“The biggest mistake is not learning the habit of saving properly… Do not save what is left after spending; instead spend what is left after saving.”-Warren Buffet
This is the next step towards your independence. The first steps were in Habits to Learn –Part 1. In that step, you made sure you had a few dollars in your pocket at all times so you can avoid bank fees and you established a checking and savings account so you can start making progress towards your emergency fund.
It is time to fill up that emergency fund to help you get through standard “emergencies” that arise. There are a lot of different ways to start adding funds, but first it is important to determine a goal so that you can measure your progress towards it. How much you need to set aside depends on your situation. If you are married with a dual income household with a spare room that you rent out for extra income, you will need a different type of emergency fund than if you are a single parent with one income and young kids relying on you. In the first case, if there is a loss of income from one party, it is likely that you can cut costs and rely on the other income until a new job can be found. There isn’t a great need for hearty emergency fund, but a small one for car troubles and the like is still necessary. In the second case, it would be better to have a bigger fund. With little ones relying on you for healthy meals and a feeling of normalcy, and with only one income to rely on, it is important to really buckle down and put your mind to having a significant fund. These are two extremes, and your situation will likely fall between them somewhere.
One rule of thumb is to stock your e-fund with 6 months of expenses. This may be a daunting task that could make you feel like you will never reach the goal. I suggest, instead, start small. Get $500 into that e-fund as quickly as possible. It isn’t as hard to do as you might expect.
- Decide on a set amount that you can take from each pay check and send directly to your savings account. Set up a direct transfer from your paycheck through your HR department at work if possible. If not, then set up an automatic withdraw from your checking account. Start with at least $10 per pay period and get the funds into that savings. Don’t touch them for any reason! This isn’t for food or for a night out at a restaurant. It is an emergency only fund. Discipline yourself to use it in that way only.
- Now, take a look around your house and see if you have any items that are not being put to good use. There are a number of internet sites that allow you to list your items for sale. There are many websites that will buy books straight off of your bookshelf. Using these is usually quite easy, with the sites providing you a shipping label and instructions on how to package the books so they arrive in good condition. (try BookScouter or SellBackYourBooks.com) If you have text books,these can possibly bring a decent chunk to add straight towards that $500 goal.
- Take some time to meal-plan for the week, buying healthy low-cost ingredients to make your family healthy meals at home instead of paying a premium for meals out at restaurants or fast food meals (which seem cheap, but really are NOT!). This is a fast way to save money if you normally eat out a lot.
- Now, take a look at your bills. The reoccurring bills can almost ALWAYS be cut down. Call you electric/gas company and ask them to put you on a budget plan. Ask them if they have any advise or packages available that will help you reduce your energy usage. Some have discounted high efficiency light bulbs for a great discount. Some will send you out a free package of insulating strips to put in doorways and around light fixtures that reduce draft and energy losses. After the electric company, contact your cable company (if you still have cable…. Everyone is cutting the cord no-a-days!)and have it CANCELLED! Even if that is difficult at this time, savings can be over a hundred dollars per month in many cases. You can find free/very cheap television entertainment with just internet access (Hulu, Netflix and the like.) Call your auto insurance company and ask them to reduce your rate. Even if they can only find $5 in savings,take it! Look at your other bills with this same fine-tooth-comb mindset and you may be amazed just how much you can take off of your monthly costs. There are cell phone services like Republic Wireless, T-mobile, Cricket Wireless and others that offer acceptable services at a fraction of the cost of some of the bigger names. Even if there is a fee for cancelling your contract early, if you do the math, most of the time it is still scientifically cheaper to change to a low cost cell service company. Do not cancel legally required coverage (like auto insurance), but cut back as much as you can. You may find that you can add another $50-$150 per month to the e-fund just from these savings alone!
- At work, if reviews for raises are coming up soon, start making a list of all of the responsibilities you have currently. Think of and write down any instances where you have saved the company money (ie. Finding correctable errors,finding better rates, arranging things in the office/warehouse that add efficiency or speed to some processes…). When you sit down to discuss your performance review and raise amount,bring this list with you and be prepared to discuss why you think you are worth more. If your company isn’t in a position to offer a decent wage raise, they may be able to offer some other type of perk that saves you money. For example, if you find that you are using your personal cell phone for work purposes constantly, ask for the company to provide a company cell for you to use. Then cut your personal cell phone back to the bare minimum. Everyone goes to work to make money. Your employer knows that just as well as you do, and if you can show them your worth, most good managers will be willing to improve your raise, even if only slightly, which builds on itself with your next percentage raise or percentage bonus you receive.
All of these things will not only accelerate your path to a full emergency fund, it will set your life up to be cheaper on the baseline. This new “normal” cost of living will change your perspective on how much things should cost. You may find that you would feel better with $1,000 or more in your e-fund. Shift your goals to be what feels right for you.
Any other suggestions, please comment!
Note: I have no affiliation or relationship with the service providers listed in this post, other than as a user or friend of a user of some of their services. These recommendations are for your research purposes only. I do have a link to get you a discount on service from Republic Wireless if you are interested…. Join using my link and get $20 off your first bill: https://republicwireless.com/invite/988JZ1ZH