I’m sitting here at 3:30 in the morning listening to podcasts and doing some reading and began thinking about emergency savings. I know right? Pretty boring subject! I’m not really sure of the reason, but I seem to dwell on things like this from time to time. Something that NEVER hit my radar for years and years suddenly is all over it. My latest plumbing disaster caught me with my pants down and it literally made me ashamed of myself. Here I sit after all these years and had no way of dealing with this sudden household emergency. I’m trying my best to ensure that things like this never catch me snoozing again. I feel it’s extremely important to have money stashed away for easy access just for these sleeping emergencies that will eventually show their ugly face when you least expect it. Trust me, it’s not a matter of IF it happens, it’s a matter of WHEN it happens. Living paycheck to paycheck is never easy, but it doesn’t have to mean you can’t save for the future. Everyone needs a savings nest egg or emergency fund.
Can you handle an emergency without going into debt?
Forty-four percent of adults say they either could not cover an emergency expense costing $400, or would cover it by selling something or borrowing money (credit card). I found this information on a report from the Federal Reserve
. This is quite alarming and I fell into that 40% and didn’t even know it! Why? Why are we so complacent about having money stashed for emergencies? Do we feel like we just can’t afford it? Would we rather live for today and just don’t give a crap about tomorrow? What is your EXCUSE?
I think that my excuse was ALL OF THE ABOVE! So what are we going to do about it? I don’t know about YOU, but I’M GOING TO BUILD AN EMERGENCY FUND!
So…strapped for cash? Let’s start small. Let’s start with stashing away $20 per week. Can you handle that? Sure you can! This translates to $1040 per year! It’s not that much but hey, IT’S A START! And it sure beats the crap out of nothing. We have to start somewhere. If you can afford more then GREAT!! So, how are we going to find that extra $20 per week? Maybe you could cut back on your cell phone bill by going with a cheaper company. I went from spending over $100 per month down to $35 per month by switching to Cricket Wireless. That was huge savings for me and can be for you too! Or maybe you could cut back on wasting money eating out. Maybe eat out once a week instead of every other day. Maybe shop at Aldi for your groceries instead of high dollar grocers. There are so many ways to cut back and save money! Let’s open our emergency fund with at least $100 and then commit to putting $20 per week in it. You will be surprised at the financial head start and motivation you can get even from this small opening deposit amount! STAYING MOTIVATED IS KEY!
Snag food deals. Speaking of groceries, another easy way to save is to plan your meals around whatever meat is on deep discount due to an impending expiration date. Nearly all grocery stores will guarantee its quality 100 percent. (my wife does this all the time and we have never encountered a single quality issue.) Just make sure you use it that day or the next — or simply toss in the freezer. You can easily save $20 a month this way. Learn basic recipes and techniques that are transferable across a lot of different proteins such as stir fry’s, rice bowls and casseroles. Crock pots and pressure cookers are great friends to have! And you can create AMAZING MEALS CHEAP!
Cut monthly subscriptions. I touched on this above but you CAN SAVE SO MUCH MONEY in this category alone! Why make the monopolies richer while we STRUGGLE? Downgrade or cut any service that isn’t heavily used (or that IS for that matter) by everyone in the family, such as cable television, the large data plan on your cells, a streaming service you don’t watch very often. These monthly recurring items may seem insignificant on their own but ADDS UP TO THOUSANDS OF DOLLARS!! I totally recommend CUTTING THE CORD! Or at least significantly cutting back.
DIY as much as you can. One helpful exercise to find room in your budget for emergency savings is to write down everything that you pay for each month that isn’t directly related to food, shelter or getting to work. Now cross off everything that you could do yourself instead with a little training and/or patience. There is almost always a cheaper or free way! Afraid people might call you cheap or frugal? Who gives a shit? Are they by your side when you’re laid off? You better believe they’re not! Examples of things to DIY or find a cheaper option: car washes (wash it yourself!), manicures/pedicures (fingernail clippers: 1.29 at Wally World!) and clothes for kids who are too young to care about fashion anyway (yard sales and Goodwill). Or for toddlers, make it a practice to buy well-maintained but used kids clothes from smoke-free homes in bulk on eBay for a fraction of the price of buying new. (Your toddler will outgrow brand new clothes so quickly anyway!) STOP THROWING AWAY YOUR MONEY! YOU’RE GOING TO NEED IT!
Great work! Now we have our first $100 in savings (probably much more if you’re doing some of these suggestions!), or you are very close.
- Open your emergency fund. Remember, everyone needs one — especially when money is tight. Keep this money within easy reach in case you need it, but not so close you’ll be tempted to use it for a non-emergency. For most people this will be a typical high-interest savings account. Online banks almost always offer higher interest rates. Go to Bankrate.com to find the best one that will work for you.
- Feed” your fund regularly. Keep the cost-cutting in place and automate an additional $5-20 per week into the fund through regular deposits.
Now that we have the fund in place and a way to get regular payments into it for a rainy day it’s time to think about compound interest. This means your interest is calculated not simply on the principal balance but the principal plus interest — that’s how your money can grow surprising quickly in an interest-bearing, FDIC-insured account vs. under your mattress.
Example of compound interest at work:
- Deposit amount: $80 per month
- Interest rate: .75 percent. (there are rates over 1.00% available right now)
- Balance after 10 years in an interest-bearing account with regular $80 monthly deposits: $10,016.77
- Balance after 10 years in your mattress: $9,600.
- Difference: $416.77
- Prioritize. Having an emergency fund is important, but it’s not the only thing. Most people should start small, setting aside $500 or $1,000. Next, they should focus on paying down high-interest debt. Finally, they should fully fund their retirement accounts. When these goals have been met, then it’s time to beef up emergency savings. Your priorities may be different. If you worry about potential problems, then by all means boost your emergency savings first. Do what works for you.
- Don’t be discouraged by saving small amounts. If all you an afford is $25 each month, then save $25 each month. Everyone has different incomes and debt but I’m confident you can SAVE. You can jump-start your emergency fund by using a windfall. For example a tax refund or bonus from work. Or sell some stuff on Craigslist.
I used to live paycheck-to-paycheck: no matter how much money I earned, I could find ways to spend it. My outlook has changed. And though I sometimes wish I’d discovered the joy of saving when I was younger, I’m glad to be learning it now. I love watching my balance grow every month AND YOU WILL TOO.
Thanks for reading,