Finances Matter: Start An Emergency Fund

I was chatting with a friend about being prepared for emergencies, and she said “Why not just go stay in a hotel?”

The thought had occurred to me as an option, but it depends on the disaster, doesn’t it?  When the water main broke in our neighborhood, the hotels in our area filled up quickly.  There were no vacancies…not at the ones I could afford anyway.  The only ones left were $200 a night, and I can’t afford that.

Living Paycheck to Paycheck

I don’t think anyone will argue with me about the importance of putting some money aside for a rainy day.  However, studies show that most people have very little savings.

Most financial experts recommend having about 3-6 months worth of living expenses saved up in case of job loss, or some other disaster that interrupts income (like a car accident that keeps you out of work for a month). For me, that would be about $9,000. I can tell you right now, I don’t have even $1,000 in the bank set aside for emergencies.

According to a survey by GoBankingRates, the majority of Americans (69%) have less than $1,000 in savings.  Within that group, about 34% have no savings at all.  This is known as living “paycheck to paycheck”, and is a financial disaster waiting to happen.

So when my friend said “why not just stay in a hotel”, my reaction was “with what money?”  I have had weeks where I counted pennies to put gas in my car, and I’m sure there are many who can relate to that.  So for me, and almost 70% of other Americans, we are woefully unprepared financially for disasters of any type.

Saving for a Rainy Day

It can be hard to think about saving $1 for tomorrow when you need $2 for today.  But you have to start somewhere. Here are some painless ways that I have found to put money aside for emergencies.

  • Bank of America has a “Keep the Change” program where they will round up your debits to the nearest dollar, and put the difference into your savings.  For example, if I buy $12.75 worth of groceries, they will debit my account for $13 and roll over 25 cents to my savings.
  • I liked that idea so much, I started doing it with my cash.  When I pay cash for something, I dump the change (coins) into a bag in my purse.  When it gets full, I dump it into a jar at home.  When the jar gets full, I deposit it into my savings.  I saved about $150 last year doing this.
  • I looked at my bank statement one day, and realized that most of my transactions were at restaurants!  After adding it up, I spent $700 in one month for a family of four!  That’s just dining out, not counting groceries!  I started cooking more meals at home to save money.  Yes, it requires more effort, but it’s worth it.  Perfect example: I paid $3.50 for a cup of coffee at a posh local cafe.  I pay about 35 cents per cup when I brew at home. That adds up to $1,134 a year saved just on coffee!

Be Honest With Yourself

When I was living paycheck to paycheck, it wasn’t because I didn’t make enough money.  I just wasn’t managing my money very well.  It was easier to think that I had it rough. I used to think life would be better if I could just find a better paying job.  So I did.  And you know what?  I was no better off.  Why?  Because my spending habits didn’t change. I had more money in my pocket, so I spent it. This is actually very common, and is called “lifestyle creep”.  It means the more money you have, the more you will spend.

To put this in perspective, I had a friend who made over $100,000 a year.  At the time, I was making less than $20,000.  He told me that he was living paycheck to paycheck too.   I was shocked. At the end of the month, he had as much spending cash as I did (which was nothing!).  How does that happen?

Over the years, as his income increased, he got a bigger house, better car, more expensive furniture, and so forth, until he had over stretched himself financially.  Eventually, he could barely make his mortgage payment.

I realized that was exactly what I was doing.  I had gone from making $20,000 a year, to making $35,000.  Despite the fact that I had more money, I was still struggling exactly the same.  It didn’t make any sense.  More money was not the answer, so I decided to do something about it.

A Failure To Plan Is A Plan To Fail

For me, the word “budget” evoked feelings of dread.  I didn’t really want to know how bad it really was, so I emotionally stuck my head in the ground and tried to ignore it.  Naturally, all that did was make my problem worse.

No problem ever goes away by ignoring it.  Eventually, I found myself “robbing Peter to pay Paul”.  I was using my bill money to make my car payment, and taking out personal loans and credit cards to “catch up” on bills.  Soon, I found myself saddled with $2,000 in credit card debt, and $150 in new monthly payments that I couldn’t afford to add to my budget. I was digging myself deeper and deeper into a hole.

I had always made budgets for myself, but life always threw me a curve ball, and halfway through the month I would end up revising my budget, moving money around, and trying to figure out how I was going to make my budget work.  Every month would go by, and every month I felt like a failure. I did this for years.

I would then fall back into the thought that the problem was that I just needed more money.  I couldn’t help but feel that if I could just make $500 more a month, all my problems would go away.  But deep down, I knew that would not really solve my problem.

I was trapped in a negative cycle.  My mom always said “If you keep doing what you’ve been doing, you’ll keep getting what you’ve been getting”.  Wise words.  I knew I had to do something different.

