Once upon a time it was enough to have a three-month emergency fund; now I hear we should aim for enough to cover a year’s worth of food, shelter, and other basics. A swell idea in theory, but this could actually discourage saving. Many people feel they could never set aside that much money, so why bother trying. Why? Because even a moderate emergency fund helps keep you solvent, that’s why.

Suppose you get a nail in your tire and your wallet holds nothing except some lonely moths. Without a cash cushion, you’ll have to put that new radial on a credit card or, god forbid, take out a payday loan.

The good news: You can start by shooting for the minimum $ 500 in the bank recommended by MSN columnist Liz Pulliam Weston. The better news: It’s possible to nickel-and-dime your way to that goal.

Microsaving, maximum results
Lynn, a woman whose just-out-of-grad-school salary was very low, figured the most she could bank would be $ 10 a month. She actually asked herself, “What’s the point?” But she started with a single sawbuck per month. She added a little birthday money. And then she got motivated, boosting her balance with techniques such as:

• Saving spare change and dollar bills
• Selling scrapbook pages on eBay
• Recycling cans and bottles
• Holding garage sales
• Banking the proceeds from coupons and rebates
• Adjusting her savings rate when she got pay raises

A decade later, Lynn has built up a six-month fund along with separate (and healthy) accounts for vacations, retirement, and a down payment on a someday home. She could just have easily remained stuck in a “what’s the point?” mentality.

Nancy banks the money she saves using grocery coupons. (Remember: It’s not savings unless you save it.) And one woman I know picks up dropped coins and banks these “street funds” along with manufacturers’ rebates, tax refunds, and money from her side hustles.

Look for your own microsavings tactics. Suppose you brought soda from home instead of hitting the pop machine every day at 2 p.m.? Or spent one or two Saturdays a month at the library catching up on magazines vs. subscribing to them? (And while you’re there, borrowing DVDs instead of using Netflix or Redbox?)

What if you packed your lunch even once or twice a week? Sent free e-cards instead of traditional greeting cards? Put together a dinner from what’s on hand instead of picking up a rotisserie chicken at the market? Reconsidered cable TV?

Let’s assume this let you set aside just $ 2 to $ 10 a week. In a year, that would be $ 104 to $ 520 that would otherwise have gone to soft drinks, periodicals, or the dollar menu.

Set it and forget it?
A great way to build your emergency fund is to automate it. Do this now, even if it’s only $ 5 a month to start. You’ll learn to live on what’s left. One woman I interviewed began by banking an hour’s gross salary each payday; now she’s up to four hours.

Some banks offer cash incentives to open a checking account; let that be your EF seed money. Make the account “one-way,” i.e., no debit card. You might even decide to choose an online bank, especially since interest rates are often higher. Remember: The money shouldn’t be too easy to access.

Give this account a name. One reader calls it her “Oh, shit!” fund, since its purpose is to cover things that go wrong. Call it “My EF,” call it “The Contingency Fund” — call it “Billy the Bank” if that’s what it takes to remind you that this is not a general fund, to be dipped into any time you want a pizza.

A few more suggestions to strengthen your savings:

• Answer online surveys and bank the payments.
• Change a habit, even temporarily. Plan a “pantry challenge” or institute Meatless Monday. Give up fast food, salty snacks or soda for a week, or a month. (Or forever.) Figure out what you would have spent. Bank it.
• Let people know you’re available to pet-sit, clean attics, design web pages, whatever. I still babysit occasionally, earning $ 40 to $ 50 a night (and at least half of that night is me sitting and reading after the kids are asleep).
• Just before payday, move whatever’s left in checking into the fund.
• “Round up” each transaction, e.g., record a $ 6.39 debit-card purchase as $ 7. Add up the “extra” each month and shuttle it off to the emergency fund. Some banks will do this for you and possibly provide matching funds.
• Sell items on Craigslist or eBay.
• Ask friends (in-person or online) to join you in a savings support group. Or propose an “EF challenge” with your most competitive pal.

