The principle of having an emergency savings may seem simple; however recent studies indicate that almost 70% of Americans live paycheck-to-paycheck, 40% of Americans have no emergency savings at all, and 60% have less than $1,000 in emergency savings. A lack of emergency savings often leads one to seek desperate measures when an emergency situation arise. You should not expect for other people to fund your emergency situations because you failed to plan and mechanisms like payday loans are provided eagerly at extremely high interest rates (the average interest rate for a payday loan is 391%) to profit off your desperation and leave you locked in debt. It is very expensive to be financially unprepared in America. It is important to have money set aside to cover unexpected expenses such as: home or car repairs, an emergency room visit, major dental expenses, travel after the death of a loved one, emergency pet care, or even the loss of a job. While it may seem daunting to figure out the amount you need to save, the key is to start saving! Make $1,000 in emergency savings your initial goal. If you do not have emergency savings, start 2021 off by establishing a savings account specifically for that purpose and build it by considering one of the three strategies below:
1. Pay yourself first. If your budget is tight, start with as little as $25. A little can go a long way over time if you remain committed and you do not touch money designated for emergencies unless it is an emergency!
2. Find ways to cut back. It is amazing how much money people will spend for a cup of coffee at Starbucks or eating out every day for lunch and sometimes even dinner. Those are very expensive habits. Consider making coffee at home and carry it in as well as bringing your lunch to work. You will likely find huge savings. The point is we spend money on a lot of unnecessary things and then say we don’t have money for things that are essential. What you spend your money on is a reflection of your priorities. Take the time to reexamine your priorities.
3. Adjust your tax withholding. If you receive a tax refund every year, then you may want to consider adjusting your tax withholdings rather than wait until next year for another refund. Adjust your tax withholding by filing a revised W-4 form with your employer. This will put more money in your paycheck each month, and you can set that amount aside in your savings account so it can earn interest and grow. (That money won’t be earning any interest during the year if you leave it with Uncle Sam!)
Set a goal and monitor your success. When people want to lose weight, they usually have a certain number of pounds in mind. And they monitor their success by stepping on the scale regularly. Use the same approach for your emergency fund. Set a goal, and sign up to receive account balance e-mails from your bank. Those regular reminders may encourage you to keep on track until you reach your goal. You can do it!
This article is a part of a series: Starting the New Year with a Legacy Wealth Budget
If you need help with creating a legacy wealth budget for your household, please do not hesitate to contact me for help.
Charleese Hasan, PhD, OH Charlie LLC, email@example.com