Just so it’s out there up front – Mrs AB and I make a LOT of money. I don’t say that to brag, but I want to make sure everyone knows where I’m coming from before we get started. With July barely beginning and the weather unseasonably cool (we didn’t even reach 90 degrees today, and we normally are well into triple digits by now) I thought it would be a good time to address a good habit for the second half of 2013 – saving.
I read an article last week on CNN saying that 76% of Americans are living paycheck-to-paycheck. They defined this as having less than six months of living expenses in a savings account. In a survey performed by Bankrate.com (which formed the basis of this article) less than 50% of 1,000 people surveyed had three months of living expenses saved and 27% had no savings at all. I honestly can’t believe people can live this way. Mrs AB and I have over $40k in the bank (which would last over a year if we both lost our jobs) and I’m still in that “OH CRAP, WE HAVE NO MONEY” mode right now. I understand that the amount of money you have in your bank is definitely relative to your income level and your obligations – but with no emergency fund or just a tiny one – even a small problem can become a full emergency and derail all of your plans.
For example, if you have no emergency fund and you have car troubles – like you need new tires, or your break down on the side of the road, etc….what do you do? I guess if you have no money in your savings account you just put it on your credit card and move on. Unfortunately, that just puts you further behind and you end up owning more and more.
STOP THE MADNESS!
What’s the solution to all this madness? Well, it’s very complicated, so you’d better go and get a notepad and pen, and put on your thinking cap. The solution is… STOP SPENDING ALL YOUR MONEY! Wow, that wasn’t really that hard, was it? I understand that Mrs AB and I live in a fantasy land where we make a crazy income and that most people are not as fortunate. BUT, if you make less money, then you need to adjust to that reality. As I’ve talked about before, broke people do stupid things – don’t be like them! Just because all of your friends are going out to dinner doesn’t mean you need to. Just because everyone else has a car payment, doesn’t mean you need one. See what I’m saying here?
While it’s a very complicated problem, at it’s core it has a simple solution – spend less than you earn. If you bring home $2,500 a month and you spend $2,500 a month – you will never get ahead in life. But if you cut down your spending – just a little at a time – you can grow your savings to support you in minor emergencies and eventually in retirement. I’ve seen people on Facebook talking about saving $1/day for 2013 – which is a good start. Personally, I think you should at least strive to hit J Money’s $5/day millionaire plan. It’s an old article, but the content is still relevant – save $5/day for 40 years – and you could end up with over $1 million!!! Of course, the stock market has to be going in your favor (it is), but at the end of the day you will only have put in around $73k of your own money and you could wind up a millionaire…pretty sweet!
I’m a little off topic here, but I think it’s relevant to think about the future when discussing emergency savings (or any savings really). Some people get on their soapbox and will say “I work hard and I’m going to spend what I’ve got now” and that’s their right…unfortunately. But it’s very short sighted. I’d like to recommend that them, and mostly you – my readers – take the long-term view. With a little moderation you can live a great life now, while also saving for an awesome future. One that won’t have you worrying about month-to-month emergencies, minor bills, or anything else in that same category because of your freakin’ awesome emergency fund. And one where you won’t be worried about retirement – because you’ll be saving for that along the way. Oh, and if you can do more than $5/day for retirement – I recommend you do it – that way you can be financially independent even sooner!
I think I’m done with my little rant – thanks for listening. As we start the second half of 2013 I hope you’ll take a minute to reevaluate your savings strategy and make sure you’re putting away money for short-term and long-term needs. It’s important, and obviously most people out there aren’t doing it!!!