Savings Is Smart

We have all heard the advice that financial experts tout about having an emergency fund. It used to be three months worth of living expenses but I think that "they" have recently raised it up to six months worth of living expenses. That can be a daunting task, so unrealistic for some that they don't even begin to try.

Having a savings account that is used only for emergencies or unexpected, un-budgeted things is important. If you or a spouse loses a job having a savings account to fall back upon is the difference between being okay or running up debt. When a roof needs repaired or a car needs replaced having something in savings results in being able to replace those things without needing to take out a loan.

We all know that. I don't have to go on and on about why it is important. The question is, how do you start a savings account when you are living paycheck to paycheck? We have three to four month's worth of expenses in savings. Within the last five years we have paid for three vehicles, a bathroom remodel, and a re-roofing job out of pocket and still been able to build our savings back to a fairly good amount in case of emergencies. Actually, we are really saving up to have a good down payment on an acreage someday in the future, but if something unexpected came up we would be able to draw out of savings without being in debt.

How can it be done? Start off small. If you are used to putting nothing in savings, start putting $5 or $10 in your account each pay period. It adds up slowly but it does add up. Another option is to put a small percentage of money into savings each pay period. Our online banking has the option of choosing a percentage to transfer. For example, let's say you got paid on Friday and your checking account showed you had $2,000. You could choose to transfer, let's say, 5% into savings...so $100. If you do this on each payday before spending any money you really won't miss it. If $100 sounds like too much since you are living paycheck to paycheck, start with 1% or 2%. If you get extra money, say from a garage sale, tax return, or gift be sure to stick at least half of that amount into savings. Pay yourself before paying others.

The next step is to not touch this money! This is the hard part for so many because if it is there it is so easy to use $20 here and $20 there. You need to realize that this is a savings account and that you are saving for something. It is not for going out to eat, buying new clothing or electronics, etc. If it is not a pressing need then it does not come out of your emergency fund. If you do think you will be grabbing cash out of the savings account for a vacation or Christmas gifts then open another account. Most banks have something called a "Christmas Account" where you can deposit a set amount each month and withdraw it when needed. This would be a good account for you, which is separate from your savings account.

Be sure to keep on saving. If you need to withdraw money (we all do at one time or another) be sure to build that account back up as soon as possible. Start small again if you need to. You decide what a good amount of savings is good for your family. A good rule of thumb is at least three months worth of living expenses.

What advice do you have about savings accounts/emergency funds?