Build an Emergency Fund: Avoid Financial Disaster

This article was originally published at HiCharlie.com” – Share with permission.

 

Life’s usually pretty amazing. But when it throws an emergency at you, can your wallet handle it? According to a recent study by the Urban Institute, nearly 22 percent of adults struggled to cover a $400 unexpected expense. Folks ages 18-34 were hit the hardest and were more prone to using risky, high-interest means like payday loans to make ends meet, resulting in greater financial stress.

To avoid facing the same fate, you need to build and maintain a healthy emergency fund. What’s that? It’s a pool of money that’s only gets used when life throws you a major curveball. That way, when your car breaks down, your pet gets sick, or you lose your job, you’ll have the cash stashed away to deal with it sans taking on more debt.

Follow the steps below and you’ll be well on your way to dealing with the unexpected with ease.

Determine Your Needs

Since everyone’s situation is different, there is no hard and fast rule about how much you need to have in your emergency fund. However, the collective personal finance mind says that you should strive to save 3-6 months of living expenses. If you’re the breadwinner for your family or your income fluctuates, it doesn’t hurt to pad that number a bit.

To gauge your essential monthly expenses, take a look at your budget (or create one) and add up all of your must-haves like shelter, food, transportation, utilities, medicine, minimum debt payments, etc.

Remember, since some of your expenses can vary month to month, be sure to give yourself some wiggle room. Next, multiply your monthly budget by the number of months that you want to cover. The total is your emergency fund savings goal.

Tip: If you want some extra help, check out this emergency fund calculator, or this one.

Open an Account

Your emergency fund should have its own account that you can tap into when needed, but that you won’t see or touch regularly. This will make it tougher to spend the money on other, less dire situations. And, although it may be tempting, avoid putting the funds into risky investments like stocks because you could lose money if the market declines. To get the best results, consider putting this cash into a money market account or a high-yield savings account. It will be safe, separate from your day to day finances, and will actually grow a little due to interest.

Stockpile the Cash

The first two steps are quick and easy to complete. However, depending on your needs and your means, you could be in this phase for the long haul. Saving thousands (maybe even tens of thousands) of dollars is a daunting prospect.

Don’t be discouraged! Start small and initially aim to get a few hundred in the bank. Then, work your way up and celebrate each milestone. What you’re doing isn’t easy. But when life inevitably throws a tantrum, it will be worth it.

Here are several ways that you can expedite the stockpiling process:

  • Cut expenses and bank the savings. Tight budget? Check out these tips.
  • Automate your savings. Set up a regular transfer from your checking account to your emergency fund.
  • Earn more cash. Think about starting a side hustle, working overtime, or selling your unused stuff.
  • Put windfalls to good use. Gifts, bonuses, and tax refunds can make your emergency fund balance soar.

Remember: Don’t stick your hand in the cookie jar unless it’s a true emergency. (Getting a last minute invite to go on a cruise doesn’t count!)

Tip: While building an emergency fund needs to be a priority, it’s OK to juggle more than one financial goal. For example, if you have high-interest credit card debt, it’s a good idea to get that paid off ASAP. It’s important to find the right mix of saving and debt pay off for your situation.

Move on to the Next

While congratulations are in order, you can’t sit on your laurels for too long. You’re in a great position to ramp up (or start) saving for retirement, put money aside for planned home repairs or upgrades, or open an account to fund the vacation of your dreams. You can also put more money toward your mortgage, student loans, or other debts. Of course, if you take money from the emergency fund, you should replenish it as soon as possible.

Conclusion

Building a solid emergency fund doesn’t happen overnight. Just like with retirement, it takes discipline and patience to save a large amount of money for “someday.” But — having that well-inflated cushion will allow you to rest easy and fully focus on living your best life.

Tell Charlie: What are your favorite hacks for building an emergency fund?

Please note: We don’t have an affiliation with or personally endorse any of the services linked to in this post. We’re just trying to give you some ideas.

How to Save Money Each Month While Paying Off Debt

This article was originally published at HiCharlie.com” – Share with permission.

 

You have oodles of debt that you want gone. But you also have other important financial goals, like saving money, that need your attention. These competing priorities can make you feel like you’re trapped in a chicken or the egg conundrum. If you pay down your credit card debt, you’ll have more wiggle room in your budget and can save that extra cash. But, if you save more money, you won’t have to whip out your credit card next time an unplanned expense pops up. So do you pay off debt or save? The short answer is: porque no los dos?

Here’s your plan of attack to slay debt and pad your bank account:

Divide and Conquer

To work on both goals simultaneously, you’ll have to split your available resources between them. But, you need a clear plan to ensure that you allocate your dollars in the most effective way.

To get started, prioritize your debts and savings goals, keeping these things in mind:

  • High-interest debt will sink you. If you only make the minimum payments on your credit cards, you’ll be in the hole for years and pay potentially thousands extra in interest. Get rid of this debt first.
  • Lower interest debt isn’t as urgent. While you definitely want to pay off all of your obligations, “good” debt like student loans and your mortgage do less damage to your financial health.
  • Paying extra on installment loans doesn’t help your budget now. If you sock extra cash at your mortgage or student loans, you’ll reduce the total time you’re paying on them. But — it doesn’t change your required monthly payment amount.
  • An emergency fund will save you in a pinch. A cash reserve will keep you from going further in the hole when something breaks or you lose your job.
  • Start saving for time-sensitive goals ASAP. The holidays, your sister’s destination wedding, and your car registration renewal are all known events. Squirrel away a little bit here and there in the months leading up, and you’ll pay for them in cash with ease.
  • Don’t ignore retirement. It may seem like a million years away, but delaying saving for retirement will have long term negative effects. You’ll miss out on the compounding interest that actually works in your favor. If you can afford it, contribute at least enough to your retirement account to get your employer’s full match.

