78% of Americans live paycheck to paycheck. An unexpected event like an accident, job layoff or even disease can turn your life upside down if you don’t have a solid emergency found.”Unexpected expenses can just throw you into a spiral” said Jennifer Barret , Chief educational officer of Acorns. In case, you may wondering, Acorns is an investing app that help you start investing with as low as $5.
What is an emergency fund?
An emergency fund is basically money set aside for unexpected events. These events could be a job lay off, a disease, an accident … As you may be thinking nobody wish for such things to happen in our lives but nevertheless you should prepare for it. According to CNBC, about 57 million Americans have no money in their emergency fund.Those are sobering numbers. But the good news is you don’t need to start big, you can start by setting aside $5 per week and increase as time goes by. To build an emergency fund, you first need to develop a strong habit of savings. And to start, you need to create your own budget that will help you minimize your expenses.
How to start an emergency fund?
If you don’t have money aside for emergency, maybe your first priority should be to build one. Start by creating a savings account to your local bank or choose an online bank and have a percentage deducted each week or after each paycheck.
If you won’t have to think about it, it’s easier. Then look for ways to add irregular income as credit card rewards, cash backs or even a part the cash left in your wallet when payday is close.
How much savings is enough?
The standard financial advice is to save up to three to six months worth of your take home pay.
A recent post on CNBC by Kathleen Elkins says that economists recommend saving at least $2,467 in an emergency fund for low-income households.
And Dave Ramsey author of “The Total money makeover” and seven national best sellers, advises to save $1,000 first if you have debt to take care of.
Where to put your savings?
An emergency fund is supposed to be used when facing unexpected events that require you to pull cash out immediately. So the best advice is to have a separate checking account or a money market account different from your principal one. That way you can access your money easily and quickly with a debit card.
If you answer yes to all those questions, so you need to use your emergency fund.
If you can put aside $20 a week, at the end of the year, you will have a little bit over $1,000. And this will give you confidence to continue saving because you know that won’t reduce or impact negatively your lifestyle.
Thank you guys for reading me. I heard that some people use their credit card to cover emergency expenses. Tell me what you think about that in the comments section below.
A budget is a plan based on your income meant to structure your expenses. By doing your budget, you estimate how much you’ll be spending over a certain period of time.
Most budget are made on a monthly basis.
There are many ways to establish a budget.Some people prefer to write it out by hand, while others use computer based software like Excel to create spreadsheet or mobile phone budgeting apps.
That being said, the most common way to start structuring your budget is by using the 50/30/20 rule. This rule was explained in depth on YouTube by Marko-WhiteBoard Finance (click here to watch it) This method suggests you to set aside 50% of your monthly income after-tax for necessities, 30% on wants and the remaining 20% will be allocated for savings and paying off debt.
Another important step of budgeting is goals setting. While neccesities are regular expenses that need to be paid off, your wants are expenses you plan ahead for and save for it. So the 30% part of budget will be allocated to fulfill your goals.
You can include in your list goals, an emergency fund, a trip or vacation at the end of the year, a car or a house…
Now that you have your goals set, class them by priorities: which ones do you want to get done first. They are your high priorities goals and need to be done first because they will have a meaningful impact on your life, they could propel your career …. then will come the less important, they ones you think you should do but won’t have an immediate effect on your life. And then the last ones at the bottom of your list. These are the “fun” goals. I call them this way because I think it’s a way to reward yourself for your hard work.
One last word !! Know that you are the one who determine which types of financial goals might fall into each category. So decide for yourself which goals are high priorities and when you expect to achieve them.
And don’t overthink, you can always adjust your budget along the way if needed.
Thanks you guys for reading me. And if you can let me know your thoughts in the comment section below, i will really appreciate. That’s the only way i could improve my posts and deliver valuable information.
If you didn’t watch the video yet click here to watch it. And if you are in couple and wondering how to start budgeting with your partner, there is an article on Forbes written by Asia Martin that discuss the subject. Click here to read it.
