76% of people live paycheck to paycheck, almost 8 out of 10 people
64% of people can’t pay for a $1,000 emergency
Another goal for our financial well-being is setting up a savings plan for future needs, both short-term and long-term. Instead of reaching for a credit card every time there is an emergency, it’s time to begin saving for them. In the post about paying off credit card debt, it was recommended you begin with $1,000 and after the cards are paid off build up to 3 to 6-months of your income. That should cover your daily living expenses in case of job loss or an extended time off from work for illness. If you work irregular hours or your work is seasonal, you may want to build up a larger dollar amount.
You want to keep the money liquid in either a savings account or money market account. To search the best interest rates, go to bankrate.com. The top 5 banks listed will most likely be online accounts. They are easy to set up and easy to transfer money from one bank to the other online or by using apps. You normally do not need a minimum deposit amount to open these accounts. You may decide to set up more than one account, one for the 6-month emergency fund and one to deposit money to save for future needs.
One of the ways to free up cash is if you receive a large income tax refund each year adjust your withholding on your W-4. You are not receiving any interest on this money and it is better to have the extra and deposit it weekly in a savings account or put it in your retirement fund and let it work for you. You will reach your savings goals faster by doing this.
Some ideas of what to plan for when setting up your future needs savings account, in no particular order. Don’t let the list overwhelm you, these are only suggestions:
- School Tuition, School Books and Supplies
- College fund, research 529 plans
- If you are a homeowner, Real Estate Taxes and Homeowner’s Insurance (if not included in your mortgage) make monthly deposits in your savings account instead of trying to pay in one lump sum
- Renter’s insurance, if applicable. Put money away monthly instead of paying in lump sum.
- Mission Trip
- Conference fees and travel expenses
- Home Repairs/Maintenance
- Furniture and Appliance Replacement
- Car Insurance, Car Repairs, Maintenance, Tires, Car Replacement, License Plate Renewal
- Doctor, Dentist and Optometrist bills
- Term Life Insurance premiums, unless you are already paying monthly
- 20% downpayment for a home to avoid PMI insurance
- First and last months rent for a new apartment
- Gifts (Including Christmas)
- Charitable gifts over and above your monthly/weekly giving
- Reoccurring Vet Bills – vaccinations, heartworm meds, flea and tick meds
- Computer Replacement
- Purchases for Hobby
- Vacation
- Replacement of child’s sports equipment
For home repair savings, the rule of thumb is to set aside 2% of your home’s value every year to build a home maintenance fund. For example, for a home valued at $200,000, you would budget $4,000.00 per year or $334.00 per month, to save for upkeep expenses. If you are renting then all repairs should be made by your landlord and you don’t have to save for this.
To save for auto repairs AAA recommends saving $50.00 a month or $600.00 a year to cover routine maintenance. If your car is older you may want to set aside more as repairs will be more frequent and perhaps more expensive. Once my cars got over 8 years old it seems the repairs were $1,200 every time I took the car in.
If your car is paid off start saving money to eventually replace it. If it works within your budget, the car payment you were making can now go to your savings account as the replacement cost.
Once you have your spending plan in place and you know how much money you need to put in savings you can set up automatic deposits from your checking account to the savings account(s) and you won’t have to do it manually anymore. Think of it as paying yourself. Remember, in the spending plan we want to budget to 0 (zero) each month and tell every dollar what account or bill to pay.
We are enjoying unprecedented high interest rates on savings right now, as the Federal Reserve lowers interest rates in the future you can always move money into higher interest rate CD’s. Just remember, you will want to keep 6 months of savings in something more liquid. For your future need savings like car replacement or saving for a downpayment for a home you could step CDs in six-month intervals depending on the interest rates and when you would need the money.
If you have any questions feel free to email me. For more personalized help you can register for 3 financial coaching sessions for a total of $25.00 on the web page.
Karen Ferguson
FOCUS Financial Coach
Email: [email protected]
Web page: https://www.focusministries1.org/help/financial-coaching-online
