This one is short and sweet, because I covered a bit of it before. Today we’re going to talk about savings and budgeting.
Step 4: Your First $500, $1,000, 3-Month Fund
When you’re making your budget and building in a savings plan it can be daunting to think about starting small and getting to a 3- or 6-month emergency fund. Take comfort in knowing you’re not alone. Studies show that only 28% of Americans have saved a 6-month emergency fund. If that’s not depressing enough, that same study says 66 million Americans report having no savings at all.
We’re always told that it’s smart to have an emergency fund in case anything happens, but when you’re looking at your paycheck versus expenses it’s easy to put it off in favor of other spend.
The key is to start small.
Sock away $10, $25, $50 a paycheck…whatever you can afford. Reevaluate how much you’re putting away every six months. If your bank offers it, use a service that rounds your purchases up and puts the difference into your account (this would counteract the use of the Acorns app to round up into an investment account).
Work towards saving your first $500…then your first $1,000…then a 1-month emergency fund, and so on. Work your way up to a 3-month fund that would cover your essentials. It may take many months, but you’ll love watching that number grow. This little guy wants to be fed.
If it helps to have an example, you can use my experience. I started my new job by automatically deducting $50 every paycheck into my savings account. It doesn’t seem like a lot, but there were still a few times I had to raid my savings to fix a cash flow problem at the end of the month.
Overall I was saving $100 per month.
Each year I’ve received a cost-of-living increase and raised that automatic deduction by $25 per month. Again, not a lot, but enough to notice the number in my savings account getting higher every time. I even have a chart on my online banking dashboard that tells me what my expected savings will be over time. It’s become a personal challenge to see or beat that number.