When was the last time you had to max out your credit card or turn to a family member for financial support in an emergency? If you’re like 65% of Americans with little to no savings squirreled away for an unexpected car repair, trip to the vet, or rent if you happen to lose your job—being without a financial safety net can be scary.1
The sooner you start setting money aside to cover the unpredictable can mean greater financial stability and peace of mind over the long haul. While it can take time, the secret to getting there is much simpler than you think.
How much money would you need to live if you suddenly lost your job? A common guideline offered by many investment professionals is to have a minimum of three to six months of total living expenses tucked away.2 For example, if you know you need $2,000 a month to cover the basics, like mortgage or rent, utilities, groceries, tuition, and transportation, you should plan to set aside anywhere from $6,000 – $12,000 into an emergency fund.
Keep in mind, your emergency fund savings goal may need to be larger, or smaller, depending on your personal family or employment situation. If you work in a seasonal or project-based industry where layoffs are the norm, or are the sole breadwinner of a large family, you may want to set aside more than if you live in a dual-income household with no children or other dependents.
Seem daunting? It doesn’t have to be. It starts with changing the way you think about your saving and spending habits. No one ever ate an elephant in one big bite, right? It’s the same with building up your emergency funds. It’s all about your approach. Saving any sum of money begins by setting aside small amounts consistently and growing your savings gradually with regular contributions. It’s super simple and can be done with practice, patience and a little self-control.
How you do it is up to you and may mean making a few adjustments along the way. Here are some ideas to get you going:
“Someday” is a trap we all fall into sometimes. Just like someone who has a gym membership they never actually use, intention without action is pretty useless. So, set a specific timeframe for when you’ll achieve part or all of your total emergency savings goal.
For example, try setting a deadline for achieving half of your target savings goal for 12 months from today, or on an easy-to-remember milestone date, such as your birthday or New Year’s Day. Setting a specific date will not only kick-start you into action, it will give you time to figure out which savings strategy works best for you. If one technique doesn’t seem to be working, you’ve got time to find one that does.
Here’s where we start to eat this elephant:
As you start to see your emergency savings grow (yes, it will happen), you might be tempted to raid your stash. Dull this urge by having a plan that helps you stay in control.
As time goes by, you’ll figure out which tactics make it easier for you to save. Mark your achievements with positive reinforcements that don’t create new expenses, like celebrating with a gourmet cup of coffee made at home or organizing a potluck dinner with friends. Soon enough you’ll be teaching them how to build an emergency nest egg just like yours.
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