Tag Archives: saving money

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Save for the Unexpected

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You’ve probably heard it before a million times. You need an emergency fund of 3 to 6 months. Maybe you brushed it off as not urgent or maybe even unimportant. And then the world came to a screeching halt in 2020.

Now here we are in 2022 and maybe you’ve fully adapted to the world post-COVID-19. So what are you doing to be ready to bounce back from the next global event? Did you use that stimulus to start your emergency fund?

It really isn’t a question on whether or not you need an emergency fund.

(You do.) It’s the first line of defense when unexpected expenses show up (and they will—have kids?). Unforeseen emergencies threaten to undo your hard work and careful financial planning.

But what exactly is an emergency fund? What should it look like? And how do you start building one if you don’t have a sack of cash lying around?

What’s an emergency fund… and why do you need one? 

An emergency fund is a dedicated amount of money to cover unplanned, unavoidable expenses. Establishing one is an important milestone on your journey to achieving financial independence! But why is it such a big deal?

Emergencies are a part of life. Nobody schedules a busted transmission or a broken arm, but you’ll need a way to pay for them when they happen. Who would have guessed that a global pandemic would force most of us to stay at home and cost millions of Americans their jobs? So it’s not a question of if you’ll need to cover something unexpected but how you’ll cover it. Without an emergency fund, you’ll be forced to either dip into your long-term savings (assuming you have them) or go into debt. For most people, either option can seriously throw off long-term financial plans. An emergency fund gives you the power to overcome sudden obstacles without sacrificing your retirement or piling up credit card bills.

Emergency fund ins and outs  One critical thing to grasp is that an emergency fund isn’t the same as your savings. Establishing a solid emergency fund is not a long-term goal that’s built over years or decades. Once the emergency fund is full, then you move on to other money milestones like conquering debt and saving for the future.

So how do you know you have enough in your fund? That depends on how much you make. A good rule of thumb is that an emergency fund should cover 3 to 6 months of income. That provides a buffer if you have an unexpected car repair, medical emergency, or if you’re temporarily unemployed due to an unprecedented global pandemic!

But what if you don’t have that much cash just lying around?  3 to 6 months of income might seem like a lot of money to set aside, especially if you’re currently living paycheck to paycheck. Building an emergency fund will take time and budgeting. Start with a goal of saving 2 weeks of pay. Then shoot for 1 month, then 2 months, etc., until you reach your goal.

The 2 Rules of Emergency Funds

Rule 1: An emergency fund is only, ONLY to be used in case of actual emergencies. It’s not for last minute getaways, much needed spa days, or killer video game sales. If those kinds of things come along, you can use a “fun fund”, which of course is part of your regular budget! (We’ll talk more about your “fun fund” in a later post.)

Rule 2: The emergency fund needs to be easily accessible. Make sure it’s in an account where you won’t incur fees for withdrawals when your car breaks down or you suddenly need a new AC unit. That’s why it’s there. Just remember to refill it as soon as the emergency has passed.

Once you’ve built your emergency fund and know the rules, you’re ready to move on to the next stages of building wealth.🎉Congratulations! You’re officially not broke and in the perfect position to chase your financial future!

If you’re ready to start your savings journey but not sure where to begin, check out these 7 Steps to Start Your Savings Journey from AmericaSaves.org.

Or if you prefer some help, meet with a financial advisor for a free consultation to figure it out. 

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Save Automatically

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Saving money on a consistent basis, regardless of the amount, is the true secret to financial victory. The strategy is simple. And thanks to technology, putting it into place can be simple also. So where do you start?

First you figure out what amount is workable FOR YOU, not anyone else. Then you take all the monthly cash flow that YOU can spare and start saving it into an account with the best interest rate, growth potential, tax advantages, and principal protection you can find AUTOMATICALLY, be it monthly, weekly or daily. Finding the best account is where a financial professional is key. Don’t go it alone.

These habits have created more millionaires than any other story, company buyout, or stock market windfall in the history of the world. The 8th wonder of the world—the power of compound interest—is the magic dust that will always work in your favor if you’ll put it to work.

Saving money is more about the decision than anything else. Just like breaking the cycle of foolish spending, you must DECIDE to save money on a consistent basis. When you do, over the years and decades, you will win because you’re employing the Time Value of Money and the Power of Compound Interest. This is the one-two combo that millionaires use to reach their status.

There are many culprits that can hamper your ability to build wealth.

Believe it or not, your checking account might be one of them.

A checking account is designed to give you quick, flexible access to your money—not grow it efficiently. That’s why the interest rate for an average checking account is negligible—less than .05%.¹ It might as well be zero if you’re considering it as a savings tool for the future.

