America Saves Week: Saving for the Unexpected
In our final post for America Saves Week 2020, we want to remind you of the importance of saving for emergencies and other unplanned expenses. Why? Here are a few of the many reasons: job loss, reduced income due to fewer work hours, illness/injury of ourselves or family members, emergency vet visits, car breakdown and appliance breakdown.
I don’t say that to freak out anyone. I just want you to be realistic because at some point, we all have to deal with a stressful situation that comes up out of the blue — and likely costs money. Too many people lack the funds they’d need to cover an emergency expense. If that’s you, don’t worry. You just need to make a plan and get started.
Saving Whenever Possible
In the first two posts for America Saves Week 2020, we talked about saving automatically and saving with a plan. Set up an automatic deposit or transfer into savings each pay period and be sure it’s affordable. Paying yourself first is the best way to ensure money will be set aside for emergencies.
Also, take advantage of other savings moments. Here are several examples:
- It’s that time of year when people get their tax refunds. Plan to put into savings at least one-third to one-half of that refund. That’s a great, easy way to kick-start your savings fund.
- Save any loose change from cash purchases.
- Any time you don’t buy that expensive coffee shop drink, transfer what you would have spent into savings.
- Cancel or reduce an expensive subscription permanently or temporarily and transfer the amount you would have paid into savings. For example, last year I cancelled cable and acted like it was still a bill. But since I didn’t have that bill any longer, I transferred what I would have paid into savings. That added an extra $150/month into my emergency fund.
- Think about your next raise. Instead of planning how you’ll spend it, put your raise from each paycheck into savings. Your pay will stay the same, you won’t miss it and your savings balance increases.
The more savings moments you can come up with, the faster you’ll build up your emergency fund.
Do I Really Need Savings?
YES. Just to reiterate YES, YES, YES! Too many Americans don’t have enough in savings for a $1,000 or even a $400 emergency. Why is it important? Because according to CNBC and the Federal Reserve, household debt is at an all-time high -- $14 trillion. Emergency savings can make or break your household budget. If you have a cash safety net, you don’t have to tap into credit to pay for the unexpected. Less debt also means lower monthly debt payments.
Think about having to add on $1,000 to a credit card. Even at a relatively low 10% interest rate, paying the minimum payment of about $40 would take you two years and five months to pay off the debt. Also, can you afford that additional $40/month payment for that long on top of your other expenses, plus savings?
Just Do It
Building up your savings is the best way to manage the unexpected and to break the debt cycle. Take the opportunity to make saving a priority today. You can also take the America Saves Pledge to help motivate you and keep you accountable so you reach your savings goal!
If debt is holding you back from saving or reaching other goals, let LSS Financial Counseling help. A Debt Management Plan may help reduce interest rates and payments, along with assisting you in paying off debt FASTER and reducing stress. Complete your free session online, or call us at 888.577.2227 to schedule your in-person or phone session.
Author Elaina Johannessen is a Program Director with LSS Financial Counseling.