A Budget That Works

I was saved by a wonderful budgeting program called YNAB (You Need A Budget).  This was different than other ways I have budgeted, because you only budget what you have. You don’t budget for future money.  You budget the money you have in your hand today. If all you have is a dollar, you decide where that dollar needs to go.  In fact, that is the first rule of YNAB:  every dollar gets a job.  This was revolutionary for me.

I won’t go into the details about how YNAB works.  They have plenty of videos that explain it better than I can anyway.  I will say this though:

I will never go back to any other way of budgeting my money. Ever.

Not only did I get out of the trap of snowballing myself into debt, but I am now a month ahead on all my bills, and I have $500 in my emergency fund, and it has sat, untouched, for 3 months. That has never happened before.

I would try to be good about saving.  I used to say to myself “Ok, this month, I’m going to be good, and put $200 into emergency savings”.  Well, because I had a budgeting system that was failing me, I would be dipping into that money before the month was over.  I would feel like a failure…again…and hated myself for not being able to make it work.  I felt worthless.

But after finding YNAB, I realized something:  I wasn’t failing at my budget.  The budget was failing me.  It was designed to fail!  It wasn’t my fault.

Since starting the YNAB system, I feel like I have done some psychological healing when it comes to my finances.  I am no longer afraid to face it.  In fact, I look forward to it.  I get excited, because I am finally getting somewhere with it.  I am reaching my financial goals.

One day, I hope to have a house on 5 acres, a garden, and some chickens.  I always felt like it was just a dream, and never going to happen.  Now, I believe that goal is doable.  Now, I have the right tool to make it happen.

Emergency Fund Goal

I am part of the 69% who has less than $1,000 in savings, but I am working on it.  I want others who are struggling to know that it CAN be done!  Start with where you are today, and the dollar that you have now.  You may not get there tomorrow, or the next day, but you will get there someday.

Having $1,000 is just a starting point (in the minds of financial experts), but for some of us, it can seem an impossible task.  Set the goal of $1,000.  If you don’t use YNAB, use something!  It won’t happen if you don’t make it happen.  It won’t happen overnight, but it won’t happen without work.

Peace Of Mind

Yes, it’s hard work.  But the peace of mind is incredible!  I used to burn ulcers in my gut with worry about my financial state.  I would pray to God every day that nothing bad would happen to us, because I simply could not afford anything out of the ordinary.  Even something as simple as car repairs (which is not a disaster, but it was to me) because I had no money set aside for it.

I can’t tell you how much happier I am.  I am sleeping better at night.  I worry less.  I enjoy life more.  I am able to afford family vacations, not because I make more money, but because I am better at managing what I already have.

I have peace of mind now, that my family will be ok.  That peace of mind grows every month as my emergency fund grows.  I will never return to my old way of handling money.

A Word About Insurance

I am no financial guru, but I can tell you that it’s better to have insurance than not.  My apartments require us to have renters insurance to protect them, but I would still gladly pay $25 a month to have it.

Let’s say I have $5,000 worth of stuff (tv, furniture, video games, etc).  A fire happens, and I lose everything.  My renter’s insurance would cover all that I lost, and put us in a hotel for a few days.  I already said I don’t have even $1,000 in my emergency fund, so if I had to stay in a hotel, replace all my belongings, and come up with a security deposit (usually about $1500), I would be homeless.

When I signed up for renters insurance, I am covered from day one.  By comparison, if instead of paying $25 a month for insurance, I just stuck that money into savings, it would take me 16 years to save up $5,000!

Sure, there’s a chance that I may never have to file a claim.  After 16 years of paying into the insurance, that is $5,000 out the window, that I will never see again.  That’s how insurance works, though.  No one can see the future.  It is always a gamble.

I’m a single mom, and can’t afford to take chances with my family, so I will always err on the side of caution.  Insurance gives me an extra level of peace of mind.

Finances Matter

I believe we could all do with a little more peace of mind.  When I think about how almost 70% of our nation is not prepared financially for a disaster, I feel grave concern.  I know that if something really bad were to happen, a lot of people would need financial assistance.  How long would it take to get help?  What would we do while we wait for help?  What if help never comes?

What if I don’t qualify for help?  I used to qualify for assistance programs, but now I make too much (just barely). So I cannot depend on government assistance as a safety net.  I must take financial responsibility for my family.

I would rather be confident in my ability to take care of myself and my family than sit and pray, utterly dependent on someone else to provide for us.

If the 70% started saving some money for emergencies, I suspect they would feel better about their situation like I do.  I shudder to think about people who have to learn the lesson the hard way.  Don’t wait for a disaster to happen before you start to set some money aside.  Even if it’s a dollar, that’s a good start.

 

http://www.cnbc.com/2016/10/03/how-much-americans-at-every-age-have-in-their-savings-accounts.html