Saving for a rainy day. We all know we should do it, but sometimes that’s easier said than done. Or is it? Here’s why EVERYONE should be saving for a rainy day and how to make it happen.
The one word answer is: debt. Debt is why we should save for a rainy day. And to clarify further, it’s really avoid it or accrue more debt than you already have. When you don’t have savings, you’re forced to use credit for that emergency vet bill, to fix your broken down car, etc.
Then, taking out credit that you can’t pay back right away forces you to have either another monthly payment or larger one. Add on the stress you feel when you’re feeling strapped for cash and you may find yourself in a vicious cycle of debt.
An emergency savings fund is the best way to avoid adding another monthly payment that may put you over the financial edge.
Right now you may be wondering where you find this “extra” money that if you had in the first place, you wouldn’t have to take on debt. This part is easier for some than others; it just depends on your necessary expenses and how you spend money on your flexible expenses.
Needs Vs. Flexible Expenses
This part means it’s time to prioritize your spending and really look at how you spend your money. The first step is creating a budget or spending plan. Compare your income to your expenses. The best advice I can give here is: don’t leave ANYTHING out.
Start with your necessities such as mortgage/rent, insurance, medical, utilities, groceries, loan/other debt payments, daycare, clothes, and gas/oil changes. Then, well, everything else. I’m talking about trips to Target/Wal-Mart, online shopping, dining out/pizza, snacks/drinks when you get gas, going out on Saturday night, veterinary bills, vehicle tabs, hair appointments, gym memberships, and anything else you spend your money on regularly. If you don’t know the exact cost, do your best to estimate or try tracking your spending for at least a month.
Getting Started on Saving
The ideal goal is to have 3-6 months’ worth of your expenses in savings. So write down your overall goal first. Next, when you look at your budget, what do you have leftover? Start setting that amount aside into a separate savings account. Even better, set up deposits from each paycheck to make it easy and automatic.
Making Necessary Budget Changes
If you’re about to say “Um, yeah, I don’t have anything leftover. Now what?” Then it’s time to make some spending changes. Look at your flexible expenses – the non-necessities – and determine what you can either cut out or reduce.
Think of things that you don’t really need first, such as memberships. Can you work out at home for free by using YouTube videos instead of paying for the gym? What can you reduce…perhaps coffee from the coffee shop? Try to find cheaper alternatives like brewing and bringing your coffee from home. Sometimes temporary reductions are a big money-saver as well until you’re caught up on everything. Think about temporarily suspending cable, for instance.
Be Patient and Don’t Give Up
Saving up 3-6 months’ worth of expenses can seem like a huge amount that you’ll never reach. Even though it’s a lot, you always have to start somewhere. That’s why it’s best to have an account that you don’t have easy access to so you can keep contributing and let it build up.
If you have to tap into it, that might seem disheartening. But guess what? That’s exactly what it’s for!
So instead of being bummed out, remember that using it is allowing you to avoid debt.
Then, work on building up savings again. Bonus Tip: cash windfalls like tax refunds and bonuses are a great way to build or re-build savings.
Looking for a faster way to pay off your debt while saving money? Meet with an LSS Financial Counselor for free to determine if the DMP is right for you. Call us at 888.577.2227 or GET STARTED ONLINE at your convenience.
Author Elaina Johannessen is a Program Director with LSS Financial Counseling.