If saving money just to save money doesn’t really float your boat, then you might want to read a little bit of this.

This little money saving trick is often overlooked, but those of you who are “financially savvy” might be anticipating the topic of this article, based on the title. My goal in writing this is to drive home two very crucial points about the emergency fund principle and saving money in general.

The trick to saving money is to have an emergency fund. As we all know (or as you are learning right now), every single person needs to have an emergency fund of three to six months’ expenses in a very liquid (accessible) account. I recommend you have this money in a savings account or money market. Your options for an account are numerous (I recommend ING DIRECT). Remember, don’t go hunting for some great interest rate - you won’t find it. You want something that is easy to set up and easy to withdraw money from in case of an emergency.

So how does this trick of saving money save money? We’ll discuss two different items.

A lot of people disagree with the idea of “no credit cards” because they might need one in the event of an emergency. I think this is ludicrous, but that’s a different subject all together. Let’s suppose that an emergency comes up and you need to fork over $1,000. Because you have an emergency fund, you simply pay it all up front and begin replenishing your account. If you didn’t have this money set aside, where would you turn? To your “emergency” credit card. With credit card rates being their lowest in history at the time of this writing, this won’t be as drastic, but it will still drive home my point. So, you charge the $1,000.

In 10 months, socking away $100 towards emergency fund replenishment, you are back up to par again. But if you charged the $1,000 and paid $100 a month to pay it off? It would have taken you almost another month. It cost you about $60 (assuming a 9% APR) just to charge it on your card. That may seem small to you, but couple that with other credit card balances and you have a pretty formidable giant you’re playing footsies with.

So when saving money, you save on interest because you have the money when an emergency strikes. The emergency fund replaces the emergency card.

Insurance premiums are often overlooked in terms of your ability to save money. I just got off the phone with my insurance company and they told me that if I were to remove the maximum deductible that I have in place and drop to no, or a very low deductible (as most people do), it would cost me another $630 per year. That’s on one vehicle! Most people are scared when it comes to choosing a high deductible. Why? Because they don’t have an emergency fund. When you have your emergency fund in place, you’re allowed to live with a bit more “risk” if it’s even correct to call it that. In reality, you’re living with less risk - further from the edge. Anyone who chooses to lower their deductible so they don’t have to pay out more money in the event of an emergency, but doesn’t have an emergency fund, is playing with fire - now there’s risk. That’s a game I just don’t like to play.

Wrapping things up, you might think that having your money stashed in a low-interest rate type of fund is costing you a lot in opportunity. I tend to see it a different way. When you have that money there to fall back on you save any interest costs associated with having to borrow money to get out of a jam, and you can increase your deductible because the money’s there. An emergency fund is really the only way to go. Start saving money by saving some money.

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