A sad fact in today’s society is that the majority of us simply do not have a rainy day, or emergency, fund. A vast majority of Americans don’t even have any savings outside of what’s needed for the current month. Financial experts often suggest that we should have between 7-9 months worth of living expenses socked away in case of emergencies arising. You should never be stuck living paycheck to paycheck. If you end up living this way, and something goes wrong, you could be taken to a dark place really quick.
If you are already living paycheck to paycheck, the thought of saving any money might sound like an impossible task. While it definitely can and probably will be tough, it’s not impossible. The first thing you can do is to set up a budget for yourself. Budgeting is the easiest and most efficient way to track and discipline yourself when it comes to spending money. You’ll be able to quickly identify the purchases you don’t really think about but make often that add up to be big expenses monthly. Once you know what you’re spending a lot on, you can find ways to reduce or eliminate the spending. Eventually you’ll be able to add a weekly/monthly budget column for a “rainy day fund”. Now we’ll talk about why having this fund is so important, and other methods you can use to start creating one.
The older you get, the more you realize how fast life can come at you, so to speak. At any given point in your life, you can easily have numerous things quickly go wrong and have expenses stack up fast. Whether it be auto repairs, medical bills, or fixes around the house, something will inevitably pop up unexpectedly at some point in your life. Having an emergency/rainy day fund can help you be ready for when this happens.
You might feel like you’re okay living paycheck to paycheck because you are contributing money to a retirement account. However, this retirement account doesn’t help you in a case of an emergency. Most investment accounts do not allow you to withdraw money from them early, And if they do it usually comes with a severe penalty. These investments are great to have but they are meant to be left alone while they grow into your retirement years.
To some people this is a more obvious tip, but the truth is a lot of people don’t understand just how bad their debt is hurting them. Having debt and paying interest on that debt is the easiest way to ensure you won’t have extra money to save towards your future. Most credit cards have interest rates well above 10% and sometimes even above 25-30%. This makes paying off purchases over the course of a year cost more than double what you initially agreed to pay for it.
The best thing you can do for yourself is to commit to paying off your debt as fast as you can. Not paying interest on debt will immediately free up that money to be socked away in a rainy day fund. One way to help out would be to find a credit card that offers 0% interest for the first year, and then consolidate your debt onto that card. Then do everything in your power to pay off the debt within that 1 year time frame. Be aware that these cards usually carry insane interest rates after the first year though.
This is pretty self explanatory but eliminating excess spending will greatly help you in saving money. As mentioned above, creating a budget will quickly help you identify where and how much you are spending on unnecessary areas. Items like a daily coffee, lunch, or premium cable are easy things that could be cut out to allow savings. You don’t have to stop drinking coffee. By simply making coffee at home you can save upwards of $100+ per month alone. The more smart choices you make the more the savings will add up. $10-20 per week is enough to start saving for your future, but the more you can put in, the better.
In this day and age technology makes everything easy. That includes setting up automated savings. If you set up automated deposits into your rainy day fund then you wont have to worry about anything. You probably wont even notice it happening. It’s easy to live without money you didn’t know you had, right!? No need to have self discipline anymore because the technology can do this for you. Keep it simple!
The hardest part of reaching any goal is getting started. That includes financial goals too. You may feel like you’re in a rut in life, and that these goals are impossible but they are not. Many Americans just like you have gone from living paycheck to paycheck to having a healthy savings and no debt. You just have to start practicing the right principles and stick with the simple life changes. Having savings will help with hard times but also allow you to buy things you want and take vacations. Enjoy!