Saving money is hard to do. Especially if you are not making enough to “just barely survive” and live paycheck to paycheck. However, you must put some kind of money away into a saving account for emergencies and other things that you will need money for in the future.
It is recommended by Dave Ramsey in his “7 Baby Steps” to at a minimum have $1,000 saved away for just these instances. Do not go below this threshold unless you absolutely have to but you should put forth every effort to maintain this amount. This is just the beginning and you must make an intentional effort to know where your money is going and that you are not wasting a single cent.
Things are all around you that tempt you to open your wallet and spend your money. These are often unnecessary things that only offer immediate happiness, but do not offer any long run hope for financial freedom. Although there are many things that are nice to have, you have to ask yourself “do I really need this?” I believe that more often than not, you really don’t need those things that are tempting you.
You never know what could happen and you need to have some money put away for a rainy day, any unforeseen circumstances, family emergencies, future college funds, and in some cases that thing that you really want versus settling for smaller, more insignificant things because they immediately satisfy a want versus a need.
Categorize your money into groups such as savings, college fund, emergencies, crisis, etc . . . do not touch those groups but intentionally add what you can in each category every month. What you can do is set aside $100 a month and divide this into the multiple categories you have and put a portion in each. Another way you can look at this is to identify a percentage of importance on each and put that percentage of funds in the category. For example if savings is more important to you then give it a value of 60% and put $60 out of the $100 in it and move to the next category. If college fund is only worth 20% then put $20 a month into that, and so forth. Once you put a value on each category then you need to intentionally put that much in every month. If you get promoted, make more money, or get a bonus, then you can raise these number/percentages as you see fit. The idea is to put something in every month and leave it there strictly for the purpose in which you created the category.
*NOTE* These are only suggestions and you can add whatever value/percentage you see fit to include creating whatever categories that are important in your life.
Start a savings plan and whatever you do, do not spend or dip into this fund. Continue to add money to it monthly even if it’s just $25 or more if you can afford to do so.
If you have kids, you need to start putting money away for college sooner than later or time will pass you by and college will be here before you know it.
Emergencies, accidents, and crisis situations
Emergencies and/or accidents happen. To alleviate this from becoming a crisis situation, you need to have at a minimum between 3-6 months of backup money set aside in that category. What you need to do is figure out how much you need to get by within a typical month to pay your bills, rent, gas money, food, and so forth. Then ensure that you have 3-6 months’ worth of that value set aside in case you lose your job, have a car wreck, or a natural disaster such as a flood wipes out your house.
This is the money that is left over each month after you have paid your bills and set aside money in your groups. I know this may be a stretch because many people live paycheck to paycheck, but if you are intentional about your spending habits you can have money left over for this category. The purpose of a reserve fund can be for anything. Let’s say you want something. You can put money to the side to eventually buy that new thing you been wanting. You can even put vacation money in this category (if you didn’t already create one) and save up for a family vacation. This can also be the category in which you put money into for “a family night out at a fancy restaurant”. The possibilities are endless for this category.
By categorizing your money you will see exactly where your money is going. You can make adjustments as needed but before you do this you need to identify the areas you need money most and least. It is absolutely vital that you remain disciplined in this effort. Once you get a solid handle on where your money is going you will be able to create financial freedom in the areas of your life that matter most to include being prepared for any emergency situation that may happen unexpectedly.