Save Now or Suffer Later
If you follow politics and the news, you know that we are in the midst of the longest government shutdown in history. A lot of federal employees have been caught off guard financially and are figuring out ways to pay their bills. This should serve as a wake up call for everyone. You can either save or suffer the consequences later.
Many government employees are going without a paycheck and have turned to GoFundMe for help. Unfortunately, most Americans don’t have $500 saved for an emergency. Therefore, their finances are wrecked by a medical bill, home repair, or a missed paycheck.
If money is tight in your household, you may think you cannot afford to save. But truth is, you can’t afford not to. You can start your savings account with as little as $5 a week. Then, increase your savings as you earn more income from pay raises or side hustles.
As you take control of your finances, you should save for these four things. Get started today, you’ll be glad you took my advice later.
Emergencies
You must save for your next emergency or you will find yourself suffering when ish hits the fan. The purpose of your emergency fund is to protect your budget when you get hit with an unexpected expense. Because we never know when an emergency is going to happen, it’s important to save with each paycheck, financial windfall (think tax return), or pay increase.
You should save three to six months of your monthly expenses in your emergency fund. However, break this goal into smaller chunks. If you have nothing saved, strive to save $500. Then, push yourself to save a portion of each paycheck in your emergency fund.
Put this money into an account that you don’t see often so your money can grow without you being tempted to spend it. Since it’s money you shouldn’t need often, save it in a high earning savings account so you can make a decent amount of interest on your money too.
Write down a list of possible expenses that you would consider an emergency. Read this list every time you are tempted to tap into your emergency fund. A one day only shoe sale is not an emergency, but a last minute flight to a funeral could be.
2. Retirement
Save for retirement by any means necessary because retirement is one phase of your life you cannot take a loan out for.
Chris Hogan, the author of Everyday Millionaires, shows in his book that you can save your way to millionaire status if you invest in your employer retirement account over a full twenty or thirty year career. Sure that seems like a long time, but most of the people in his book saved millions while making less than $100,000 a year. They were just consistent and disciplined.
Your goal should be to save 15 percent of your income for retirement each year. If your job matches a percentage of your retirement contributions, make sure to invest at least enough money to get the matching funds. I call the matching funds free money. For example, if you make $50,000 a year and your job matches 5 percent, that would be $2,500 of free money added to your $7,500 in retirement savings each year.
In this example, by age 59 you could have one million dollars saved thanks to time and compound interest.
If you cannot afford to save 15 percent now, start with the amount that your job will match. Then slowly increase what you save with pay raises and bonuses. Learn to live off less now so you can have plenty of money to live off later.
3. Big Purchases
Debt will be the death of us all if we are not careful. So save for big purchases including college, home ownership, or your next car to minimize the amount of money you borrow.
To successfully save, you need to break your savings goal down. Start by figuring out how much you need for your purchase. If you want to buy a house you normally need a down payment of 20 percent of the purchase price. For a car, I would research the vehicle you want and compare the cost and benefits to buying it used vs. brand new.
Once you have a total, take that cost and break it down into monthly payments. Divide your total by the number of months you want to save before making your purchase. Set up a savings account just for this big purchase and start saving what you can.
Be patient and keep the bigger picture in mind. If you don’t finance your next car, you will have more income available for your next vacation or a small business. But if you find yourself with too much debt, you won’t have any money left over for your other financial goals.
4. Your Next Vacation
In life, you have to have some fun stuff. So I encourage everyone to save for their next vacation. A vacation is so much better when you cover most of your expenses in advance, setup a spending money budget, and have no credit card debt to worry about when you get back.
Make vacation planning fun by saving with these really cool apps. And don’t purchase your package until you have enough saved to cover your expenses.
5. Savings Apps
Digit, Qapital, and Acorns are top savings apps that will help you save. You can get started with as low as a $5 and the rest of your savings can come from rounding up your daily purchases. For example, if you go to the store and spend $1.50, these apps will take 50 cents and stash it away in an account for you. Those coins add up over time and can be extra savings for whatever you want like your next vacation, emergency, or house fund.
I use my Acorns balance to fund my spending money on vacations. You could use it for that or to purchase your plane ticket. Either way it gives you a budget to stick to.
Read each companies’ fine print. Acorns and Digit have a small monthly fees to manage your money. But with Acorns you earn interest and with Digit you do not. Qapital does not charge fees but does require you to set up a Qapital bank account to do business. The best feature with Digit and Acorns is they will not take your round ups if your bank account balance is low. So if money is tight one month, you won’t have overdraft fees because of them.
6. Just Go!
If you are new to saving, start small. Just get started. I promise if you cut out a latte or two you can find yourself able to save at least $10 a week. That money adds up fast but stash it in an account or savings app fast so it’s not absorbed by another expense. Stay focused on what you are saving for and use that vision as a reminder to keep going.
