Surprise expenses are no fun. You spend hours planning, and making sure you have every expense accounted for, then life throws some unexpected costs in your way. If that is your nightmare, wouldn't it be nice to save $1,000 in 3 months so that you can be ready to cover your expenses?
We can usually work small surprises into our budgets by holding off on a purchase or digging up a coupon or gift card. But, the big expenses could be devastating.
Wouldn’t it be nice to have some cash squirreled way to cover these surprises? Today we're going to talk about exactly how to do that so that you can have cash available for the big expenses.
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The official name for this savings fund is an emergency fund. It’s the cash you have to cover some big expenses that don’t fit in your monthly budget.
And it’s important. An emergency fund can keep you from using credit cards which will rack up interest and make the problem even worse.
For me, an emergency fund helps me sleep better because I know I have cash on hand to make small problems go away, instead of turning into bigger problems.
You can have save $1,000 in 3 months. All it takes is a little bit of saving and patience.
You may have seen one of those savings plans that increases the amount that you put away over time. That would be nice to ease in to saving, but what happens after a few weeks? Maybe you forget which week you're on, or think “I'll transfer funds tomorrow”, or you need some cash so you ‘borrow' from you savings jar and never put it back.
How do we make ourselves do this without slipping up? We're going to make it so you don't have to touch it and you don't notice it. And it all comes down to one word: Automation
Set yourself up for success
If you're going to automate your savings, you'll need a place to put the money. No, under your matress is not an option here. It's got to be somewhere you won't “borrow” from yourself. And that means a bank account.
You want to separate this money from savings for vacations, investments, cars, etc. After 3 months of saving, you need to be able to see that this account has at least $1,000 in it.
Make sure you keep this account at the same bank as your checking account. If you need your cash fast, you want to be able to transfer from the emergency fund to checking ASAP, which happens best within the same bank.
Ask the bank representative for a savings account that best meets 2 criteria.
First, your savings account should not charge you fees. Duh, we’re saving here! If we’re getting charged fees, we’re going backwards! The most common fee in savings accounts is a limited number of ‘free’ transactions. You’ll be setting up weekly transfers, so you want to make sure your bank will let you make at least 5 transactions per month for free.
Second, your savings account should have a decent interest rate. Ideally you’ll be parking this money her for the long term (because you read this blog and plan for expenses in advance like a pro). Since it’s a good chunk of change, you should try to earn interest. Ask your bank representative
Save yourself some work
13 weeks is just enough time to let you accidentally slip up or forget about your $1000 savings plan. If you try to move the cash by handling the transaction yourself every week, you’ll probably remember to withdraw the cash the first couple of weeks but by week 4 or 5 you might forget.
I know I’m not 100% on top of managing my money every single day. It’s too much to remember! But thankfully, these days you can automate your savings with the help of your bank.
Your next task is to log in to your bank website and locate the automatic transfer. Set up the automatic transfer from your checking account to your new savings account for $77 every week for 13 weeks.
A Simple Plan to Save $1,000 in 3 Months
Oh, so you see the $77? I did the math for you and put together an easy plan to help you save $1,000 in 3 months (13 weeks). It is a simple $77 week. That's it.
Can you give up happy hour, or putting your gym membership on hold? If you can commit to putting $77 per week away, you can really see your emergency fund add up.
You can use this cash to cover those big surprises, and you can start this plan over at any time if you need to build it back up!
Don’t Spend It!
This is a 13 week savings plan. So for 13 weeks, you can’t spend this cash. Even after 13 weeks, you can’t tap into this account. If you do, it defeats the purpose of this whole exercise.
Do whatever you have to do to avoid spending it. Hide the bank account. Nickname it “For Emergencies ONLY”. Whatever you need to do, make sure the account stays for only the urgent surprises.
So what is urgent? Some of my high school friends had credit cards that their parents co-signed ‘for emergencies only’. A Prom dress was not an emergency. A tank of gas when you’re stranded in a bad part of town was an emergency.
So put your situation in perspective before you use these funds: Ask yourself “Will I die, have permanent injury or lifelong regret if I don’t spend this money today?”
If the answer is “It can wait a few months”, then come up with a plan to save for the expense. Do not use this fund for anything that is not a true emergency.
If your bank allows, I’d like to challenge you to continue your $77 per week savings for a whole year. If you continue for a whole year, you will end with over $4,000.
In my personal experience, $4,000 is ideal for an emergency fund. It’s just enough that I can raise my deductibles and save on insurance. It covers an airline ticket for my husband and I to travel on a moment’s notice.
How much would $4,000 in cash change your life and your finances? I know you can do it!
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