More than half the people in the world live paycheck to paycheck. A single emergency can put their entire lives on hold, sometimes to an unrecoverable degree. If you fall into this category, then now would be a great time to rethink your current finances. A small emergency fund will change your life for the better when it is needed the most.
Putting aside up to 10% is doable, even if your income stream is low. At the very least, 5% should be the bare minimum you save from each paycheck. An easy way to determine the correct amount is by looking at your vehicle. In two months’ time, would the money you’re saving cover a major repair? Or if you’re paying a mortgage, can two months savings cover the entire bill? Instead of looking at the money, you put aside as percentages, look at the total amount you would need to cover a major bill.
Once you note that amount down, double it. When something goes wrong and you have to dip into savings, wiping it out will only put you in a vulnerable position. Stay two steps ahead of any possible emergency and you’ll never be in another bad financial situation. After doing the math, it isn’t uncommon to be shocked that the percentage you need to meet this amount is almost half of what you make.
Saving at an earlier point in your life will prevent you from dedicating a large portion of your paycheck to build up a new account. But even if you haven’t started saving, there is still a way to safely make up the difference.
Write down all of your essential bills and note the total amount. Now, note down your non-essential bills and compare the two. Your non-essentials should never be higher, and they should also not take up the bulk of your paycheck. Cutting back on things you don’t need is the fastest way to building up a savings account without crippling your lifestyle.
Whenever someone talks about scaling back purchase choices, there is a collective groaning from society. Scaling back non-essentials does not lock you out of having specific services, products or fun. A lifestyle change that favors saving money is about being smart, not being a minimalist.
If you love television, consider going digital or ordering an ala carte package. Both were made to cut your television bill in half without getting rid of the shows you love. There are a ton of mobile phone companies that offer cheap plans while using the same towers as the ‘big 3’. Do your research on the best mobile virtual network operators (MVNO) in your area. In the end, the money saved can easily amount to more than enough for savings.
Start saving now rather than later, even if your future looks bright. Understanding the importance of a savings account will put you in a much better position in life. It is the first step to thinking forward and making sure the people around you don’t have to panic.