No matter how small, a portion of your check should be saved for a rainy day.
As you may have read before, I Started Budgeting at 11 and I have always been an avid saver. I save the way I do mainly out of fear. Yup, you read that right, fear! Internally, the possibility of running out of money scares me to death! I came from very humble beginnings. There is no trust fund or inheritance or anything like that for me to fall back on. All I have is my paycheck and I have to make that work!
No matter how small my paycheck was, I always saved a portion of it. Most of my working years before I joined the Army, my rent was half of my paycheck! Hey, it was rough out in those NY streets; but still I made it a priority to put away $10 - $20 a week. I didn’t know it at that time, but what I was doing was building up my Emergency Fund.
Everyone should have an Emergency Fund. So what’s an Emergency Fund? I’m so glad you asked! An Emergency Fund is simply a sum of money set aside that is equal to 3 - 6 month’s worth of living expenses. Most living expenses include but are not limited to: food, clothes, rent/mortgage, utilities, car payments, childcare expenses etc. An Emergency Fund is important and necessary because in the case of a job loss or injury, you will be able to sustain yourself properly. Some people earn enough money to have, or are in a position to save a 6 - 8 month Emergency Fund. But if you are anything like I was before the Army, that amount is just not happening! You can however, still have an Emergency Fund!
Start off small. Set a goal to save your first $1000. If that amount sounds too high, then lower it to $500. After you have saved your first $500, repeat the process. It does not matter if all you can save is $25 every week. The goal is to save whatever you can, as often as you can. When you can afford to save more, you save more. Ideally, you would want to pick an amount that is comfortable and that you can stick with. Separating your wants from your needs is a great way to start.
Your Emergency Fund should be easily accessible. I understand that saving does not come easy to some as it does for me. But this is one time you will need to grab your big girl/boy pants and put them on! If you have to hide your EF account so far that it takes you 3-5 business days to access your money – that’s not an Emergency Fund. In case of an emergency, you should be able to access that money in 24 hours or less.
Define what constitutes as an emergency. I’m sorry but Shawn Mendes coming to town and you wanting to see him live, does not constitute as an emergency. No. It doesn’t! You’ve worked hard and sacrificed to save up that money. It should only be used for what it was meant to be used for – an EMERGENCY! You should have a separate account where you stash your “OMG Rihanna will be here next month!” money. Discipline is key!
Treat your Emergency Fund contribution like a bill. When you’re making your budget, include your EF contribution just like any other bill. Your electric or gas bill and you EF should have the same level of importance. If you don’t pay your electric/gas bill during the winter and your service becomes disconnected, chances are you’d probably freeze right? Well think of your Emergency Fund in the same way. Just like you have to keep heat in the house so you don't freeze to death, you have to keep your EF stacked as well. Think up something unorthodox if you need to that'll encourage you to save. I promise I won’t judge you. I’m a firm believer of whatever it takes!
I cannot stress the importance of an EF enough. So many times I’ve seen people without a cent to their name. People with jobs at that. I'm not insinuating that employment automatically equates an EF. Because it doesn't. However, a little saved today, may end up going a long way tomorrow. So how about revisiting your budget to make a space for that Emergency Fund eh?