When I read a recent statistic that only 24% of Americans are saving more than ten percent of salary every year, I had a chill that climbed down my spine. Did we not learn anything from last decade’s financial crisis?
I regularly teach a financial workshop designed to educate people on three financial pillars that I believe everyone needs: Income, Savings, and Retirement.
As the classroom fills up with hungry to learn attendees, I quickly get to know everyone I am teaching in order to assess how to adjust my teaching style based on their experiences or financial situation. It is no surprise anymore to learn that the savings figure is much less than 24%.
In fact, I would venture to guess that 99% are living paycheck-to-paycheck with little to no savings. It is easy to feel sad for these people but when I overhear how frivolous spending is so rampant and the majority of the class have 50” plasma TVs and the latest iPhones, I quickly realize it isn’t an income problem, but rather a budget and money management issue.
"...only 24% of Americans are saving more than ten percent of salary"
In this blog, I am going to highlight some simple strategies that has allowed me to quickly put away money for a rainy day. This rainy day fund is your emergency fund. According to Vanguard, “An emergency fund is a stash of money set aside to cover the financial surprises life throws your way. These unexpected events can be stressful and costly.” 1
Primerica claims emergency funds are just that “for unexpected emergencies”. 2
So how are today’s Americans doing compared to previous generations? Well, sources from the St. Louis Federal Reserve and Statista show exactly that below. From 1960-1990, the savings percent ranged from 8.2% to 12.9% compared to the last twenty years ranging from 2.4% to 11%; yet, the 2012 figure is a response from the financial crisis. It has evidently declined which most of us could have guessed.
I am not writing this to tell you to give up your one cup of coffee per week. Frankly, I’m tired of hearing that phrase because my coffee is roughly $3 and I don’t go every day.
Instead, technology has made it easier to save money. One of these great products is producing an app that will round up your purchases to the nearest dollar and put that change into an escrow account. I tried this out with an app I downloaded, Qapital.
When I purchase my cup of coffee and the after-tax amount is $2.44, Qapital will round up the difference and pull out $0.56 from my bank account to make it an even $3 purchase.
After a week of using this app, I had over $40 in this escrow account. I was amazed how little I missed this $40.
If you took this $40 x 4 weeks, then each month you would be able to put away $160 towards an emergency fund, right? Well, if you are living paycheck-to-paycheck, you are definitely going to feel the pinch of $160 missing from your bank account.
The app has rules you can designate, milestones if you will. If you make a rule that once the escrow reaches $40, the app will pause until the next month. This app platform combined with my usual savings of 10% from my paycheck, quickly catapulted my emergency fund to where it needs to be.
Another great benefit and pro about this financial app is the awareness it forced upon me to adjust my spending. When I saw the initial $40 being deducted after a week, I checked my bank account to see what on earth I have been purchasing. I had purchased several lunch meals here and there that escalated my account to quickly reach $40 which leads me to my second point.
Meal plan! I started prepping my meals more often and began eating healthier. I knew if I brought food to work, I would definitely eat it because I am terrible with leftovers at home. For some genetic reason, I will rarely eat leftovers at home. Put me into a work environment, however, and this mentality changes. I saved over $100 a month by bringing my own lunch versus going out to buy lunch.
So let’s do the math now to see where we are:
Qapital: $40 x 12 months + Lunch $100 x 12 = $1,680
While I highly recommend you stash away 3-6 months of living expenses for your emergency fund, this is great progress to get that ball rolling.
I definitely discourage reports that claim low-income families need to have at least $500 put away in such a fund. This amount money will quickly vanish in the event an automobile breaks down or should a last minute medical bill arise, etc. It may take someone longer to save more, but DO NOT stop at $500.
My third point is to look at your budget and determine where to cut expenses. In my blog, “4 Easy Ways to Cut Expenses” I highlight simple strategies to boost your income and shrink your month-to-month expenditures.
A few other immediate strategies that we won’t get into too much detail but need to mention, look around your household and find items you can sell that aren’t being used anymore. Tools in the garage or equipment are big sellers that rarely lose much value. You might be surprised how much some of these items can go for on search ads or online ads.
Saving for emergencies isn’t a question of how much is the emergency should one arise but when. This isn’t to scare you but rather several tips to deliver a piece of mind so that should such a drastic occurrence happens, you are prepared and won’t take a catastrophic financial hit. Comment below on ways you saved money!
1 Emergency fund. Why you need one. Vanguard. https://investor.vanguard.com/emergency-fund/
2 Invest for the Future. Primerica. http://www.primericafinancialsolutions.com/public/financialneeds/primerica-invest-future.html