Government statistics tell us that most people do not save money on a regular basis. A large percentage of working Americans live with less than 1 month of living expenses in a liquid savings account. Although there are a multitude of reasons for why this is true, there is one that is pretty basic—saving money is not fun!
If the average person has $100 left over at the end of the month, and they have the option to either place that money in a savings account or spend it on some discretionary item (new sneakers, clothes, Britney Spears concert ticket), most Americans will vouch for the spending. However, outside of winning the lottery or striking it rich through an inheritance, we all know that true financial freedom can only come through disciplined saving. In this article, we are going to discuss the most basic personal finance element of all—the emergency savings account.
Why?
First, let’s tackle the why of an emergency savings account. The reason is because it is the first step toward true financial freedom. Financial freedom, in its most basic definition, means to simply be free financially. It means that you are not dependent on anyone, including a job, to meet your financial obligations each month. Ideally, it means you have more money coming in each month via investments, forex brokers accounts, and other financial vehicles than you have going out in bills. That is the goal of retirement planning.
Now, when you have an emergency savings account, it means that you are now able to finance emergencies such as the unexpected doctors visit or the unexpected car repair. This may not seem like a huge accomplishment, but it is. It is a real step toward not being reliant on others to meet financial obligations. Typically, many people will tend to finance these unexpected expenses with a credit card.
How Much?
Most personal finance experts agree that an emergency savings account should include $1,000. This is enough to cover most moderate expenses. Then, as the $1,000 is built up, you can always continue to build this account larger and larger.
How?
The easiest way to build an emergency savings account is to start small. Sit down and determine how much money you can set aside each month to funnel into this account. If you are living tight right now, it may require cutting back on some expenses, but this is essential. Even if you determine that you can only save $50 per month, that’s okay. It is a start. Most likely, once you get in the habit of saving, you will begin to find other areas where you can cut back expenses and increase your monthly contribution.
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