Emergency Funds: Basics for Building a Savings Account|
You have just graduated college and landed a great job. You are finally earning your own money and your paycheck is significantly larger than the part-time job you had throughout college. For the first time, you actually have some money left after your rent and all the bills have been paid. Oh, all the things you could buy! Oh, all the things you do buy!
But… what if you suddenly got an unexpectedly high bill that needed to be paid yesterday? Would you put it on your credit card? Take out a payday loan? Ask someone in your family or a friend to loan you the money? Or do you have the money saved up?
Two out of five households in the US are living paycheck to paycheck and in these situations, saving money is probably the last thing people worry about, even though they need it the most. The economy has been pretty rough and most people have had to tighten their belt. These are the times when it’s crucial to have a safety net. Imagine if you could just take the money out of your savings account and pay that bill?
A savings account you say? That’s for little children and old people! Wrong.
Saving money is not just something for boring people who refuse to have any fun. Saving money is something we should all do. Being a responsible adult doesn’t just mean keeping plants or even a small pet alive, contributing to a 401K and paying bills on time. Being a responsible adult means that you are prepared for the worst and the older you get, the more unpleasant these “worsts” will become. It is crucial to have an emergency fund for those rainy days.
Unfortunately, putting $500 of birthday money in your savings account won’t be enough. A financial safety net takes work and patience. Although there aren’t set rules on how much you should save, experts agree that having saved up about six to eight months of living expenses is a good goal to have.
Strategies on how to start saving smarter:
- Track your spending. If you don’t already have money left at the end of the month, you can track your spending and see where the opportunities are to cut back. Maybe you can bring your lunch from home a couple of times a week or drink the first coffee of the day at home. Small changes can go a long way.
- Make sure you have all the basics covered in your budget. There is no point in saving a large amount if you have to put certain purchases on the emergency credit card or get behind on payments.
- Use a savings account. The interest will not make you rich but one advantage will be that your savings are insured. You are able to access the money easily but get punished if you used it like a checking account.
- When you get paid, put a small amount in your saving account right away. If you wait until the end of the month to transfer the leftovers, there might not be anything left. You can even set up a direct payment or have your employer split up your paycheck.
- If you get a bonus, tax return or Christmas money, put it in your savings account. There’s nothing wrong with spending it eventually, but why not wait for that one must-have purchase to come along? (Even if it’s an emergency root canal.)
- Remember: there’s nothing wrong with living a little.