducted directly from your paycheck, before it’s deposited into your checking account (or before your employer cuts the paycheck).

4. Treat it as a bill. Every payday, you have a list of bills to pay before you can spend any of your money on variable expenses such as gas, groceries or eating out. Well, add your emergency fund contribution to your list of bills, and pay it at the same time. This makes it non-negotiable, and then what’s left over is what you can spend on other stuff.

5. Reduce an expense, save it. Take a look at how you’re spending money now, and find some things that can be cut back. Magazine purchases, gourmet coffee, comic books, cable TV, gizmos and gadgets. Whatever you decide to cut back on, take that same amount and put it directly into savings each paycheck. Don’t spend it.

6. Round up. I got this tip from J.D. Roth of Get Rich Slowly … actually, it’s a strategy used by his wife, who will log every purchase or check she writes into her checkbook or finance software — but rounds up to the nearest dollar. So if she spends $26.01, she enters it as $27. Over the course of a month, this can add up to decent savings.

7. Double purpose account. This tip is from Trent of The Simple Dollar, who wanted to pay down his debts but still have the financial security of an emergency fund at the same time. So Trent brilliantly used a double-purpose account: he would save money in an account, and after he reached a certain minimum, anything above that amount was being saved to pay off a specific debt. So let’s say the minimum amount is $500. After you pass $500, the money being saved is for a $200 debt (for example). Once you reach $700 in your savings account, you can pay off the $200 debt completely. Repeat the process for each debt.

8. Tip yourself. If you go to a restaurant and tip a waiter 15 or 20 percent, for example, match that tip for yourself. So if your tip is $10, tip yourself $10 as well … and put that directly in savings.

9. Keep paying debt, but to yourself. If you finish making a car payment, or paying off a credit card or smaller debt, take the amount you were paying to that debt and put it directly in savings each month. You won’t feel a difference in your budget.

10. Budget big for groceries, then save the difference. Let’s say you normally spend between $320 and $375 on groceries. Budget $400 for groceries, and whatever you don’t spend of that $400, put it in savings.

11. Quit smoking or drinking. Well, I wouldn’t bet my emergency fund on quitting one of these two addictions, but if you do quit, you should take the amount you were spending (and that’s a considerable amount, I know) and put it into savings. For me, I spent more than $5 a day on smoking — and when I quit in November 2005, it freed up $150 a month for savings.

12. Limit your access. If you are tempted to spend your savings, you should put it in an account that is hard to get to. Put your savings in a money market account or fund, and when it reaches a certain amount, roll it over into a CD or Treasury bond. You might not make as much on a CD, for example, but the point is that it’s hard to access and requires less discipline.

13. Stash a bonus or tax refund. If you get a Christmas bonus, or a tax refund, or some other such windfall, put that directly in the bank and don’t spend it. Use it for your emergency fund. Now start paying off your debt.

14. Save your change. Don’t spend any coins you get. When you get home at the end of the day, empty out your pockets into a jar, and once a month, go to the bank and put it into savings. This can add up faster than you think.

15. Save dollar bills. Similar to the above strategy, get your cash in $20 bills, or $10s or $5s. Don’t carry $1 bills. When you get $1 bills as change, don’t spend them. When you get home, put those $1 bills in an envelope, and save them.

16. Refinance. Refinancing your mortgage or auto loan can save you a lot of money. Take the amount you save and put it in savings.

17. Sell your car. If you have two cars, see if you can live without one of them. That’s what my wife and I do, and it works out fine, even with six kids. Take the amount you were paying on the second car and save it. Or, alternatively, sell your car and buy a cheaper used model. Save the difference in the payments.

18. Cut out dessert. If you’re trying to lose weight, don’t order the dessert or junk food you would normally order. Instead, put the amount you would have spent in an envelope and save it.

19. Stay in. Instead of going to the movies or eating out, cook your own meals and watch a DVD — or do something fun for free. Save the difference.

20. Freelance. Take your skills and market them as a freelancer, or get a second job on the side. Take the extra income and bank it. This was one of my strategies, and it works great.

21. Save on auto insurance. If you can switch to liability insurance, you might be able to save hundreds of dollars. Take the extra amount you would have paid for insurance and save it.

