If you’re already having some trouble saving, one misstep could send you over the edge.
The air conditioner needs to be repaired, you’ve been in an accident and must pay your deductible – life occurs!
The Federal Reserve reported that 40% of individuals couldn’t come up with $400 for anything unexpected without selling something or borrowing the money in its 2019 Report on the Economic Well-Being of US Households.
How much should I save?
That is debatable.
Start with $1,000, according to one expert.
If you’re paid biweekly, ask your HR/Payroll department to start putting $40 from each paycheck into a savings account. You have slightly over $1,000 in a year.\
You’re concerned you won’t be able to survive without the extra $40 per pay? You aren’t looking hard enough.
Don’t touch your $1,000 now that it’s in the bank unless it’s a serious emergency.
Is $1,000 a large enough emergency fund?
Realistically? No.
It’s a wonderful place to start if you don’t make a lot of money and $1,000 feels unattainable.
Your first $1,000 will cover a blip like an urgent care visit (preferably covered by insurance), a car repair, or something else you’d consider an emergency.
With $1,000 in the bank, the purpose isn’t to provide financial relief; it’s to allow you to deal with the unexpected without blowing your budget.
How Much Cash Should I Have Saved?
This is a topic on which all experts differ. Your financial requirements will differ from those of others.
Why?
Actually, there are two reasons for this. To begin with, your expenses are distinct from those of others. Second, the amount of money that allows you to sleep better varies from person to person.
Look at your set monthly expenses first. Here’s a picture of my Florida friend Diane:
- Rent: $1,800 per month in
- Car: $0 (Way to go!)
- Visa and MasterCard: $200 (pay that shit down, Diane)
- Utilities: $175 for (average)
- Cell: $80
- Miscellaneous: $800 (gas, groceries, toiletries, etc.)
Diane spends $3,055 per month on her living expenses.
What is the first goal? Increase the amount in your emergency savings account to $3,055. For this, I’d create a new account.
How the hell am I supposed to find $3,055?
Well, you may not have to. Add up your expenses. It could be higher; it could be lower. Either way, start funding it. This money can come from:
1. Saving a piece of every paycheck
2. Asking for a raise
3. Overtime at your current place, if available
4. A part-time job or side gig
5. Getting a holiday job in a retail store, but not one in which you’ll spend all your money! Have the direct deposit go to your emergency account, not your main account.
6. Selling stuff you don’t need. You can unload some things on eBay or Craigslist, or if your community is holding a garage sale, join in. You may not make a ton with this one, but it declutters your place, too.
7. Bring your lunch to work.
8. Cutting things you don’t need. You may want cable, but do you need it? Do you need every streaming service out there? I recently cut cable and saved $84 a month! That’s $1,000 a year, and I’m not missing out on anything.
Once you’re at one month, celebrate — frugally, of course.
Though it won’t happen immediately, keep saving until you have six or more months’ worth of expenses.
