07 May Saving for Financial Stability
Can you name ANY scenarios where you wouldn’t be better off having extra money in the bank?
While over the past four years, Americas household debt has fallen by $833 billion, many Americans still do not have enough savings to cover just three months worth of expenses. Spare cash can be hard to come by and school loans, car debt, and credit card debt are common significant impediments to reaching your financial goals. In this economy, it can be more than challenging to have enough money for daily necessities let alone putting money aside for that emergency savings fund you’ve been neglecting, but there are too many good reasons on why you should be working to save up! Having an emergency fund is more important than saving for retirement or even starting a college fund because without it, you are open to many risks. However, having that “peace of mind” of knowing that you can afford any type of financial emergency is reason enough to work hard on budgeting and saving your money for that ‘rainy day’ cushion or even just future plans.
Here are the reasons you NEED to be saving.
The case of the ‘pink slip’ is the most obvious reason why you should be working on your savings. Whether you are self employed or work for a large, stable company, you need to have the protection of being able to pay your bills and expenses in case of lay offs where it takes a little longer to find new employment than you expected. A good question to ask yourself when saving for this scenario is, “How long will it realistically take me to get back to work?” But there are also surprise possibilities you never expected such as hospital visits, your vehicle being compromised, or unexpected home-related expenses. Any of these situations can be extremely expensive reasons to dip into your savings. if you have a plan, you will be thankful that you do not need to incur debt on credit cards or borrow money to get your through.
Finally, think of your future. Having a untapped savings account is important. You could use that money as a down payment on a house. Having a good amount of savings for a down payment can give you greater negotiating power, better interest rate, and even allow you to be able to afford a bigger home.
Now you know why you should be saving, but how much?
It has been long suggested that $10,000 should be your savings goal and ideally having 6 months of savings is best. Ultimately, the size of your savings or emergency fund will depend on your personal lifestyle, and though 6 months and $10,000 means different things to different people, it is a good initial target for a cushion. There are different ways to start saving, depending on your current financial situation. Start slow, if you have to, by moving $25, $10, or even $5 into your emergency fund and overtime, as that grows, you will see that small beginnings can finish large. There are also supplemental methods such as yard sales or selling your unneeded things on craigslist or eBay; these ideas can help add a little extra money to your fund. If you can, consider a Cash Out Refinance. If you have equity in your home, take some money out of your house through a refinance to start your emergency fund. Whether it is slow or fast, putting money in a safe place and using it wisely is the baseline for your financial future and stability.
Maintaining financial stability is crucial and once you have an emergency fund, it is important to decide where to keep it.
Your savings needs to be liquid where it is readily available but also solid so it’s not too available. It is best not to keep it in your checking or savings account at your local bank where you can spend it. Your best bet is an online money market account (such as: Etrade or ING) where you can deposit and withdraw consciously. Remember, this emergency fund is for staying afloat during emergencies and for protecting your financial security, not for free spending!
Not having an emergency or savings fund is a leading reason that many people end up borrowing too much money at high interest rates and find themselves continuously swimming in debt. Let Fairway Mortgage help you plan for your future; use our Calculators to help you budget your income and show you where you can be saving money or contact a Fairway Planner to discuss your financial future.