It’s Called Currency

In Part 1, you added up your income. Part 2 had you tally up your expenses. Now, before we look at the difference between those numbers, let’s talk about your savings.

Here in the United States, the amount of money Joe Citizen saves is non-existent. In recent years, the statistics have shown the nation’s savings rate at 2% on the high end and a negative 2% on the low end. In other words, our citizenry saves, on average, nothing. Are you an average Joe?

Our culture says that instead of savings, credit cards are what you use for emergency expenses. Whenever a problem crops up, it’s paid for with plastic. But what if your credit is already maxed out? The situation can quickly turn into a robbing-Peter-to-pay-Paul situation, where you juggle expenses very carefully to stay just one step ahead of serious trouble and you pay outrageous fees for the privilege.

Instead of panicking when an emergency crops up, trying to find extra money in the middle of a crisis, you should be setting aside funds for the inevitable unexpected expenses. Many personal finance coaches, mentors and advisors recommend that you have an Emergency Fund equaling 3 to 6 months’ worth of expenses for your household. In recent weeks, I’ve heard that number raised to 9 or even 12 months. The reason for the higher numbers can be found in the current rise in the national unemployment rate. After all, if you were to suddenly be laid off from your job, it could take more than 6 months for you to find another one. How will you pay your bills if you don’t have a sufficiently large Emergency Fund?

But wait! You’re already living on the edge with no extra money at the end of the month. How in the world can you even begin to save that amount of money? First, you have to be honest with yourself about those expenses. Are you paying more for things than you should be? Is your present lifestyle keeping your from building your future happiness? Take a long hard look at your monthly bills and daily purchases and reduce spending on everything that you can. For instance, basic cable costs in the neighborhood of $40 a month less than premium cable…that’s $480 a year to go into savings if you scale back. Replace your fancy $4 daily coffee with a basic $2 cuppa joe and you’ll rack up another $520 for the fund. That’s two simple changes that just put $1000 in savings for you.

Instead of spending every dime that comes through your accounts, make a commitment to save a percentage of it for your future needs. A savings account with sufficient funds to get you through the normal “emergencies” of modern life will give you far more peace of mind than your daily Starbucks, the Soap Network, or surfing the net from your mobile phone.

Your budget needs a line for your Emergency Fund, and you need to consistently put money into it. Put it at the top of the list and don’t skip it. Fund it with money that you’re no longer spending on other categories. If you have money left over at the end of the month, put it into your emergency savings. When the next unexpected car repair turns up, you may find yourself happily paying that bill, knowing that you were the smart, disciplined person who had the money saved for that emergency.

Tags: budgeting, cashflow management, priorities, saving, spending less // Add Comment »