And also,make your to follow us so you get notified each time I publish a new post.
Money doesn’t buy happiness, but bad money management will bring you misfortune . Lack of money is the main reason why many people do not achieve their goals in life. But how can you work five days per week and at the end of the month, not only you don’t have a lot left but you don’t know where your money is gone. And you start wondering if you can have that car, house or vacation you have been dreaming off.
I’ve been through such situation and decided to gain control over my money. I decided to know the difference between people who achieve their financial goals and those who don’t. The difference is quite simple : they have a realistic financial plan. Personal finance is simply the way you manage your money.
What is a realistic financial plan?
Financial planning is made according to your goals. So it is different for every person and evolves as your goals expand. Whether you are starting out in financial planning or already on that path, your first goals should be to create a practical budget that suit your actual financial state, improve or keep a good credit rating, build an emergency fund and owning a retirement account.
A practical budget
A good rule of thumb say that 50% of your take home pay should be allocated to regular monthly expenses such as housing, food, utilities bills and transportation. Set aside 30% for occasional expenses like clothing, repairs, books and fun. And use the remaining for investment or retirement.
These percentages are not set in stone. You can adjust it to match your goals. The most important thing you have to remember when setting a budget is that you should not spend your money in stuff you don’t need and keep some savings for future use. Always spend less than you earn.
Keeping a good credit score
Your credit score is your financial history. Lenders will based on your credit score to decide whether or not you should get a loan or mortgage and what interest you will have to pay. I’m sure you’ve already realized that a bad credit score will slow you down in realizing your goals. But don’t startle, a bad credit score can be ameliorated. You just have to make your credit payment on time every month, including loans, utilities, and mortgage payments. And don’t exceed the limits on your credit card accounts.
A good credit is 700 and above. From 800 and above, your score is considered excellent. So I think everybody should try to get as close as possible of those numbers. After all, you will be paying less interest on loans.
Building an emergency fund
An emergency fund is a cushion for unexpected events such as a job layoff, sickness, or repairs. Ideally, an emergency fund includes at least two and as much as six months of your monthly paycheck.
It is one of your important saving because it will be your first asset of cash in an emergency. If you happen to use it, make sure to replace it as soon as possible.
A retirement account
You don’t want to be sixty years old, working hard for money. So in order to have a joyful and peaceful retirement you have to start when you are young. It should be your first investment account.
Instead of hoping to have enough money when you retire, it’s important to determine how much you think you’ll need and save for it. You may participate in a retirement savings plan at work or may have a personal savings plan like a traditional IRA or a Roth IRA. Each plan comes with its unique features but the most important is to start and learn on the way.
Benefits of a good financial planning
You will keep more of your hard earned money.
You will improve and keep a good credit rating.
You will be able to provide for yourself (and your family) financial security.
If you are able to fund your retirement account continuously until you retire, you won’t have to hassle for money. You still need to be careful with your spending but your life will be better than the one’s who didn’t planned his retirement.
What to keep in mind when starting out?
You have to know that financial planning is not only for today. It is for your entire life.
You will have to learn self discipline. It will keep you from overspending or spend money when you don’t have to.
You have to know that when starting out, your first budget won’t be perfect and because we can’t predict everything, keep in mind that your budget is a guideline that can be adjusted sometimes.
You have to learn also when to break the rules. Ask yourself when you plan on buying something that wasn’t planned: What value does that bring in my life? Is it worth that money?
I think everybody should know about personal finance. By increasing your knowledge in this area, you will build an effective and realistic budget, make wise decision about spending and savings. You can also think about investment in addition to your retirement account to help you build a financially secure future for you and your family in order to have a smooth transition from professional life to retirement.
PS: Thank you guys for reading me. There’s something I want to know. Where are you in your financial planning? Put it in the content below.
I already have a budget, not the best but it allows me to put some money away in an emergency fund and an IRA account.