Weather Report: How to Save for a Rainy DaySubmitted by Bernhardt Wealth Management on March 11th, 2019
Fans of the novels and the hit HBO series Game of Thrones are familiar with the motto of the House of Stark: “Winter is coming.” This clan lives in the far north of author George R. R. Martin’s fictional land of Westeros, and their family proverb underlines their belief that it is always important to be prepared for hard times.
Though your hard times aren’t likely to involve sword fights and sieges, it is certainly possible that you could encounter some rough financial weather from time to time. A shifting economy can precipitate unexpected layoffs; an illness or accident can happen, preventing you from working for a lengthy period; an unforeseen, major car repair can knock a hole in your budget. Or, as thousands of federal employees and contractors were reminded recently, shifting political winds can cause a government funding lockdown, drying up the income stream on which they and their families depend.
For all of these reasons, an emergency fund should be a basic component of your overall financial plan. And yet, according to a June 2018 survey by Bankrate.com, about a quarter of Americans of all ages have no savings set aside to see them through a rough patch. Not only that, even those who have put some money back for emergencies typically lack the amount they need to get by for as much as six months, the level recommended by most financial advisors. Most could fund five months or less of unemployment, and only 29% of those with a rainy-day fund have the recommended six months’ worth of savings.
If you fall into the “little or none” category of emergency savings, don’t despair! There’s no time like the present to get started. Remember, six months’ worth of living expenses is your goal. Even if you’re not there yet, you can still make progress. Here are some steps to find those extra dollars to start building up your emergency fund.
- Set a monthly goal, even if it’s modest. “The journey of a thousand miles begins with a single step,” and if you train yourself to keep taking steps, you’ll eventually get where you’re going.
- Instead of buying a coffee on your way to work, put $3.00 a day (or $21 per week, if you prefer) into your emergency fund account. Look for other small ways to save on your daily routine: dine out one less night per week; cancel your gym membership and start jogging or working out at home; downgrade your cellular service; drop the premium cable package. Most of us have at least some “fat” in our budgets that can be trimmed and re-purposed to savings.
- Put “surprise” money in your emergency fund. Tax refunds, bonuses, extra cash flow from paid-off debt; garage sale proceeds; gifts from your rich uncle, etc., etc. Any time you “find” some money unexpectedly, put it in your emergency fund. Over time, it really adds up.
- Keep your emergency fund liquid, but not too available. If you have an emergency, you’ll need to access the funds, but you don’t want them too handy, tempting you to dip into them for non-emergency purposes. A savings account attached to your checking account is good. An online savings account also works, because you have to think about it before you withdraw money.
Longfellow said it long ago: “Into each life some rain must fall.” Stormy weather is inevitable. But if you’re prepared, you’re much less likely to get drenched.