America Saves Week 2021: Save for the Unexpected
One of the themes of America Saves Week 2021 is saving for the unexpected. LSS Financial Counseling took part in a Twitter chat titled “Crisis-Proof Savings,” and we wanted to share helpful tips from that discussion to inspire you to save for emergencies. The chat was organized in a Q & A format.
Q1: Why is it important to save money?
- To avoid accruing debt and have a safety net for financial peace of mind. No debt, along with money in savings, means less stress.
Q2: Besides an emergency savings fund, what should I also be saving for?
- Periodic expenses: for example, vehicle maintenance, Christmas gifts, etc. It helps you to avoid having to come up with money at the last minute or being tempted to use a credit card.
- Retirement: Be sure to take advantage of retirement options your employer offers.
- College education: Some parents save toward their child’s college fund.
- Use your financial goals to determine what else you should save for.
Q3: How do I kickstart saving when I’m limited on funds?
- Use part of your tax refund or your stimulus check (economic impact payment) if you get one.
- Reduce or eliminate an expense or two temporarily until you reach your savings goal.
- Set up automatic deposits into a savings account from each paycheck to get started. If you can’t afford to set aside a lot, start with $5-10, then increase as you’re able.
- Figure out ways to earn money specifically for savings, such as babysitting, shoveling snow / mowing lawns, finding a part-time job, etc. This isn’t permanent; think of it as a temporary way to boost your savings.
Q4: What should be my emergency savings goal?
- 3 to 6 months’ worth of expenses in savings in case of job loss or extended income reduction is ideal.
- If that seems daunting, aim for $1,000, then work your way up to 3 to 6 months of expenses.
Q5: What’s a simple way to save regularly so an unexpected expense won’t halt your saving goal(s)?
- Pay yourself first directly out of your paycheck.
- Set up an automatic deposit directly into a separate savings account so that it’s out of sight and out of mind.
Q6: What are some best practices to prevent savings account fraud?
- Review your savings account statement monthly, and monitor your balance online if you can.
- Take advantage of notifications of withdrawals if you have that option.
- Set up a strong password, and never use the same password more than once.
Q7: What’s an effective strategy if an unexpected cost is more than my savings?
- Prioritize and reduce spending to avoid using credit cards.
- Find a side gig or sell items that you don’t need/want for extra cash.
- Do what you can to avoid accruing debt. Can you set up an affordable payment plan? Can you borrow the money from someone and pay them back? Just make sure that anything you agree to is affordable and realistic.
Q8: What’s a helpful strategy when you’re trying to bounce back after depleting your savings?
- Prioritize, prioritize, prioritize your spending!
- Temporarily reduce/cut unnecessary spending until you build up savings again. For instance, stop dining out temporarily and make all your meals at home.
- Use any cash windfall you might get, such as a tax refund, to rebuild your savings.
Q9: When I have extra money, should I pay off debt or focus on savings?
- Ideally, both. However, if you don’t have anything in savings, focus on building that up first. Because if you pay off all your debt but have no financial safety net, you will likely fall right back into debt if an unexpected cost comes up.
- If you have some money in savings, but not quite 3 to 6 months’ worth of expenses, continue putting money monthly in savings while also paying a little extra toward your debt.
- If you have $100/month to use, put $50 into savings and $50 toward a debt.
- Focus on the smallest debt if you need to get rid of a monthly payment. Should you want to save more money in the long run, pay extra toward the highest interest debt. Continue that process until your debt is paid off.
- Visit an NFCC-certified counselor (like at LSS Financial Counseling!) to help you determine your options for paying off debt faster.
Q10: Any last tips for crisis-proofing your savings?
- Every little bit helps!
- If you depleted your savings, remember that’s what it’s there for. Just keep going!
These are just the tip(s) of the iceberg. Figure out what else you could realistically do to save for the unexpected.
Regardless what you decide to do, a budget is a great place to start. That way you’ll know how much you have available to start saving now.
If that seems daunting or you find that debt is holding you back from saving, LSS Financial Counseling can help. Our counselors will help you create a realistic budget and plan of action to achieve your savings and other financial goals, such as paying off debt. Call us today at 888.577.2227 for your FREE, confidential session, or get all your support online.
Author Elaina Johannessen is a Program Director with LSS Financial Counseling.