Welcome to our third installment of our ten-week video series, which will help you avoid the most common red flags that are keeping you broke. If you’d like to follow along with our FREE guide, you can download your copy here.
The third red flag on our list that we’re covering today, and I believe this is WAY more important than building your credit score, you don’t have an emergency fund savings.
According to a 2017 GOBankingRates survey, 57% of Americans have less than $1,000 in liquid savings. It's scary to think that if an emergency arises, these people will most likely have to rely on credit to get them through it. In several cases, these Americans are probably already deep in debt. That's a really bad plan.
You may be feeling uneasy as you read this because it sounds similar to your situation. But I'm here to tell you that being stressed out over how you can cover an emergency without going further into debt doesn't have to be your reality.
"But Brad, I can barely stay afloat as it is. How can I save for an emergency fund?"
It's so important to prepare for emergencies, because whether we like it or not, they will happen and when you least expect it. Your car could breakdown, or your child could fall off their bike and break their arm, you could lose your job, or take a pay cut.
According to careerbuilder.com, 78% of people are living paycheck to paycheck. Millions of Americans are only one paycheck away from financial disaster. I don't want that for you, and I hope you don't want that for yourself. I don't want you to panic. I've been where you are and I know it seems like an impossible task when you live paycheck-to-paycheck, but it is possible!
Here's what you need to do.
1. Have a plan! If you fail to plan, you plan to fail. Figure out how much money you need for one month of expenses; then three months, six months and a year. Once you have a number, you can start working toward making it a reality. The general rule of thumb for large emergency funds is to have enough saved for three to six months. For starters, that's a lot of cash. We're talking $10,000, $20,000, $30,000 or more to full fund that kind of emergency fund. That's a lot to bite off especially when you're in debt and living paycheck to paycheck. So we suggest you start with $1,000 to $2,000.
2. Pay yourself first! This is such an important step that so many people fail to do. Before taking off on an airplane, the flight attendant says, "Be sure to adjust your own oxygen mask before helping others." Apply this concept to your money! Before you spend a dime, set aside whatever you can for your savings. If you wait to pay yourself after paying everyone else first, you probably won't have any left over. “Do not save what is left after spending, but spend what is left after saving.” – Warren Buffet
3. Budget your money! Without a budget, you're just spending your money frivolously. You need to know where your money comes from and where it goes. This will also help you see where you can cut back in order to save more. Be aware of the small expenses like coffee shops and gas stations. They add up.
4. Be consistent! The only way this works is if you keep at it! There will be bumps in the road, but don't let them stop you. Once you get into the habit of doing these things, they will become second nature and you will start to see progress. That first $1,000 you save will motivate you to keep going.
Many of you who know me, know that I am not a fan of credit scores. Society is so hell-bent on building their credit scores. I have more people come to me who want to build their credit score VS. building a substantial savings account. Ultimately credit scores are meant to help you obtain debt. To be successful with money, you have to change your thinking. This is a mindset change.
So instead of being so concerned about building a credit score that gets you deeper in the hole, get serious about building a solid emergency fund savings so you can stop putting yourself further into debt when emergencies happen. If you're looking for financial security and freedom, this is where it begins, with an emergency fund. Not some silly credit score.
Not saving for emergencies can be detrimental to you and your family's future, and emergencies are what keep most people broke. Getting out of debt and taking your financial life back is hard work, but I went through it, and I can tell you that having that emergency fund is absolutely worth it and it going to save you from going further into debt, and it's going to give you so much peace of mind.
So let's do it. Don't be a part of the statistics that we mentioned earlier. Get started on building your first emergency fund today!