But you may already be thinking, “no one would consider their checking account a savings vehicle.” Then why do Americans have so much of their money stashed in them—$2.2 trillion in 600 million checking accounts, to be precise. ²

The answer can only be that they don’t know how money works. Otherwise, they would have moved their cash to an account that leverages the power of compound interest with a higher interest rate long ago.

The sucker likes seeing a big balance in their checking account. The wealthy like seeing big deposits moved into their wealth building vehicles.

Do you have too much money sitting in your checking account?

As a rule of thumb, only keep enough cash in your checking account to cover everyday expenses like utility bills and groceries. Move what’s leftover into accounts and vehicles where it can accrue interest at a faster rate. And consider scheduling a conversation with a licensed and qualified financial professional to discuss which saving vehicles are best for you!

¹ “Average Bank Interest Rates in 2021: Checking, Savings, Money Market, and CD Rates,” Chris Moon, ValuePenguin, Dec 11, 2021, https://www.valuepenguin.com/banking/average-bank-interest-rates#

² “Checking Accounts Shrink by Nearly 100 Million Accounts Since 2011,” Tina Orem, Credit Union Times, May 8, 2018, https://www.cutimes.com/2018/05/08/checking-accounts-shrink-by-nearly-100-million-acc/#

Financial, Internal

ARE YOU PREPARED FOR A RAINY DAY?

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It’s never a bad idea to prepare for a financial emergency.

Unexpected expenses, market fluctuations, or a sudden job loss could leave you financially vulnerable. Here are some tips to help you get ready for your bank account’s rainy days! (And we don’t mean a money shower)

Know the difference between a rainy day fund and an emergency fund … but have both!
People often use the terms interchangeably, but there are some big differences between a rainy day fund and an emergency fund. A rainy day fund is typically designed to cover a relatively small unexpected cost, like a car repair or minor medical bills. Emergency funds are supposed to help cover expenses that might accumulate during a long period of unemployment or if you experience serious health complications. Both funds are important for preparing for your financial future—it’s never too early to start building them.

Tackle your debt now
Just because you can manage your debt now doesn’t mean you’ll be able to in the future. Prioritizing debt reduction, especially if you have student loans or credit card debit, can go a long way toward helping you prepare for an unexpected financial emergency. It never hurts to come up with a budget that includes paying down debt and to set a date for when you want to be debt-free!

Learn skills to bolster your employability
One of the worst things that can blindside you is unemployment. That’s why taking steps now to help with a potential future job search can be so important. Look into free online educational resources and classes, and investigate certifications. Those can go a long way towards diversifying your skillset (and can look great on a resume).

None of these tips will do you much good unless you get the ball rolling on them now. The best time to prepare for an emergency is before the shock and stress set in!

Financial, Health and Fitness

3 Ways to Teach Your Children how to Save $

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A study discovered that most children have established their money habits by age 7.¹

Before they might know what a 401(k) or mortgage even are, their financial future is already starting to take shape. It’s never too early to teach your kids the wisdom of budgeting, limiting their spending, and paying themselves first. So the sooner you can instill those lessons, the deeper they’ll sink in!

Fortunately, teaching your kids about saving is quite simple. Here are two common-sense strategies that can help you instill financial wisdom in your children from the moment they can tell a dollar from a dime!

Give your child an allowance
The easiest way for your child to learn how money works is actually for them to have money. If it’s within your budget, set up a system for your child to earn an allowance. The more closely it relates to their work, the better. Set up a list of family chores that are mandatory, and then come up with some jobs and projects around the house that pay different amounts.

What does this have to do with saving? The simple fact is that spending money you receive as a gift can feel totally different than spending money that you earn. Teaching your children the connection between work and money instills a sense of the value of their time and that spending isn’t something to be taken lightly!

Teach your child how to budget
Budgeting is one of the most essential life skills your child will ever learn. And there’s no better time for them to start learning the difference between saving and spending than now! The same study that revealed children solidify their spending habits at age 7 also suggested they can grasp basic financial concepts by age 3!

So when your kid earns that first 5 dollar bill for working in the yard, help them figure out what to do with it! Encourage them to set aside a portion of what they earn in a place where it will grow via compound interest. Explain that the longer their money compounds, the more potential it has to grow! If they’re natural spenders, help them determine how long it will take them to save up enough to buy the new toy or game they want and that it’s worth the wait.

Start saving for yourself
Remember this–the most important lessons you teach your children are unconscious. Your kids are smart. They watch everything you do. Relentlessly enforce spending limits on your kids but splurge on a vacation or new car? They’ll notice. That’s why one of the most critical means of teaching your kids how to save is to establish a savings strategy yourself. When you make and review your monthly budget, invite the kids to join! When they ask why you haven’t gone on vacation abroad for a while, calmly inform them that it’s not in the family budget right now. Model wise financial decision making, and your children will be far more receptive to learning how money works for themselves!

