Last Money Monday I talked about how its smart to sometimes hide your money…On occasion I still do for some of the smaller things that come up and I know are coming in advance. How do you prepare yourself for all the things, big or small that come unexpectedly?
A few years ago I was asked a series of simple questions, Do you pay all your bills on time each month? My answer was yes. Whatever it takes to pay the bills each month I do. Second Job, extra hours, and side gigs like babysitting were always on the list of things to do. Do you have an Emergency Fund? No. (In my head I was thinking umm, never heard of that.) Do you save money each month? When I can, is how I answered that one. If there is extra money at the end of the month I put it into my passbook savings account. Most often there is not enough money at the end of the month to pay everything AND save. So, you give all your money to strangers and none to yourself? Umm, Yes, I guess I do. What if you were to count yourself as a bill? Huh,What do you mean? … It was after that conversation that I understood that in order to keep savings in my account, I had to put money in there on a monthly basis. Little by little it made more sense. I will admit in the beginning of trying to understand, it did not make sense to me. But slowly and surely the light bulb turned on.
Pay Yourself First! To me this was a foreign concept. However, people are taught this at an early age. I must have missed this class! If you happened to not get this lesson to, do NOT worry. You’re learning it now. Rule of thumb is to put away 10% of every paycheck you earn. When I heard this the first time I thought “10% is impossible”. Had I started this when I first started working, back in 1996, then I would have been able to. But no one explained to me then how money really works and how it would effect my future. So in my budget I added ‘Emergency Fund’ to the list of bills, putting it at the top of the list. Before I knew it, I had saved $500 bucks. This is not to say that over time I had never saved as much, just that it was never in my savings account at one time. Something always came up that would have made that money disappear.
Bombarded with all of life’s expenses? This is why you definitely need to start an Emergency Fund ASAP. The emergency fund is to help you in case you get this unexpected expense. If you cannot reason with yourself to commit to one then start small. At first all I could do was put in $10 each month…then it went up to $37. I was hesitant to start with 10 bucks a month. How could I start to make a difference in my finances with 10 bucks? Then I understood it was getting into the habit of savings. Of taking money and putting it aside each month and to one day watch it grow. Any extra money that came my way also went into the account. The ultimate goal of your emergency fund is to have at least six months worth of income in this account. Again that sounds like a big number but remember it is the ultimate goal. This goal will take you years. Like all goals you need steps to get you there. Start off with $500 as your first goal…then $1000…then three months worth of income. If you start today, you’re closer to that goal than if you NEVER start it at all. I promise you that once you start seeing that money grow, the way you think about spending money will change drastically and you’ll get exciting with the peace of mind you’ll have knowing that if anything were to happen, you’ve got it covered.
The next logical question is Where do I put that money? Stay tuned for next Monday Monday to find out…until then start it up and Be Patient!