Budget, emergency fund, money goals

An emergency fund is crucial to anyone who wants to build a successful financial portfolio.  According to CNBC, about 52 million Americans have no emergency savings.  I’m sure the numbers are larger but 52 million is still a staggering number. Think about the families who are at risk of losing their homes, cars, boats, and anything else they place value on because some simply failed to plan for emergencies.

When I first started cleaning up my finances, the first thing I did was check the balance of my savings account.  I shouldn’t have been surprised, but I saw that I was one paycheck away from a financial disaster.  I wanted to stop living check to check, but had no clue how to begin saving.  Like many people, I honestly thought I couldn’t afford to save but in reality, I couldn’t afford not to. So with a little work, I began finding ways to save on everything from grocery shopping, clothes, cable and internet, and other expenses.

One of the most important, if not the most important category in our budget is our emergency savings.  Without it, we would be in trouble.  No matter how much we like to be in control, we can’t control emergencies.  Life happens and without and emergency fund, everyone will continue to fall deeper into debt.

Things we take for granted like job security, our health, reliable transportation, and even our cell phones are all in jeopardy at anytime.  Jobs are not guaranteed, health can fail at any time, cars breakdown at the most inconvenient times,, and we know how many people lose their cell phones every day.  When rough times occur, it is imperative that you have something set aside that won’t drive you further into debt. Saving consistently became addictive, so much so that we’ve been able to put a hefty amount away which continues to grow.  Think of your emergency fund as a debt prevention fund.

Should you save while you’re still in debt? If so, how much should you save?

The big thing now is to have a $1000 starter emergency fund but saving that amount can be scary to someone who don’t have any money saved, so my advice would start with saving goal of at least $500 and the allow that number to grow.  I don’t think once size fits all.  It’s important to save an amount that is comfortable for you and your family.  I personally think it’s possible to sve and pay off debt simultaneously.  Again, you have to do what’s good for you and your family.

Where should you keep your emergency fund?

The point of an emergency fund is to gain quick access with the unforeseen happens.  While we don’t keep ours in the same bank as our regular checking accounts, we do keep it at bank that is easily accessible.  I recommend a local credit unions or online savings accounts such as Ally Bank.  You can also store your emergency fund in a CD or money market account, but keep in mind there maybe penalties for withdrawing money before your CD matures.

Now that you know why an emergency fund is important, how do you begin saving?

STEP #1: SET A SAVINGS GOAL

Earlier this year I talked about setting S.M.A.R.T. goals.  Before you can accomplish anything, you must have a starting point.  Your first step should be to set a savings goal.  How much should you save?  Search anywhere and you’ll read tons of answers.  As I stated above, many financial experts advise you to save $1000, then start paying down debt, but you should do what’s best for you and your family.  If you’ve never saved before, then I’d start small with at least $500 and increase it after you’ve developed a habit of saving consistently.

When I first started saving, my goal was to save $500.  Once I reached that “nominal” amount, Saving that amount made feel do anything.  Once I reached that amount, I felt more at ease knowing if something happened, I’d at least have something to soften the blow of whatever came.  It comes down to this, choose a starting you are comfortable with, even if you have to set it in increments. For example, if you can only save $300, create steps to save $300 multiple times per year.  If you continue to set goals based on everyone else, you’ll never reach your savings goal`.  No matter what the amount, something is always better than nothing.

STEP #2: CHOOSE THE RIGHT SAVINGS ACCOUNT

A lot of financial experts advise the best place to stash your money is in an online account. Here are a few reasons why:

  • You can transfer as much as you want into your account.
  • Opening an online only savings account is very easy but a little more inconvenient to access your money. Having an online savings account will make you think twice before you attempt to withdraw money.  It generally takes 2-3 business days to transfer money from your online account to your checking account.  This helps you decide whether it’s a true emergency or just something you want
  • Most online accounts are free to open and free of fees. Ally Bank is one of the best online banks. They are currently offering a 1.35% interest rate (which is great for today’s market), no maintenance fees, and you can have multiple accounts for multiple savings goals.
  • Ally Bank is FDIC insured. FDIC stands for “The Federal Deposit Insurance Corporation.” The FDIC guarantees the safety of your deposits up to $250,000.00

If you aren’t comfortable opening an online account, your next option should be your local credit union.   Credit unions are fantastic because not only do they offer great service just like online banks, they are easily accessible when an emergencies arise.

