ICFE eNEWS #15-04 - Jan 29th 2015
Seven Considerations For Maintaining An Emergency Savings Account
By Jim Garnett, a/k/a Ask Mr.G, a member of the ICFE's Board of Educational Advisors
Most Americans struggle with the possibility of maintaining an emergency savings account. If you are one of those that struggle, these seven considerations may be of help to you.
Consider The Need. Most people think it would be nice to have a savings account, but do not see it as a genuine need. We are used to using our credit cards each time there is a special need or crisis and taking months or years to pay off the debt we incurred. If we knew for sure that in the next month we would have a flat tire, wouldn't we make sure to have a spare in the trunk? In similar manner, since we know that sooner or later we will all experience unexpected financial emergencies, the best preparation is setting money aside for that purpose.
Consider The Timing. The average person will try to save from the amount he has “left over” at the end of the month, but for most of us, there is not extra money left over. So, we must tell our money where it is going to go before it is all gone, by "paying our self first." That means we view our savings contribution as a "have to bill" and deduct it from the whole right at first.
Consider The Amount. Many people try to save too much too quickly, fail, get discouraged, and quit! So, before we decide on an amount to save, we should jot down our normal monthly expenses to see what amount we can realistically contribute from each check. In some cases, we may have to make minor cuts in our spending in order to free up money to put aside for savings.
When we decide on a realistic amount to contribute, set a goal of $500 in savings and calculate how many months it will take to reach that goal. Then shoot for $1000 goal, then $2000. Many experts say that we should shoot for an eventual goal of three months salary in our savings account.
Consider The Method. The best method is to have our savings contributions taken directly out of our check and deposited into a savings account. What we don’t see, we don’t spend. This allows us to save consistently without requiring as much self discipline. An additional possibility would be to increase your deducted savings designation by the amount of your recent raise, thus building up savings even more rapidly.
Consider The Location. I think it is best to have our savings account in a location where it is not so accessible, maybe even in a different bank or credit union than the one we use for checking. If it is an inconvenience to get money from our savings account, it might stay in there a bit longer.
Consider The Drainage. Many people have told me that just when they are getting their savings account built up, something happens to drain it. Don’t let this discourage you. At least the money was there this time and you did not have to borrow to meet the need. It would be nice if the need did not drain all the money, but if it does, it does. Just keep on doing the right thing, and it will get built back up.
Consider The Purpose. I am very aware that the interest gained on a savings account is minimal, but the purpose of the savings account is not investment, it is protection! We need to have available monies to cover emergencies so we do not have to go into debt when they come.
When we really want to have a savings account, we will make it happen. The action seems to follow our attitude. Maybe these considerations will motivate you to decide that now is the time to begin - before the next emergency comes!
President - Executive Director
Institute of Consumer Financial Education (ICFE)
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