As the recession has somewhat stabilized and credit card reform laws have been completed, the climate for lending is improving and more credit card offers are becoming available. There has even been a resurgence of the so-called “teaser rate” cards, which offer an attractive 0% interest rate, typically for a year, on balance transfers and purchases. These cards got many people into debt trouble during the boom times, but if used properly, they can be a tool to improve your financial situation. Below we will look at a few ideas to get you on the right track with these cards.

Watch Out For Balance Transfer Fees. Most banks offering these cards will charge three to five percent of the amount transferred up front. What this does, in essence, is put interest on the amount but charges it up front. So if it is a 0% card for 12 months and they charge a 4% balance transfer fee, it is really like having a 4% APR. Moreover, if it is only 6 months of 0% then that up front fee becomes the equivalent of an 8% APR. Pay attention to the fee and the length of the 0% period.

Create a Realistic Plan for Using the Credit. These cards are a great way to pay down debt but only if you can do it within the promotional rate time period. After that, these cards tend to have a higher APR and whatever debt you transferred to it could end up in a worse situation. Think about what you could realistically pay off within the year and do not transfer more than that. If there is an unavoidable expense, such as medical bills, this is also a good way to spread out the payment but do not view the card as a license to spend under any circumstances.

Read The Terms Carefully. Many of these offers are not fixed and will have varying terms based on your credit. For instance, if you see language like “0% for up to 1 year” or a promotional rate “as low as 0%” be wary, because chances are you will get lesser terms than this.

Watch Your Credit. Taking too many balance transfers in a short period of time can make it look like you are playing hot potato and lower your credit. Also be careful of having too much of your available credit tapped out, which can also hurt your score.

If you take care to avoid these pitfalls, 0% promotional rate cards can be a great way to take out a large chunk of debt. With solid planning and follow through, they can help get you towards financial freedom.

If you are reading this, there is a good chance it is not the first time you have looked for financial advice. There are many time tested ways out there to organize yourself and right your finances. If the information is so readily available, then why do so many people not have their act together financially? It is one thing to read about and know what the right thing to do with money is, and it is an entirely different thing to put that into practice.

One thing you can do when thinking about how you spend money is to translate everything into time. In other words, do not judge the cost of something by the dollar amount, but by how many hours it takes you to earn that amount at your rate? If something costs 5 hours out of your 40 hour work week, it sounds a lot steeper than just saying $60 or $80 bucks. It gets even worse if using a credit card that will be paid back with interest over time.

Many spending patterns are just bad habits. The mere act of journaling every single expense down to the tiniest pack of gum or can of soda can makes a lot of people change their ways without even trying. Track all of your spending without trying to change anything and see what happens. You might be surprised.

There are many ways to get yourself to improve your financial habits without pulling teeth. The key is to find things that make it happen automatically, rather than relying on yourself to make the right decision in the moment. To do this, you must know yourself and what will work with your psychology to motivate the change.

Ads for debt consolidation are omnipresent on television, radio and the Internet. What exactly is debt consolidation? Many of us have a multiplicity of bills — store cards, credit cards, car payment, medical bills, etc. Debt Consolidation aims to combine all of your outstanding debts into one new single debt — ideally with a lower aggregate interest rate and lower monthly payment. Of course, the debt consolidation company arranging this transaction charges a fee, so that expense also needs to be calculated into the equation. Interest rates on many types of debts, including credit cards and store cards, is quite high. Consequently, debt consolidation can lower the effective interest rates incurred by many consumers.

Most often, debt consolidation requires that you own your own home with equity in it, but there are some debt consolidation services that will attempt to work with those who are not homeowners. For those who own their home, debt consolidation most often entails combining all of your bills into a new second mortgage. Seeing that mortgage interest rates are almost always lower than credit cards, this explains how debt consolidation can serve to lower the amount of total interest you are paying each month. However, there are some careful considerations to make prior to engaging in debt consolidation — especially if you are using your home as collateral.

By switching unsecured debt to a new loan secured against your home, you are putting your residence at risk should you default on the new debt. This is obviously a ramification which warrants careful analysis prior to signing on the dotted line for any debt consolidation deal. For many, however, debt consolidation can be the smartest financial move available to reduce the amount of interest paid to your creditors each month.