Choose the Right Mix

Once you’ve got your priorities in order, you need to divvy up your funds in a way that makes the most sense for you. For example, from your discretionary income, you could put 6% into retirement, 50% toward your credit card debt, and 44% toward your savings goals. As you pay off debt and your goals are completed or change, be sure to adjust your mix accordingly.

Remember: While there are some good guiding rules of thumb, how you manage your money is up to you. Personal finance is personal!

 

Find the Dollars

To make faster progress toward your financial goals, try freeing up more of your existing resources, increasing your cash flow, or both. Here are some steps you can take today:

  • Review your spending. Is there anything you can scale back on or nix?
  • Negotiate your bills. You may be able to get a lower rate on things like car insurance or cell phone service just by calling your provider.
  • Buy smarter. It doesn’t matter if you’re getting groceriesclothing, or shopping online, there are countless ways to get what you need and come in under budget.
  • Earn more dough. Consider picking up extra shifts at work, getting a second job, taking on freelance clients, or selling some of your unwanted stuff.

Remember: While it’s tempting, be sure to use your budget wins and side income for your debt pay off and savings goals, not for brunch and a new pair of shoes.

 

Final Thoughts

It can be overwhelming to juggle multiple, seemingly-competing financial goals. But if you proactively map out what you need your money to do, you can strike a balance that allows you to live your best life.

Why You Need Visual Goals For Your Finances

This article was originally published at HiCharlie.com” – Share with permission.

 

Let’s talk money goals. What are yours?

If you have a big, audacious financial goal, it can seem really overwhelming — maybe you’re wondering how you can keep yourself motivated, or how to tackle the goal in the first place.

What if there’s a fun way to do it that also gives you the opportunity to  unleash your creativity?

 

Visual Goals FTW

Yup, I’m talking about turning your goals into a visual masterpiece. Aspiring Rembrandt or not, being able to see your goals can increase your chances of achieving them.

Whatever your goal is, achieving the dang thing can see scary. I know when I had a goal to save for a down payment on a house, I had no idea how I was going to set aside tens of thousands of dollars. However, creating a visual goal serves two purposes — you see the tangible effects of your goal and break it down in a realistic way. It’s like eating an elephant: you eat it one bite at a time.

What do I mean by visual goals? Simple: you’re creating a way to track the progress of your goals alongside the overall goal. There are a myriad of examples online, like debt payoff charts you color in, or coloring pages for savings goals.

Let’s look at an example:you decide you want to set aside $10,000 to replace your roof. You can create a large poster replica of your home and draw roof shingles where each one represents $100 towards your goal. Every $100 you set aside, you get to color in one roof shingle.

Or let’s say you want to save $2,000 for your next family vacation. It can be hard to imagine with bills to pay off and everyday expenses piling up. Instead, break it down starting with a drawing of your dream spot.How about $5 or $10 dollars here and there? Soon, those $5 or $10 dollars will stack up — and you’ll get a buzz every time you color in another palm tree on the picture of an island you drew to represent your dream vacation.

Sound silly? Get this: People who write down their goals are 33% more likely to achieve them. Visual goals can absolutely help you work towards them.

 

Turn It Into a Game

Setting visual goals can be fun because it gamifies the saving journey.  Make a cool poster or a chart that you keep in your where you see it everyday, you want to fill it up or have it all colored in. Every time you pass by you’ll think, “How can I color in that flower petal faster?” or, “OMG only $300 until I get to color that bike tire in!”

Even creating the visual goal tracker can be a game in and of itself. First, you’ll need to think about what you want it to look like and then find a way to break it down into parts you can color. It’ll also force to you crunch numbers to see what the final goal amount is, and what each milestone will be. (And determining reasonable benchmarks! As in, if you’re looking to pay down debt, what’s more realistic: $50 or $100 increments?)

Ultimately, you’ll start to think of money as something other than a source of worry. Come on, you’re coloring in a poster or creating a piece of art. It’s not just about being good or bad with your money, it’s about finding a fun way to track your accomplishments as you work towards your goals.

 

I’m Convinced. How Do I Create One Of These Things?

There’s no right or wrong way to create a visual goal. As long as you make it clear what your overarching goal is and breaking it down in increments, let your inner Picasso shine!

For example, Amy Jones from Map Your Progress creates posters of swirls that join together to form one large image. If you use one of these or something similar, each swirl would represent part of your savings or debt slaying goal.. Your overall goal is achieved when the whole thing is colored in.

Start by determining what your goal is — get specific in the dollar amount. Maybe you have credit card debt to pay off, or you want to set aside money for your 10th-anniversary trip. Once you determined the total amount, break it down into smaller chunks. For example, f you’re setting aside money to pay off $5,000 worth of credit card debt, divide that amount by 50, so each part of your visual goal represents $100.

Not into coloring inside the lines? Get as creative as you want.

Here are some examples to get your artistic juices flowing:

  • Build a Lego castle and as you pay down your debt, take out one block until it’s totally demolished.
  • Print some cute labels and stick them onto a bunch of jars. . As you fill them up with literal cash (or use something like buttons to represent the money), change the labels or screw on a lid to indicate that jar is filled.
  • Create a large thermometer (like the ones you see for charities when they set donation goals) and set it on an easel in your kitchen for your family to see.
  • Create a spreadsheet in your planner or bullet journal — there are TONS of templates out there.
  • Use a wall in your home and great an image using sticky notes. Take down a sticky note until it’s all gone!

You know you have the drive and the determination. Now go attack those financial goals.