Think You Can’t Afford an Emergency Fund? Think Again!
Published on - January 19th, 2011 (by Donna Freedman) This post is from new GRS staff writer Donna Freedman. Donna writes the Living With Less personal finance column for MSN Money, and writes about frugality and intentional living at Surviving And Thriving.
Once upon a time it was enough to have a three-month emergency fund; now I hear we should aim for enough to cover a year’s worth of food, shelter, and other basics. A swell idea in theory, but this could actually discourage saving. Many people feel they could never set aside that much money, so why bother trying. Why? Because even a moderate emergency fund helps keep you solvent, that’s why.
Suppose you get a nail in your tire and your wallet holds nothing except some lonely moths. Without a cash cushion, you’ll have to put that new radial on a credit card or, god forbid, take out a payday loan.
The good news: You can start by shooting for the minimum $500 in the bank recommended by MSN columnist Liz Pulliam Weston. The better news: It’s possible to nickel-and-dime your way to that goal.
Microsaving, maximum results
Lynn, a woman whose just-out-of-grad-school salary was very low, figured the most she could bank would be $10 a month. She actually asked herself, “What’s the point?” But she started with a single sawbuck per month. She added a little birthday money. And then she got motivated, boosting her balance with techniques such as:
- Saving spare change and dollar bills
- Selling scrapbook pages on eBay
- Recycling cans and bottles
- Holding garage sales
- Banking the proceeds from coupons and rebates
- Adjusting her savings rate when she got pay raises
A decade later, Lynn has built up a six-month fund along with separate (and healthy) accounts for vacations, retirement, and a down payment on a someday home. She could just have easily remained stuck in a “what’s the point?” mentality.
Nancy banks the money she saves using grocery coupons. (Remember: It’s not savings unless you save it.) And one woman I know picks up dropped coins and banks these “street funds” along with manufacturers’ rebates, tax refunds, and money from her side hustles.
Look for your own microsavings tactics. Suppose you brought soda from home instead of hitting the pop machine every day at 2 p.m.? Or spent one or two Saturdays a month at the library catching up on magazines vs. subscribing to them? (And while you’re there, borrowing DVDs instead of using Netflix or Redbox?)
What if you packed your lunch even once or twice a week? Sent free e-cards instead of traditional greeting cards? Put together a dinner from what’s on hand instead of picking up a rotisserie chicken at the market? Reconsidered cable TV?
Let’s assume this let you set aside just $2 to $10 a week. In a year, that would be $104 to $520 that would otherwise have gone to soft drinks, periodicals, or the dollar menu.
Set it and forget it?
A great way to build your emergency fund is to automate it. Do this now, even if it’s only $5 a month to start. You’ll learn to live on what’s left. One woman I interviewed began by banking an hour’s gross salary each payday; now she’s up to four hours.
Some banks offer cash incentives to open a checking account; let that be your EF seed money. Make the account “one-way,” i.e., no debit card. You might even decide to choose an online bank, especially since interest rates are often higher. Remember: The money shouldn’t be too easy to access.
Give this account a name. One reader calls it her “Oh, shit!” fund, since its purpose is to cover things that go wrong. Call it “My EF,” call it “The Contingency Fund” — call it “Billy the Bank” if that’s what it takes to remind you that this is not a general fund, to be dipped into any time you want a pizza.
A few more suggestions to strengthen your savings:
- Answer online surveys and bank the payments.
- Change a habit, even temporarily. Plan a “pantry challenge” or institute Meatless Monday. Give up fast food, salty snacks or soda for a week, or a month. (Or forever.) Figure out what you would have spent. Bank it.
- Let people know you’re available to pet-sit, clean attics, design web pages, whatever. I still babysit occasionally, earning $40 to $50 a night (and at least half of that night is me sitting and reading after the kids are asleep).
- Just before payday, move whatever’s left in checking into the fund.
- “Round up” each transaction, e.g., record a $6.39 debit-card purchase as $7. Add up the “extra” each month and shuttle it off to the emergency fund. Some banks will do this for you and possibly provide matching funds.
- Sell items on Craigslist or eBay.