Benefits of opening a savings account at a credit union:

  • Credit unions put customers first.
  • They offer lower fees.
  • Provide better interest rates.
  • Apart of National Credit Union Associates (similar to the FDIC, NCUA insures up to $250,000),

STEP #3: AUTOMATE YOUR SAVINGS

Once you have a chance to review your budget, decide how much you can afford to set aside each month. (We save bi-weekly because it’s easier for us). Choose one day a month to transfer money to your savings account.

Automating our savings has helped my husband and I save a great deal of money without missing a beast.  We are currently saving 50% of my salary each month.  Because we automate our savings, we’ve learned how to live off less  than we make while still paying off our debt. Remember the old saying, “out of sight, out of mind?” Because we don’t see it, we don’t think about it as being available.

Saving this way also makes reaching your goal more realistic.  Think about, if you automate $100 per month, you’ll have $1200 by the end of the year without even thinking about it.  If you can’t afford $100 a month, set a goal to save $25 per month and over time you’ll see your account grow.  When I first started saving, I started with just $25.00 each month and it was great feeling knowing that I had something saved for a rainy day.

Requiring automation will free you from the responsibility of physically transferring money every month.  Believe me, if you aren’t in the habit of saving now, it’ll be hard for you to sit down every month to transfer money to your savings account. Even with the best intentions, you may slip up because there will always be a reason for you not to save. Automating savings will ensure your success.

STEP #4: BEGIN TO SAVE MORE

After you found money to save,, begin increasing that number by 5% to 10%.  For example, if you are saving $25 now, increase that amount to $26.25 for a few months, then increase it to $27.50 and so on.  Trust me, the small increases will add up. Always try and push yourself to save more.

Increasing your savings may not seem doable, especially if you never saved consistently, after a few months, you’ll begin to feel more comfortable.  If you aren’t used to saving, don’t go “delta force” and overreach, otherwise, you get discouraged.  Remember saving is not a sprint but a marathon.

Step #5: SAVE YOUR WINDFALLS

How many of you receive tax refunds, birthday presents, etc.  Instead of spending these windfalls, throw them into your savings account and you’ll build a hefty cushion fast.  If you don’t want to save all of it, spend a small amount on yourself or better than that, pay off some debt. Decreasing your debt payments will allow you to save more over the long run.

Step #6: SAVE TO COVER 3-6 MONTHS OF LIVING EXPENSES

After you’ve hit your first goal, continue to save until you you’ve saved between 3-6 months worth of living expenses.  That may seem impossible now, but trust me it is.  The point of an emergency fund is to take care of you and your family if any unforeseen event happens. Murphy’s Law (losing your job, getting sick, car repairs, or even a death in the family), can throw a monkey wrench in your finances.  If something goes wrong, your emergency fund will soften the blow.  Being financially ready will allow you to focus on what’s really important instead of worrying about how you’re going to pay your mortgage and car payment.

After you hit your goal amount, keep saving until you can cover six months of living expenses. I know that might seem like an unreachable goal, but I promise you that it’s not. The whole point of an emergency fund is to take care of you and loved ones if something goes wrong. Being laid off, being sick for an extended period of time, or even a death in the family is something I would never wish upon anyone, but it happens. Being financially prepared will allow you to worry about the things that matter and not about how you are going to make your next payment.

If you haven’t already, I challenge you to sit down and start planning for emergencies. Use these steps to create a savings plan today.

My Final Two Cents

If you aren’t sure how to get started, the best thing to do is to start small.  Remember, whatever you can afford to save is better than nothing.  The sooner you get started, the sooner you will reach your savings goals.  Get on a budget and over time, you’ll begin to see your account grow and when an emergency happens, you’ll be more than ready.

Have you started saving for emergencies?

 

budget, emergency fund, savings, goals

 

 

 

Rho'Nesha