Yes, saving is hard. Here’s what’s harder: Paying off that new tire while interest is compounding. Just for fun I used this credit-card payoff calculator at Index Credit Cards. Assuming you bought a $ 120 tire at 18% interest and could afford only $ 10 payments, it would take 14 months to pay it off in full.

This won’t be the only emergency you’ll ever face — and you could have paid cash if only you’d skipped some of those magazines and cheeseburgers.

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Related Articles at Get Rich Slowly - Personal Finance That Makes Sense.:

• Ask the Readers: Emergency Fund or Debt Snowball?
• Ask the Readers: How Much in an Emergency Fund?
• links for 2007-06-10
• Learning to Love the Emergency Fund
• How and Why to Start an Emergency Fund

A couple years ago, Farnoosh Torabi wrote You’re So Money, I book I succinctly described by saying “this book pitches personal finance advice for consumerism addicts.” Nevertheless, I concluded that the book did offer some very solid advice to the crowd that would not allow their Gucci handbags to be pried from their cold, dead hands.

Torabi’s follow-up book takes a decidedly different tack on the arena of personal finance, moving on to the idea that your personal mindset has a good deal to do with whether or not you find money success.

For me, this is the area where personal growth ties deeply into personal finance. Personal growth is all about becoming aware of your actions and choices and considering how you can improve those actions and choices. When you put that spotlight on your money, you can often reveal quite a lot about improving your personal finances, and that’s the sweet spot this book swings for.

Personalize Rich
What does “rich” mean to you? Once you sit down and start answering that question for yourself, you begin to realize that “rich” doesn’t mean the same thing to everyone. You need to figure out what you define as “rich,” which is, in essence, simply setting, in a very vague way, your long term goals. For me, rich is often defined in security – is my family safe from whatever may come? Others may define it very differently.

Establish Goals
From there, Torabi takes the ideas of what makes a person “rich” and transforms them into specific, tangible goals that a person can use. What does it mean for my family to be “safe from whatever may come”? When I’m able to transform that into a specific goal, like a big emergency fund, then I have something to work towards that’s real, as opposed to the vague notion of something that I might just be dreaming about.

Craft Your Money Philosophy
What you’ll find as you move through the process of figuring out what “rich” means to you and establishing goals based on it is that some particular values are going to be important to you. For me, family is a really, really key value, for example, and thus for me, my money philosophy centers deeply around providing for that family. I value having an emergency cash reserve and I’m less interested in chasing big financial growth.

Embrace Your Relationship with Money
The idea here is that many people are detached from their money in many ways. They don’t connect their ...

One of the biggest challenges of parenting – at least for me – is teaching our children how to control their emotions. As adults, most of us are pretty good at controlling our waves of emotions – they might be really powerful inside of us, but we’ve trained ourselves to not let those emotions spill out.

Children – particularly young ones – haven’t learned that control yet, and sometimes (often when you least want it), that emotion spills out of them.

Our solution, thus far, has been to take them out of any social situations that they might be interfering with and placing them in a fairly isolated spot to get their emotions under control to the point where communication is fruitful, followed by a chat about handling our emotions and a minor punishment (usually removal of some minor thing they like in their daily routine).

Still, it’s no fun when such an emotional spill happens in public, requiring a parent to simply leave.

In pursuit of what I feel I’m called to do I’m planning to quit my job and attend seminary next fall. I’ll bring my family with me (I’m 29 and my wife is 27 and we have a three month old daughter). In the next year there are a ton of large and small decisions to be made. One of the biggest decisions will be what to do with our house. Here are some specifics, our house appraised about a year ago for $76,500 and I’m six years into a 30 year fixed loan @ 5.6% with a balance of $35,000. I believe we could find a nice house to live in for the 3-4 years of seminary for about $90,000. Keep in mind that in my denomination there is almost always a parsonage provided for the pastor. We’re going into seminary knowing that it will be a tight time for us financially. Tuition alone for a Masters of Divinity is close to $50,000 and that doesn’t include all the other associated costs. We have about $25,000 saved specifically for seminary with the hopes of saving more in the next year. I will also receive tuition assistance from my denomination and from the military. Needless to say we’re saving now and trying to be as good with our money as we can. I have a couple of scenarios regarding our house, although I’m open to other options.

