We all know the importance of saving. But many of us don’t actually do it. The savings rate in the United States is at the lowest level in decades.
Saving money can seem overwhelming if we think we have to start out with a very large amount. Most financial advisors recommend having at least 3 to 6 months of living expenses in savings. That may seem like an impossible task.
Instead of being overwhelmed by that daunting task, I recommend you start by saving $1,000 for emergencies. That amount would cover most emergency needs; appliance replacement or repair, car repairs, medical expenses, damage to your home due to a storm, etc.
Even if you don’t have any money saved right now, you could probably set aside $1,000 in just a few months. Once you have this Emergency Fund established, you will probably have eliminated the number one reason people feel they need the “safety blanket” provided by a credit card. People tell me all the time that they need a credit card for emergencies. Once you have your Emergency Fund, you will have created your own safety blanket and won’t have to rely on the mercy of the credit card companies.
Sooner or later you will have occasion to ask yourself – what constitutes an “emergency?” Let’s take a look at a few examples:
- You’re driving to work one day, and your exhaust pipe falls down, and onto the road. Emergency? Some would say, no. Emergencies are for things that are unexpected. If you’re maintaining your automobile, you’d be aware of this part being “iffy.” Same with tires, scheduled service, etc. This should be dealt with in your sinking fund budget for auto repairs (covered later in this book).
- You just finished grocery shopping, and you notice that someone slammed into the driver’s door of your car, making it impossible to get in and out of the car. Emergency? Most would agree, yes! This is an UNEXPECTED event; one that you couldn’t predict.
- One of your children accidentally busts a neighbor’s window? Emergency? Kind of. You should fix the neighbor’s window immediately, but your child should take up some work around the house, or around the neighborhood, to repay your family’s Emergency Fund. In other words, don’t use this money often, and when you do, replenish it as quickly as possible.
If $1,000 seems overwhelming, don’t panic. Take it one step at a time. Maybe start with $100 this week. Then another $100 from your next paycheck and so on. Try to get to that $1,000 within the next few months.
Another way to build your Emergency Fund is to turn your clutter into cash! If you don’t need it, sell it. If you haven’t looked at it in several months, sell it! If you don’t even remember you had it until you went through all your clutter, sell it! Have a garage sale, or utilize many of the online selling platforms. Not only will you relieve yourself of clutter around the house, you’ll be adding to your Emergency Fund.
For more information contact your Fairfield bankruptcy attorney.