Are You Prepared for a $1000 Financial Emergency?
How much are you saving? If this question makes you laugh and exclaim “Savings? I wish!”, or creates major waves of guilt and anxiety you are not alone. A Consumer Federation of America study in 2010 found that 69% of low-income households do not have a savings account. In addition, 54% of moderate income households and 45% of middle income households do not have a savings account. That’s a lot of households living paycheck-to-paycheck.
Think savings is a luxury? Ask yourself this question: in an emergency situation could you come up with $1000 without having to use a credit card, borrow from friends or family, or worse yet a payday lender? If your answer is no - like 51% of all Americans’ answers would be – it is time to start saving now to ensure your financial future! Use these four steps to help you.
Set a savings goal
What do you envision for yourself? Your family? What do you dream of? A wise person once said “goals are just dreams with deadlines.” Research shows that people who set goals are twice as likely to achieve them as those that don’t. Once you set a goal the next step is to decide how you will reach it. Let’s say your goal is to save at least $1000 in a year. How could you save $1000? Some of this depends on how often you get paid. If it’s once a month you will need to save $83 each month. Get paid twice a month? Then save $41.50 out of each check. Paid bi-weekly? Then you only need to save $38.50 per pay check. Paid weekly? You only need to save $20 out of each check! Don’t think you can afford that? How about $2.75 a day? With that you will reach your goal of $1000 in one year.
But wait a minute: the title of this blog is how to go from $0.00 to $2000 in one year. How can you do that? Think about the things you spend money on. Is there anything you could give up for one year that costs around $5.00 a day? Coffee? Cigarettes? Lunch at work? Chips and soda? Saving $5.00 each day will build your savings to $1825 in one year! With a small sacrifice each day you can put $2000 towards your dreams each year – and it may even be good for your health. How powerful is that?
Take advantage of “money moments”
What is a “money moment”? It may best be described as a time when you receive a lump-sum of money that is out of the ordinary, or unexpected. Winning the lottery would be a great example of this, but an even better “money moment” happens around this time each year for millions of people. What is it? Tax Refunds! The average tax refund is around $2000 (depending on income and family size). If you saved half of that you would have $1000 in savings without making any effort. You would still get to spend some of it, but you could relax knowing that if your car breaks down, or you get sick and miss work and have no sick leave, or you get a huge medical bill you will be able to cover it and avoid the trap of credit cards, payday loans, or having to borrow from friends or family. Just imagine how that would fee...how would a cushion savings change your life?
Automate, automate, automate
One of my favorite savings tricks is to have my savings deposited directly from my paycheck into my savings accounts. Setting this up allowed me to save without even thinking about it - and I was amazed at how quickly my account balance grew. Pretty soon I added a second automated deposit and now I have two savings accounts. I even have a special account for the holidays so I never have to use credit cards to pay for gifts. And I don’t have to lift one finger or give it a second thought: I just sit back and watch those balances grow.
Is your employer still writing paper checks and refusing to modernize? No problem. Deposit your check into your checking account and set up an automatic transfer into your savings account each month. Better yet, research online accounts which typically carry higher interest rates than “brick and mortar” banks, and have your savings transferred there.
Don’t give up on your goals
No matter how well we plan, setbacks can and do happen. I have had to use my savings for car repairs before I had the “full” amount saved for my goal. It took me some time to not see this as a “failure” because really one of the things I was saving for was to have a cushion for things like that. So instead of failing, I had actually reached my goal because I didn’t have to put a car repair on my credit card. Sometimes life happens: when it does I adjust my timeline and keep saving. I am not willing to let unexpected costs get in the way of my goals – of my dreams. And neither should you. Once you make a plan, stick to it and don’t let anything get in your way.
Are you interested in learning more about starting a savings account? Give us a call at 888-577-2227 or visit our website.
Author Shannon Doyle is a Financial Counselor with LSS Financial Counseling and specializes in debt and budget counseling.