K-State Research and Extension News
February 04, 2010
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Tips Help Build Emergency Fund, Financial Security

MANHATTAN, Kan. -- No one plans to have an emergency, yet most people will face unexpected expenses in their lifetime from an accident, illness, car repair, storm damage, or, in these economic times, a job loss or reduced hours, said Carol Young, Kansas State University Research and Extension financial management specialist.

Emergencies are typically unpredictable, and there's no telling how much expense will be involved, she said.

And, those who are without an emergency fund or other savings to draw from will face added stresses in seeking a bank loan on short notice (and without time to shop for the best loan rate) or, in Young's opinion, worse yet, running up a credit card bill -- and adding the cost of interest to the cost of the bill. 

Saving the equivalent of six months' salary is suggested as a long-term goal in building an emergency fund, but, for many who are struggling in the current economic climate, such a goal might seem unattainable, she said.  

Still, Young said: "It's important to make saving a habit," and noted that saving a minimum of $10 a week for a year can yield a $520 base for an emergency fund. In two years' time, the balance could exceed $1,000.

To jumpstart an emergency fund, consider designating all or part of any income tax refund to an interest bearing account using IRS form 8888, Young said.

"There's a tendency for taxpayers to think of an income tax refund as a gift," said Young, who explained that a tax refund means the taxpayer has overpaid and provided an interest-free loan to the government. 

If a taxpayer is entitled to a refund, the financial management specialist advises filing electronically and opting for direct deposit into an interest-bearing savings account to reclaim money due and access funds as quickly as possible. 

Filing electronically and early in the tax season can shorten the waiting time for a refund to as little as 2-3 weeks. Taxpayers also are encouraged to avoid the temptation of paying the tax preparer for a high-interest, refund-anticipation loan that will diminish the value of the refund. 

While some people earmark income tax refunds for short- or long-term goals, if a refund is substantial ($1,000 or more), Young recommends contacting a worksite human resources financial professional to adjust withholding to better match tax liability.

Ideally, she said, deductions should be adjusted to put the overpayment in the monthly budget throughout the year and add to savings.

More tips on managing money successfully and building financial security are available at county and district K-State Research and Extension offices and online at www.ksre.ksu.edu/financialmanagement/ and www.kansassaves.org.



K-State Research and Extension is a short name for the Kansas State University Agricultural Experiment Station and Cooperative Extension Service, a program designed to generate and distribute useful knowledge for the well-being of Kansans. Supported by county, state, federal and private funds, the program has county Extension offices, experiment fields, area Extension offices and regional research centers statewide. Its headquarters is on the K-State campus, Manhattan.

Story by: Nancy Peterson
K-State Research & Extension News

Carol Young is at 620-275-9164.