The time to start teaching your kids how to save is today. Whether they’re 2, 8, or 18, offer them opportunities to work so they can earn some money and give them the knowledge and resources they need to use it wisely. And the sooner your kids discover concepts like the power of compound interest and the time value of money, the more potential they have to transform what they earn into a foundation for future wealth.

1- “The 5 Most Important Money Lessons To Teach Your Kids,” Laura Shin, Forbes, Oct 15, 2013, https://www.forbes.com/sites/laurashin/2013/10/15/the-5-most-important-money-lessons-to-teach-your-kids/?sh=2c01a4956826

Financial, Health and Fitness

Tax Season Cometh – Pt 2

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You read Pt 1 and came back for Pt 2. We salute you. So now without further ado the tax tips you’re looking for…

Photo by Austin on Pexels.com
  1. Start saving for a down payment on a house.
    Maybe you’ve already paid down your debt with past refunds, have an emergency fund and are a regular retirement saver. Is it your dream to own a home? Then apply your refund to that savings bucket. If you’re ready to pull the trigger on your purchase or bought in 2020 with the historically low interest rates we’re seeing right now, don’t forget that your points can be deductible as can home mortgage interest and real estate taxes.
  2. Maximize HSA contribution to decrease taxable income.
    Similar to the dependent care FSA mentioned in Part 1, health savings account contributions decrease the amount of taxes you pay in the year you make contributions. The trick is that HSAs aren’t available to everyone as they are meant for people with high deductible health insurance plans. However if you do have access to one, not only can you stash money pre-tax to cover your medical expenses like eyeglasses, prescriptions and doctor visits, but the account can earn interest and rolls over from year to year and from employer to employer.
    If you don’t qualify for an HSA perhaps your employer provides access to a Medical FSA. You can elect how much to contribute from your pre-tax income and use the funds on medical expenses. Here’s where this account gets tricky. The funds are a use-it or lose-it deal so you need to be really good at estimating how much you’re going to spend in a calendar year or risk losing some cash. This didn’t used to be a big deal years ago because you could use up whatever was left at the end of the year buying OTC products, think 🩹💊 . Thanks to coronavirus (bet you thought you’d never see those words used in a non-sarcastic manner 🙂) you can do this again. However, stay alert to hear if the government switches this feature back off again. Honestly we hope they never do, but if it does happen just know that it’ll mean getting a prescription for things like Tylenol just to use your money.
  3. Take advantage of catch up retirement contributions if you’re 50+.
    Didn’t start saving for retirement with that first job? While you might be behind in your savings you don’t have to stay that way. The limits on contributions are actually $1000 higher if you’re 50 or older. So find a way to minimize other expenses so you can max out your contributions.
Randy Glasbergen
  1. Defer retirement to help grow savings.
    This one might not seem like a great tip if you’re nearing retirement age. Unless you’re facing the reality from the comic above that you didn’t save enough and will either need to significantly downsize your life to try to stretch your limited savings or continue working. If you continue working, you can still contribute to an IRA and as the previous tip stated, contribute more.
  1. Take all RMDs to avoid 50% penalty.
    First of all RMD stands for Required Minimum Distribution. The IRS wants to collect taxes on all of that money you saved for retirement throughout the years without paying them a piece. So once you hit 70.5 years old, they force you to start taking money out whether you need it or not. The catch? If you don’t withdraw all that they tell you to take out they hit you with a 50% penalty. So to avoid losing money to useless penalties, just go ahead and take out the full RMD.
  2. Make estimated payments to avoid underpayment penalties.
    Did you take our advice from our Divorce Your Job series or our posts on starting your own side hustle? Well watch out for an increased tax liability since you’re now considered self-employed. Make estimated tax payments throughout the year to avoid wasting money on penalties.
Benita Epstein for Six Chix
  1. Document your business expenses to lower tax liability including up to 100% of health insurance costs.
    And we don’t mean document like in the comic above. Need tips on how to keep track of all of your business expenses? While Quicken is a software we’ve used in the past and Quickbooks is always a great go-to, maybe you’re not ready to learn a new program.
    Join us on February 13th at 2:30 PM EST for our free Entrepreneurship class and ask about other tracking options.
  2. Subcontract and deduct non-core administrative expenses.
    Getting bogged down with administrative tasks instead of focusing on the key activities of your business? Hire somebody else to do it for you and deduct the cost from your taxes. Looking for a virtual assistant to handle calendar management, social media and other admin tasks for you? Allow us to provide those business services for you by the hour. You don’t have to file any tax paperwork until you reach $600 paid for services. The form that you’d end up filing is the 1099-NEC.

Did you find any of these tips helpful? Talk back to us in the comments.