- Ask friends (in-person or online) to join you in a savings support group. Or propose an “EF challenge” with your most competitive pal.
Yes, saving is hard. Here’s what’s harder: Paying off that new tire while interest is compounding. Just for fun I used this credit-card payoff calculator at Index Credit Cards. Assuming you bought a $120 tire at 18% interest and could afford only $10 payments, it would take 14 months to pay it off in full.
This won’t be the only emergency you’ll ever face — and you could have paid cash if only you’d skipped some of those magazines and cheeseburgers.
GRS is committed to helping our readers save and achieve your financial goals.Savings interest rates may be low, but that’s all the more reason to shop for the best rate.Find the highest savings interest rate from Ally Bank, Capital One 360, Everbank, and more.
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I think that 95% of people could easily acquire $500 just by selling a few things. I just sold my old laptop for $180; that’s nearly 40% of the goal right there!
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The problem with selling things as Derek puts it, is that it is not sustainable. You either run out of things to sell or you keep buying more things so that you have things to sell. To maintain a healthy bank balance that will keep being healthy, I prefer a lifestyle change like Donna recommends. Each person will have unique changes that would cut down on spending and ‘nickel and dime’ them to a healthy balance.
Great practical advice. Thanks!
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I try to categorize any purchases that I’m going to make into “needs” or “wants.” We “need” food, but we don’t need ready made guacamole. I wanted to get new curtains, but don’t need them so that purchase could be delayed. I also try to stay out of stores as much as possible. Besides, there isn’t really much that I like about shopping – long lines, looking for parking, a wagon, etc. For me I’ve found the best way to save money is to not spend it, instead if there is something that I want I try to figure out how to make it or solve the problem myself. I like baking so when real vanilla extract started to get very expensive, I googled a recipe for homemade extract. I like fresh mozzarella but that is also expensive. It’s a quarter of the cost, if you make it yourself. Same thing for homemade butter and it tastes better too. Oh and those curtains, I bought 4 yards of fabric, on sale of course, and made custom curtains for 4 windows.
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Our bank has a program that rounds up any purchase with the debit card to the nearest dollar. The difference is automatically placed into our “emergency fund”. It’s working like a charm.
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Automation is what works best for me, we automate our 401k savings, we never see the money, we never miss the money, we don’t count the money as ours. Same for our other savings goals, we automate what goes into our mid and long term savings accounts. We take that money off the top so we don’t count it as available to spend.
I think that one can snowflake their way to savings just like they can snowflake their way out of debt. I used to pay down debt with $10, $20, $50, any little bit of money we could find, the same can be down with savings.
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If decreasing your bills/increasing your earning doesn’t seem possible, you can at least take these small steps. Once you have the emergency fund, you have the breathing room to pursue those bigger changes. It’s hard to envision until you start the ball rolling.
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It’s all about automation, and continually pushing yourself to save more and spend less. Do it in baby steps to make it less painful. Eventually, over time, you’ll find that sweet spot for saving and then you’ll really see your savings grow!
I’d challenge anyone who thinks they don’t have enough money to save every month to try this:
Starting next month, every paycheck, deposit $10 in savings.
The month after that, put $15 in per paycheck.
Every month following, increase that amount by $5 until you start to feel cramped on basic needs and a few wants (simple wants, not a new tv etc). Stop before you over-save for your income level.
If you’re payed twice a month, by the end of 2011, you’ll have saved $770 and be putting away $60 per paycheck.
$770 sure does seem like real money doesn’t it? That piddly $10 in February didn’t seem like much at the start, but by building up, it really accumulates.
And chances are, if you made it that far, you probably don’t even notice the money gone from your pocket for spending since it’s been in such small amounts every month. You’ve tricked yourself into forgetting about that bit of your income and have started to make significant progress towards a very healthy emergency fund.
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Great advice!
Here’s another tip:
I almost never use the spare change I got so I always keep them in a little fish bowl. My boyfriend does this and I thought its a great idea. I first started doing it because I’d have coins lying here and there arnd the house and it annoyed me because I don’t really use them. So I started the fish bowl fund and let the change swim in there for a while.