It used to be that any college student with a pulse was bombarded with a multiplicity of credit card offers. Each issuer had a student card program, and the issue of needing a cosigner never came into play. Many students obtained these credit cards, and, unfortunately, an appreciable number of them got in over their heads with debt. In response to this, newly passed laws have put in place severe limitations surrounding credit cards issued to those under the age of 21. Applicants under the age of 21 are now required to show they have sufficient income required to pay back the credit being offered them. Many full-time students do not have appreciable income, and the only route towards obtaining a credit card now involves getting a cosigner. The first candidates for cosigning invariably are mom and/or dad.

When faced with the decision on whether to cosign for your child’s credit card, there are several factors to consider. First, is your credit even good enough to help? Should your own credit be bad, then the bank will most probably not accept you as a cosigner making the issue moot to begin with. Conversely, if you have good credit, then that brings up the second component of this decision process. Are you willing to risk your credit under the assumption that your kid will use the card responsibly and make timely payments?

The risks posed by this question can be addressed by taking a few proactive steps. If you decide to become a cosigner, then ensure that the card’s initial credit line is sufficiently low to prevent a surprise major obligation popping up in the future. Furthermore, keep tabs on the card’s balance and payment history — should it appear that the account is on the verge of delinquency, then you can make the payment yourself in order to protect your credit. If done correctly, cosigning for a credit card can help your child start to develop the credit history they will need soon after graduation. If done incorrectly, it can lead to the loss of your own good credit.

There are many complicated details when it comes to debt, but for those in a tough situation, the first order of business is lowering your monthly payment by any means. This is where debt consolidation can be a good option, and before moving ahead with it, there are a few key things you need to know.

The first thing to point out is the difference between debt settlement companies and a debt consolidation loan. A debt consolidation loan is simply a new loan with different terms than your credit cards that could end up more favorable to you, depending on a number of factors including your credit score.

On the other hand, a debt settlement company works with you to make a deal that eliminates your debts altogether. The way it works is you save your money up for a few months in an account with the debt settlement company. When there is a decent amount saved, the company uses their contacts and expertise to contact your creditors and offers to make a deal for some percentage of the amount you owe. Often times, it can end up being 50% or less of the actual balance you owe. After the creditor accepts the settlement, you are free of that debt. The debt settlement companies charge fees at various stages of the deal, so it is important to shop around for the best one.

There are several good options when you make the decision to eliminate debts. Understanding yourself, your habits, and your goals is important in deciding how to choose the best path. Once that first step is made towards freedom from debt, you are well on your way to improving your life.

One of the things that got us into this economic mess was the availability of easy credit. A few years ago, it seemed that they were handing out credit cards on the street to anyone who wanted one, and as a result, too many people got too many cards. As times got tight, people turned to the cards rather than change their spending habits. Once the debt builds up, there is no choice but to face it head on, and when dealing with several credit cards things can get complicated. Use these tips to attack your debts in a smart way.

(Usually) Pay The Highest Rates First. You most often hear this and it is good advice, but if there is a lower total balance on a lower rate card and a full payoff is within reach, focus on that first. There is value in removing that portion of your total monthly payment.

Consider Minimum Payments. Besides rates, cards will use different formulas to arrive at your monthly payment. When you need breathing room, the goal is to reduce monthly obligations so sometimes this will mean paying off the higher payment card before the higher rate card.

Consolidate Wisely. It is rare to get 0% balance transfer offers anymore, but there are some consolidation options out there. Do not transfer balances to a high rate card, and be careful of hidden fees and rate changes that occur after an introductory period. Realistically, the best consolidation option is borrowing from a family member or private loan to pay off the card and then paying that person back directly.

Cut Spending. You have to face the music and make some hard choices. This means changing the way you shop, including at the supermarket. Get rid of your cable TV and other unnecessary entertainment spending. Open your mind to what is on the table for cutting and you will find some creative solutions.

To get out of a debt hole, you have to turn the tables and think like a bank. That means nickel-and-diming your way out. After all, that is how you got into this mess. When it comes to multiple cards be aggressive as you can on one credit card at a time while minimally maintaining the others. With time and discipline, you can see light at the end of the tunnel.