Emergency Savings? What's That?
Between the cookie jar, the mattress, and the local savings & loan, my grandparents always had plenty of money saved for a rainy day. The idea of borrowing instead of saving for the unexpected in life was completely foreign to them. Their “cushion” was a part of their commitment to staying out of debt and living with financial freedom. Their savings plan was all about making good stewardship decisions.
Saving three to six months of living expenses (the generally suggested range for emergency savings) can seem so daunting. In a time when most of us live from paycheck to paycheck, how is it possible to accumulate this amount of savings? It requires hard work and commitment. Just as getting out of debt requires cinching up our financial belts up a few notches, building and maintaining emergency savings requires the same dedication.
After working so long and hard to emerge from the trap of credit card debt, a reserve of emergency savings can keep us from falling right back into debt. Begin your emergency fund savings by accumulating a month's worth of living expenses in your checking account. Then focus on setting aside enough in a savings account to cover your mortgage or rent, food, utilities, debt payments and other regular expenses for three to six months.
Admittedly, three to six months of expenses is a broad range. Where you personally fall in that continuum depends on a number of factors. If you are the sole source of family income, carry high deductibles on your home and health insurance, or drive a car that spends a lot of time in the shop, it is wise to save more in your emergency fund. Conversely, if your family has two secure incomes and a line of home equity that you can borrow from at a low interest rate, then six months of savings may not be as necessary.
Saving for a rainy day was not just wise for our grandparents, having some readily available funds tucked away makes sense for any generation.
Planning Tips
Our “Foolish” friends at the Motley Fool make their case for emergency savings:
Top Six Reasons Why We Don't Save Money
Breaking free from the paycheck to paycheck cycle
Want to get serious about your finances? Try going on a six-week financial diet with USA Today.
In the News
Now that April 15th has passed, the only thing left to do is receive your refund, right? Probably not. If you received a big refund, you might want to adjust your tax withholdings to “give yourself a raise.” To learn more about how easy this is to do, check out this article on crosswalk.com.
Also, how long do you really need to keep those old tax returns?
