Savings is a basic personal finance concept but something that many of us overlook. In this podcast, we remind you of the importance of saving and provide some tips for how to make it a bigger priority.
Welcome to the latest installment of the CredAbility [now Clearpoint Credit Counseling Solutions] Podcast. Along with your host, Mechel Glass, here’s Steve Moore to remind us of what piggy banks and rainy days have in common.
Steve: Well, saving is not something Americans have been very good at for the last couple of decades. But Mechel has been reading recently that starting to change and Americans are finally putting a little money away for a rainy day. And that’s important, isn’t it?
Mechel: That’s very important. Saving is what’s going to keep you from going in to debt. Anytime, there is some type of unexpected expense that comes into your life. You have to have savings in place so that you can be prepared for those unexpected things and those could be anything.
But the important thing to remember here is you need to have at least, and that means at least six months of your living expenses in a savings account.
Six months’ worth of living expenses means that for a six-month period, you have enough money to pay your rent, your mortgage, your light bill, gas bill, all of those expenses that you pay on a monthly basis without any problem while you try to find a replacement for those dollars.
So if that means it’s going to take you six months to find another job, you need to have six months of your living expenses in a savings account. What if it’s going take you more than six months, maybe a year? Then guess what, you need to have a year saved up in a savings account in case of an emergency such as a job loss.
Let’s say that you’re a single mom or a single dad and you are the only provider for that household. You may need to have a little bit more money in your savings account in case you lose your job because there is no other money that will come in to pay your bills at the time that you lose your job.
Why is it important to continue to pay your bills on time each month even if you’ve lost your job? Well, some employers are looking at your credit score when you go in to find another job. So it’s important that you continue to pay your bill sometimes so that your credit score is not affected negatively.
Steve: Some people have trouble just with the discipline of saving. Can we help them with that? Do we have any tools or encouragement that will help with that?
Mechel: Well, let me talk about a few things about that. The important thing is if you are married, make sure that you and your spouse are in agreement with how much you are going to save and what the goal is. If you’re not in an agreement, it’s going to be very difficult if not yet impossible to save the amount that you need.
The other thing is take advantage of some automatic plans that your employers may offer or just automate yourself. And what that means is automatically have the money taken out of your checking account and put in to your savings account so that you don’t even think about it at all.
Other old fashion type of things that you can do is just get a jar, an old money’s jar and start putting change in it like your grandmother used to do. That’s another great way to just start small but can build up to having a large amount of money over time.
And then you want to set a goal. What percentage should come out of my check each month or each pay period to go towards my savings? Our suggestion is 10%. But if you can’t do 10% today, start with 1% or 2%.
As long as you get the process started, it will become automatic. And then as your income increases, you can continue to put more aside at a later day.
Steve: Mechel, good recommendations as always. Thanks very much.
Mechel: Thank you.