Today’s LIFEies subject line is a sad statistic. Money isn’t everything, but having even a small modicum of financial freedom can help you out when things get tough. Having financial freedom has been a top priority in my life and I have passed it along to my kids. When they graduated from college, we made sure the first thing they did was save for emergencies. We started with 90 days of living expenses. Then we asked them to save six months. To prove our point, two of my kids had unexpected expenses come up within the first 18 months out of college. My daughter was hit by a man that totaled her car and had to get a new one – even with insurance, it cost her money. My son got a new job and had to move immediately. He still had his lease in Dallas to pay for 5 more months. S**t happens. Prepare for it. Now.
Here are a few tips on how to build up a rainy day fund:
- Have a portion of your pay go directly into savings so you don’t even see it. If you don’t see it, you won’t miss it.
- Start saving today. If you were going to Starbucks, don’t. Take the $5 and put it into a safe spot. If you were going to get a second beer, don’t and take the $5 and add to your stash. At the end of the month, go put it into your savings account. In 2-3 months you will save way more than you think.
- Keep your savings and checking accounts separate. Like the first tip, you are less likely to spend it if you don’t see it.
What if you have debt? Pay the debt service but that is all until you have your emergency fund funded. Let’s get our financial house in order.
Rule #14 from my book The Fantastic Life: There are Two Kinds of Pain
Which hurts more — sacrificing your morning coffee or struggling to buy new tires for your car when you didn’t save up? Embrace pain in the moment to save yourself a more painful regret down the road.
Most Americans can’t cover a $1,000 emergency
LIFE HAPPENS: A BROKEN-DOWN CAR. A LEAKY ROOF. A BROKEN BONE.
If you were hit with a $1,000 emergency, would you be able to cover it?
For the majority of Americans, the answer is no.
Only 39% of Americans say they would be able to pay for a $1,000 unplanned expense, according to new report from Bankrate.
“Even though unemployment is down and there’s been a recent uptick in wages, we aren’t seeing the needle move savings,” said Greg McBride, chief financial analyst at Bankrate.
Unexpected bills aren’t uncommon. More than one-third of households had a major unplanned expense last year, the survey showed, with half of those costing at least $2,500.
Nearly one in five Americans said they would put the expense on a credit card, the report stated, which usually makes the cost even higher as you pay off the interest.
That’s why experts usually recommend you have an emergency fund.
“Having that emergency savings fund will help you sleep at night before and after that unplanned expense,” said McBride.
He recommended having six months of living expenses to help blunt the financial blow of a surprise bill. While that can seem like an insurmountable goal, every little bit helps.
“In the last recession we had nearly 7 million people who were out of work longer than six months,” noted McBride. “To someone who doesn’t have any or very little extra funds, accumulating six months of expenses sounds like climbing Mount Everest, but that is the destination.”
Here are four tips to help bulk up your savings:
Save first, then spend
Have a portion of your paycheck go directly into a savings account, McBride recommended.
“Too many people try to save what is left over at the end of the month only to find out there is nothing left over. You have to flip the equation around: save first, then spend what is left over.”
The best way to make saving a habit is to start early.
“The sooner you can get in that habit the better,” McBride said. “If you can do it when you are young and not making much that, the habit will stick with you as your age and income grows.”
Separate the money
Remove all temptation to spend your emergency savings by keeping the funds separate from your checking account.
Keep your emergency savings stash away from your checking account. “It has to be a dedicated savings account,” suggested McBride.
Find the best savings account
Interest rates on savings accounts are still recovering from their tumble in the wake of the financial crisis, so it’s a good idea to shop around to find the highest rates.
Currently, your best bet is likely an online bank account.