It has become known amongst my friends that I am the unassuming finance nerd, so every once in a while it will get me into a conversation that leaves at least one person at the table taken aback. Let me note that I use the term “unassuming” loosely; I did get my undergrad degree in Marketing, I do watch Shark Tank obsessively and I live with two accountants that I happily engage in chats with regarding what they are studying for their next round of CPA exams. Anyways, this inconspicuousness will get me into a conversation that leaves some eyebrows raised…in a good way. This happened to me about a week ago at a best friend’s birthday dinner. Hey, we don’t only talk about the Kardashians.
Over dinner we were all joking around about what my friend, who is a year younger than most of us, could accomplish over the next year in her life without Lilly Allen or Taylor Swift’s lyrical input about being anything older than 22. Because there is so much room to grow (and room for error) without the genius input of these two singers, we all started enthusiastically throwing around ideas like, “visit China!” “run a marathon!” and “finish a five pound burger!”. Although these ideas are very twenty something-ish, Birthday Girl’s idea took us all by surprise. After she finished taking a gulp of her wine she shouted, “I want to finish saving for my Emergency Fund!” Huh?
Birthday Girl is certainly on the right track. A financial Emergency Fund is one of the first things that everyone needs to have under their belt by their mid to late twenties. No, it’s not for those leather boots that you have been salivating over. Rather, it helps you to avoid overspending and going into debt due to a real life emergency, which can be anything from losing your job to getting in a car accident. Most experts suggest that it be the equivalent of three months’ worth of living expenses, including rent, food and transportation costs. Don’t let that statement make your eyes glaze over and your heart start to palpitate. Here are a few tips to make achieving your Emergency Fund goal easier!
Don’t Underestimate What You Spend – It’s rough to come up with an estimate of how much you spend over a month in a certain category off of the top of your head. Spend a month tracking your expenses by registering on a website like www.mint.com or simply creating a note on your phone that you update every time you hand over cash, check or credit card. An accurate budget estimate will keep you from coming up short in the long run.
Set a Realistic Time Frame – An Emergency Fund is something that can be saved for over a two to three year period. Setting a realistic time frame to save for your Emergency Fund will take some of the pressure off of you, but at the same time a designated time will keep you from putting your Emergency Fund on the back burner.
Contribute Weekly – Weekly contributions to your emergency fund will not only help you reach your goal faster, but it will also form an invaluable habit of saving that will quickly become natural. One of the easiest ways to do this is to set up an automatic withdrawal from your checking account into your savings account. Your weekly contribution doesn’t have to be huge either. The larger the amount the better, but even $15 a week can make a huge difference. That’s the equivalent of cooking one meal at home as opposed to going out to dinner. Not too shabby!
Contribute Monthly – Some months we get lucky and have a little extra cash left after paying the bills. This is exactly when the green light goes off for a little extra saving! Set a goal of what you want left in your bank account at the end of the month, and if you have exceeded that goal, transfer whatever you have left. Want $700 left in your banking account at the end of the month and end up $716.63? Put the $16.63 in your Emergency Fund. I promise you will be surprised at how quickly it adds up!
Following these tips, both you and Birthday Girl can be well on your way to reaching your Emergency Fund goal this year. Trust me, the sense of security gained from an Emergency Fund is priceless.
By Jenna Heffernan