So what do you think? How can we best make our money and our house work for us?
- Chip

Scenario #2 seems like the right choice to me.

Under Scenario #1, you’re still losing money each month even if you have a renter in the price range you’re hoping for. You’re still paying the mortgage and shelling out $700-$800 a month for rent while only taking in $500-600 more if you have a renter. That’s a net loss of $100-$300 a month, which most likely exceeds the equity you’re building each month in the mortgage. Overall, I don’t think this is a winning situation for getting ahead.

I vastly prefer the second scenario, because you’re probably not drastically altering how much you pay for housing each month, but you’re also building equity with each house payment and you have a property in the end in a high-value place.

I have a 2003 Toyota 4Runner 120,000 miles – I could trade in for $7000-$9000. It is paid off, and in pretty good condition, although it does need a $1500 repair in the next year. Should I trade in? I can find 2005 Toyota Camry’s with 50,000 miles or less (one with only 28,000 miles) for $12,000 or less. Do I fork over the $3000 (which we have saved)?

The whole reason for this is I would like to increase my mpg, and lessen gas costs. I am also worried about the 120,000 – I think my car will only get less valuable, and I do not want to take on a car payment – so I am right at the point where I could break even. I travel about 6,000 miles/year, and I am a stay at home mom of a 1 year old boy.
- Megan

This seems like the right move, provided you’re paying cash for the car.

I used fueleconomy.gov and found that the 2005 Toyota Camry averages 25 miles per gallon, while the 2003 Toyota 4Runner 2WD (I assumed that – the 4WD is worse) gets an average of 18 miles per gallon. Driving 6,000 miles per year, with gas at $2.75 a gallon, will save you $257 a year.

Another thing to consider is whether or not it lowers your insurance costs. I would contact your insurance company and simly get a quote on a 2005 Camry and see how it compares to your current ride (my guess is they’ll be somewhat comparable, but it’s worth checking). Also, many areas charge different vehicle registration rates for such different types of vehicles.

In the end, if both vehicles meet your needs for reliability and other such requirements, it really comes down to cost of ownership, and I’m pretty certain that a Camry, with such better gas mileage, will get you the best deal.

My husband and I feel we are on the road to a simple, yet comfortable, life financially. I am 20 and he is 23. Though we currently do not make a ton of money, I’d like some reassurance we are doing the “right things” with what we have earned thus far. We currently have no children and do not plan to for a couple of years. We are both in school on and off and are currently more than half through our degrees. Here are our stats:

The small remainder of his salary per month should be spend where? Is now the time to open up the IRA? Am I correct on the order I should be paying off what’s left of our debt? I feel like we are doing really great in comparison to whom we know in similar situations, am I wrong? The averages of net worth and such online feel like a hoax, and what I read in blog forums just doesn’t add up in comparison to average american statistics.
- Ashley

You’re making the right move in paying off the debts in order of interest rate, from highest to lowest. That’s the most efficient way to pay off one’s debts.

As to whether you should open an IRA or do something else with the remaining money each month, the answer changes depending on whether or not you each already have retirement plans. As young as you are, if you shoot for 10% of your gross income going into retirement, you’ll be doing well, and if you already have that much going in due to your workplace, you’re probably better served for your life by putting that money towards paying down the debts.

You’re doing very well for a couple at your age. The simple fact that you’re able to bank all of your salary means that you’ll be entering your thirties in a much better financial state than most people your age. Kudos.

My employer offers both traditional 401(k) and Roth 401(k) options. I’m 26 and participate in both, putting enough in my regular 401(k) to receive the full company match, while putting some additional post-tax money into the Roth 401(k). Lately, I’ve been wondering if I would be better served by starting a Roth IRA instead of funding the Roth 401(k). I understand that contributions to a Roth IRA can be withdrawn without penalty – are there ...