If life throws you a curveball, an emergency fund can help you preserve your retirement savings and avoid taking on debt.

Starting an emergency savings fund this very second can have a big payoff down the road—it can help you get by in case of an unexpected repair or tax bill, for example. A good rule of thumb is to save enough money to cover at least six months of living expenses. Nobody is going to do it for you, so you’ve got to make it happen.

Putting aside months’ worth of living expenses might seem like an impossibly tall task.  But more important than hitting your savings goal right away is simply getting started.  To do that, pick a realistic number you think you could work toward in the short term.  60 to 90 bucks a month is only $2 to $3 dollars a day.

Next, pick something and cut it.  You could pack a lunch every workday but one for three months.  Wash your car the rest of the year instead of using the car wash.  Buy your drinks at the store instead of ordering when you’re out with friends, and go one step more… drink water.  Cancel your cable for a year and use it as incentive to order it again after you’ve saved enough in the bank for the emergency fund.  Learn to love your library because it’s free to go in and read books, magazines, and newspapers.

Make it easy on yourself.  Right this second, set up a separate savings account at your bank or credit union and then set up an automatic transfer from your checking.  Get a solid baseline amount.  You won’t want to tap into it later because you’ve made it too tight for yourself at the get go.  Some people start with ten dollars per week.  Others want to reach their goal and can put together more each month or at payday.  The key is to set it up on auto pilot so that you don’t even miss having it in the checking account.

Don’t let debt get in the way.  If you’re struggling to pay down debt, saving might be the last thing on your mind.  And if your debt carries high interest rates – like credit cards – it might make sense to aggressively pay down balances first or sign up for one of those zero APR cards on all balance transfers which will allow you to save and pay down debt at the same time.

In closing I’d like to pose a question.  Which of the following would be the most recommended method of implementing a savings plan?

  1. Pay all your expenses first, including credit cards, then deposit the remainder in a money market account.
  2. Simply wait until the end of the month and see if any money is left over.
  3. Deposit a fixed or specific amount from a paycheck into a savings or money market account.
  4. Complete a one-year budget, and then see if you can save money based on reality.

Before giving away the correct answer, please remember the money you set aside is for emergencies.  Not for college tuition, retirement, or a home mortgage.  However, don’t lock up the money in accounts that charge you to access your own money – or keeping them in an account you’ll be tempted to tap for everyday expenses.  A separate account that can be set to receive automatic deposits is very important.  Also, don’t stop once you’ve hit your initial savings target.  Steadily increase your savings goals until you have put aside enough money to cover your expenses for three to six months. If you started with ten bucks a week and continue for two months without missing it, how about upping the ante to fifteen bucks a week… and so on.

We’re all on the downhill slide in the golf season here in the Pacific Northwest.  I personally can appreciate the hard work PGA professionals in our section work every single day.  You owe it to yourself, to pay yourself first in order to succeed at saving.  That is my advice and the answer to the above question.  If you have an inspirational story of saving and developing the habit of saving, please forward an email or give us a call.  We are very good at compounding savings so that you are able to afford the things that are important to you and your family.  Let your savings work hard for you from this point forward.

 

Blake Parrish
Senior VP, Portfolio Manager
Phone: (503) 619-7237
E-mail: blake@bpfinancialassoc.com

Certified Financial Planner Boardof Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.”