According to GoBankingRate.com, only 35% of people have $1,000 saved up… and more than 34% don’t have a savings at all. NOTHING. NADA. ZILCH. That leaves less than half the population prepared for a real emergency.
The importance of saving comes from the unknown we live… LIFE. It happens. You get a flat, your roof leaks, you lose a job. Been there, saved for that! While you can’t predict these things, you can certainly prepare for them.
Having a savings goal isn’t as hard as it seems. It can be as simple as an empty water jug to catch your coins at the end of each day, or as “complex” as an interest bearing savings account, a ROTH or 401K.
Approximately 40% of people can’t come up with a $500 emergency
Remember that $8,000,000,000.00 I made in college from doing hair? …. from that I saved a little over $10,000 before leaving college. I had no idea why or what I was saving for, but I did it anyway. And good thing I did! It is a tedious enough process trying to land a job after college. The whole “You need X amount of experience to land this entry level job” thing is dang near impossible! BUT, I was prepared anyways. I was smart enough to stay home a bit and continue to save before moving to a new, more expensive, city.
*breaks open piggy bank*
Now that we’ve diversified our income AND eliminated expenses through our super tight budget, we are ready to head down the road to recovery.
Speaking of recovery, let’s save for that! This fund is built to avoid the overuse of credit cards as a means for emergency expenses. Not variable expenses like funerals, because: life insurance. Nor is it a means to buy new tires after a blow out. These should be worked into the budget and have a fund of its own (more on this below).
The emergency fund is specifically designed for the unexpected, such as the loss of a job, medical, children, etc.
A good rule of thumb is to begin by saving $1,000 into an emergency fund. And as we get further on the path towards wealth, the emergency fund should grow larger (3-6 months of expenses).
A sinking fund is a sum of money that you set aside (usually by saving a bit each month) that’s completely separate from your savings account or your emergency fund.
By setting the money aside before you use it, you will avoid using your emergency fund unnecessarily. Plus, you give yourself more negotiating power when it is time to purchase.
Story Time: Buying a Cash Car
This summer, my a/c went out in my truck. I live in Texas, so it was either repair it or buy a new car. My suv was a foreign car, so let’s not even talk about that repair bill. I bought a new car! And because I am on my debt-free journey, a car loan was out of the question. In a matter of 2 months, I saved $10,000. Yup. A tight, tight, tiiiiight budget! I ate cereal and noodles every day lol!
Anyways, I went to the dealership and negotiated my used 2015 Nissan Altima down to just under $9,000 plus a few repairs, oil changes, and more free junk I requested of them.
CASH IS KING … IF YOU HAVE TO BORROW FOR IT, YOU CAN’T AFFORD IT
When it comes to personal finances, a sinking fund is a great financial safety net. It keeps you out of debt, on budget, and on track for your financial goals.When you set up this type of savings account, you’ll need to decide how much should be allocated to the fund and divide it by the number of months it’ll take to save it.
For example, if you’d like to save $500 for next year’s holiday season, you’ll set aside $50 a month through October ($500/10 months).
Sinking funds can be used for any planned expense, like:
- Housing Expenses (repairs, furniture replacement)
- Transportation (new car, licensing, or maintenance)
They can also be used to fund expenses you’d rather pay annually or semi annually, like:
- Insurance Premiums (car, renters, medical)
- Tuition (preschool or college)
- School Supplies
- Holidays/Gift Giving
A great app to use for sinking funds is Digit. This app sweeps away small amounts from your bank account into savings without you having to think about it or even notice it. I’m talking chump change!
You can also easily set goals within a savings account using Simple. Open a free checking account with Simple, and set goals as digital budgeting envelopes and you can earn up to 2.02% APY!
Let’s face it, kids can get expensive. From the needs of babies to our wants of private school, Disney vacations, birthday parties, and college. Woooo that escalated quickly! Nonetheless, there’s no doubt that preparation helps to take the stress from the lifestyle we create for our children.
I came across a company called Littlefund that helps steamline finance goals for our little ones. The Littlefund is an innovative approach to use your spending power for good! In lieu of gifts, try creating a Littlefund for your village to contribute to. College, Disney Land… the possibilities are endless.
Remember during Good Credit Habits we discussed effortless savings that will improve your credit health. Keep Self Lender in mind when considering multi-beneficial savings. A credit builder account can help you establish credit history and save money in a safe, responsible way as a CD that is FDIC insured.