It’s no secret that since the recession hit, the financial situations of many Americans has been deteriorating. Not too long ago, finding a job was not that big of an issue. Now, according to the Division of Labor Force Statistics, it takes many Americans more than 12 months to find a replacement for their lost job. As a rule of thumb, it takes 1 month per every $10,000 of your lost salary. If you were earning $30,000 in your previous job, it will most likely take you close to 3 months to find another job.
Since many who lost their jobs had no “safety net” in terms of savings, too many had to resort to credit and cashing in their retirement accounts (with a hefty penalty, I must add) in order to make ends meet. As a matter of fact, two thirds of Americans who lost their jobs are tapping into their retirement funds in order to find some immediate financial relief; that’s according to the recent study by Transamerica Center for Retirement Studies.
Life happens, job loss happens, health-related emergencies happen. It’s not a matter of IF, it’s just a matter of WHEN. So how can you start preparing a safety net in order to be able to respond to life’s unexpected turns?
After building your initial $1000 emergency fund, your next step should be to live on your last month’s income, which means, having one full month of living expenses set aside.
For those of you who have never been good at saving, living on last month’s income may seem like an unachievable task. Let me assure you, it’s not only achievable, but depending on how disciplined you decide to be for a season, you may be able to reach this goal sooner than you think. So let’s get you started on building your 30-day financial buffer.
Why a 30-day buffer?
The main reason for having 30-days of living expenses set aside is to limit your chances of falling back on credit in case something were to happen. Knowing that you have a full month of expenses to tap into will also give you much needed clarity of mind while considering job replacement options. Instead of making rush emotional decisions based on fear and uncertainty, you’ll have that financial margin to pause, take a step back, seek wise counsel and then decide what your next step should be.
Expense side of the equation
The most obvious place we’ll consider when building your 30-day fund is your expense category. More often than not, it’s not how much money you bring in, but how you manage what you earn that makes the difference.
Housing is most likely your biggest budget expense. Here are few ideas on what you can consider in this category in order to make room for the 30-day fund:
– Requote your home insurance policy with various providers and see if you can get a cheaper rate. If your home insurance and car insurance are covered by different insurance companies, bringing those two under one roof will most likely save you a good bit of money. Take that difference and set it aside in your 30-day fund.
– Do you have a basement? You can turn your unused or extra space into a rental, which will give you additional income that you can purpose toward your savings. If you opt to rent out part of your home, make sure that you set a portion of your funds toward necessary home repairs (in case something were to break in your tenant’s space) and a portion can go towards savings.
– Are you paying someone to do your landscaping or hulling away your trash? Start performing those duties yourself, and every time you’d pay the provider, simply pay yourself and put that money into your 30-day fund.
Transportation is normally the second highest expense; so let’s take a look at ways we can curb that cost and help build your 30-day fund.
– If you’re paying a large car payment, check with your dealer and see if you can trade your car in, get something much cheaper but still reliable, and cut your payments in half or at least by $100-$200. Take that difference and set it aside into your 30-day fund.
– Requote your car insurance once a year in order to always secure the best deal available. (Many insurance companies do this for you, but it never hurts to check)
– If you’re about to pay your car off, don’t forget to contact your insurer and let them know that you now own your car out right. This will reduce your monthly premium.
– If you have a high interest loan on your car, check with your bank or a local credit union to see if you could get a loan at a lower interest rate.
Food is next in line, and it’s a category you can control quite a bit in terms of how much you spend.
– Meal planning is one of the best ways to curb your food cost. It takes a few minutes every week, but you can do it over a movie or while watching the news. Challenge yourself to an amount per meal (maybe $6 dinners for a family of 4) and have fun creating menus that would allow you to stick to that challenge.
– Shop once a week, with a specific list only. Avoid extra trips, since they usually end up with you spending more money on non-essential items.
– Don’t waste food. By not throwing away your extra food, eating your left overs and using up whatever you have in your cupboards, you can save $200 each month!
– Go meatless 2-3 night a week. You’d be surprised how much you can save by substituting meat with beans.
– Cook soups! Did you know that you can cook a hearty soup for a family of 4-5 with less than $5? Allrecipes.com is a great place to find great recipes for inexpensive meals.
– Skip eating out for a season. This may be challenging to those who eat out a lot. If you institute an eating out fast for 3-6 months, just think of how much you can save in order to increase your 30-day fund.
Entertainment / membership fees is one category that can sneak up on your budget and devour more money than you’d like.
– Instead of going out to the movies, use Redbox or other $1.00 rentals to enjoy a nice evening with family.
– Use your local library as a way to access FREE entertainment.
– Drop your $30-$50 gym membership and use Pinterest and Youtube as your workout buddy! You can find hundreds, if not thousands, of workout routines that you can do at home or in your back yard.
– Swap your expensive cable bill for a $7.99 Netflix or HULU subscription. Add a traditional antenna to those two options and voila!, you maintain access to great shows and movies plus local news channels for less than $10 a month!
There are probably quite a few other opportunities to cut expenses in your budget. How much of what you cut is really up to you. But if you discipline yourself for a period of 6 months, you’ll be amazed at what you can set aside!
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