When you’re trying to get your financial life in order, there’s one enemy that seems to take hold of people and not let go — the lack of a savings account. For some, they don’t see the need to save for anything – life is good and jobs are plentiful. Sounds great, right? Well, there does come a point where life can take a turn for the worst in uncertain, strange ways. Let’s say that you have a great job and your spouse has a great job as well. What happens when one of you loses their job? Can the other person support the household? That’s going to cause a lot of stress. What if the remaining person gets sick and the person that lost their job can’t find another one for a while?
This is where savings definitely come in handy. An emergency fund should be made of cash — not credit cards. It’s tempting to think that you can just go with a credit based emergency fund, but this isn’t a fund that is actually solid. The reason why is that your credit lines can be changed at any time. You might not realize that, but it’s true — you can actually have the credit card companies lower your limit. They reserve the right to do that, and if they feel that you’re charging too much money on the cards and not paying them off fast enough, they will go ahead and actually reduce your limits. That’s something that you will need to deal with right away by simply avoiding the credit-based emergency fund pitfalls.
Saving for an emergency fund can come from two sources — saving extra money from a job, or cutting expenses in order to put more aside for a “rainy day”. The truth is that you will get to the point where you really do want to have a nice savings. Is the mark of a good life really material things like a nice house and a nice car if you’re up to your eyeballs in debt? We’re not being critical of anyone’s lifestyle, but there will come a point where you need to start thinking about what’s really important in life.
We hate to break it to you, but those things aren’t the markings of a great life — savings in the bank is. There was a time where people wanted to save virtually everything they made because you never knew how life was really going to go. Unfortunately, we now live in a culture where it’s cool to have nice things, but it’s not always cool to have a simple life but plenty of money in the savings account.
The lives of your children will depend on how well you can save for the future. If you think that raising children is expensive already, wait till you see them go off to college. The costs of sending children to college to get a higher education is out of this world, and it’s — only set to actually get worse. If you really want to make sure that your children have the best foundation, you need to focus on your emergency fund.
The debates in the world of finance never cease though, because no two people are going to agree on how much an emergency fund should actually be. Some people say that you shouldn’t stop until you have a year’s worth of expenses in the bank. Other people think that six months is more than enough. Because of the subprime meltdown crisis, some people are saying that you might even need more than a year’s worth of expenses. That can be a lot to deal with, but you don’t have to do it all at once.
For example, have you ever thought about using your tax return for more than just buying material things? We know, we know – those sales are pretty tough to pass up, but the truth is that you can actually do a lot better putting your money into the bank. That way, you actually keep the principal and make a little money on the interest side of things. Sure, depending on where you invest the money you’re not going to get a huge return, but it’ll be more of a return on your investment than buying a big screen television. Those things just depreciate over time, whereas a savings account only grows in time.
You can do this with birthday gifts, Christmas presents and even Mother/Father’s Day gifts. The more money that you can set aside, the faster your account will grow. In addition, let’s not forget that you can do a few side jobs here and there, like mystery shopping or even selling things on eBay. Of course, it might take some time to get these things off the ground, but that doesn’t mean that you shouldn’t try, right?
Overall, there are a lot of things that you can do to build your emergency fund. You shouldn’t have to stay up worrying about what’s going to happen in your life without a bit of cash cushion to lean on. Yes, you and your family might have to give things up in the short term in order to have a long term future worth being proud of.