If you read any advice about saving money, the first two steps are to eliminate your high-percentage debt and start an emergency fund. For most people, those two suggestions sound as reasonable as a trip to the moon. But, with dedication and time, you can resolve your high-percentage debt and save for an emergency.
The Key to Saving Money
The key to saving money is time. The younger you are, the longer you have to save money for big expenditures like buying a house or retirement. However, that doesn't take into account unexpected expenses like medical bills or job loss reducing your income. However, if you are willing to work steadily, you can save money for emergencies.
Make a Separate Account for Your Emergency Fund
Whether you save a single dollar or $100 per day, you should set up a savings account to keep the money separate from your spending money. If you put it in with your regular funds, you will forget to save it. So set up an account with a bank with the minimum allowed for your emergency fund. Many banks require only a few dollars to create a savings account. Make sure the account has little or no fees that will cut into your savings. After all, you don't want to work hard saving just to lose the money to the bank.
Decide How Much You Can Set Aside Each Paycheck
Be realistic and decide how much money you can put in your emergency fund each paycheck. Then put that money in the fund before you do anything else. If you can, have your employer direct deposit the money to your fund without you ever seeing it. Then you will get used to your new salary amount. You can decide on either a dollar amount or a percentage. But make sure that you only put aside an amount that you can live without.
Pay Yourself First
You are working on a path to financial health, and like most kinds of health, it takes time to get there. But, pay yourself first. Keep adding your savings into your emergency fund while you pay your bills. If you're not sure how to manage this process, you can seek guidance from a financial counselor. Many creditors are willing to take payments as long as you keep paying them. As time goes on, and you pay down your debt, you can increase the amount you add to your emergency fund.
How Much Money Do You Need?
Most financial resources recommend that you save enough money to live on for 3-to-6 months. That means figuring out what you spend each month, then multiplying that times three to determine the minimum to save. And that seems like a lot of money. However, when you really think about what you spend, you can see how quickly the 3-months salary can be spent. When you are calculating how much you spend each month, you should include any bills that you are currently paying off. Because if you stop paying them, your creditors will want the entire amount owed.
Make Sure Your Emergency Fund is Liquid
Wherever you decided to keep your emergency savings, make sure that you can get the money within 24 hours. That can be a local bank, and online bank or credit union. Keeping emergency money in the stock market or using it to buy Bitcoin is a bad idea. Because those accounts can go up and down without notice, and it takes time to get the money released from brokerage accounts.
The Amount Seems Unreachable
When you're first starting out, saving 3-to-6 months salary can seem impossible. However, you can do it over time. Each time you put money in your emergency fund, you're investing in your future. You are saying to yourself, "I am worth it." Think of how happy you will be if an emergency arises and you have money saved to take care of it. You can do it. Just get started.