The first time it was full, I took it to the bank. Imagine my surprise when I found out there was almost 150 bucks sitting there in loose change! Needless to say, I’ve been putting more spare change into that bowl now.
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My emergency fund is called “happy savings.”
At work we are doing a lot of overtime because we have to cover for another department. Some people have volunteered for ridiculous amounts of overtime, 30, 40, 50 hours. Paid at time and a half. So yesterday people started talking about what they were going to do with their overtime pay. Not one person said “put it in the bank,” which is exactly where my money is going.
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Maybe we value things differently here in Europe, but the first example in this article made my jaw drop. One would own a car, but not have the money to replace a tire? Why would you have a car in the first place? The costs of owning a car are much higher than the microsavings proposed here!
Get rid of the car, use a bicycle or public transport, until you’ve saved enough to responsibly own one…
Would that be considered weird advise? Impossible? Just curious, not trying to offend.
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When my husband and I were first married, we were just out of college and completely broke. I remember thinking that if I could pay taxes and my 401(k) before seeing my paycheck, I could totally pay into an account for us. From that moment on, my husband and I have $125 of every paycheck we get funnelled directly from our bank account into an ING Savings account just for our emergency fund.
That fund gets us over bumps and even eventually was used during stable times for us to pay off our last car loan. It’s now getting built back up from 3 months of expenses to one full year…
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Jan, it’s a great idea for some people in some places, but often in the US the public transportation in smaller cities is dismal and effectively unusable. Personally I bike in the summer but drive in the winter (I’m not good at biking through feet of snow).
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Like everyone is saying, “baby steps.”
Nothing happens over night. So, if someone wants an e-fund they have to start small and after a year they’ll be suprised at how much they really saved.
I know some people will say a year is a looong time, but for me it ZOOMS by.
@DotCOMreport: I think what Derek said about selling stuff you’ll never use is a great idea. It’ll jump start the e-fund and give motivation to keep going, even after you run out of stuff to sell.
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Like so many pieces of personal finance (and really any other change you may attempt to make in your life) – find the practice that works for you. Try several ideas (in consecutive order) to see what works best. When you find the savings plan that works – stick with it.
Money does add up quicker than you think it will if you aren’t use to saving. Sort of the reverse of money being spent quicker than you realize when you get your credit card bill each month.
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A good plan I have used is to build a CD Ladder E-Fund. Its fun, you can start small, and it makes you WANT to save.
SImply start by taking some money, any money, and buy a 12 month CD at the beginning of any month. Then challenger yourself to do the same thing for the next 11 months, you will now have one full year of CDs, one coming due each month. As each comes do, reinvest and add more funds…the idea is that each on of these CDs will represent a monthly paycheck if you ever get laid off…
you also get better interest rate performance this way and can catch rising interest rates quicker…
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In reply to #12 dmm219 –
I love the idea of the laddered CD, especially doing it every month. The main concern I have is that first year as it’s being built up, you’ve committed a lot of cash into a place you can’t get to it. For the first 12 months, you’ve lost that liquidity. Now, after the first one comes due, you’re in a terrific position going forward as every month you have cash coming available to reinvest, or use for other needs.
But right now, the returns on those CDs are only marginally higher than a high interest savings account. On $1,000, an Ally Bank 1yr CD would earn you just shy of $13. My 1.1% ING account would earn me $11 on the same amount. By locking away the money for one full year, I’m gaining $2. At the moment, that’s not really worth it to me to lose that liquidity.
CDs are great when rates are high. And a laddered CD is a good option for those who couldn’t trust themselves to not touch the money for a full year. But at the moment, they’re not a great financial choice.
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Jan’s comments are right on. I don’t understand people who own cars and then can’t pay for tires or pets and can’t pay for their medical care (or have kids and can’t pay for basic things… though I realize this is a contentious point, and other circumstances can intervene). It makes no sense to me. I think people need to recalibrate what it means to live within their means. I’m wondering how many people actually experiment with different lifestyles before committing to one–how many adults have ever tried not owning a car for a while in a place with decent public transportation? (What fraction of Americans have grown up in the suburbs and then tried living in a city? How many have never lived for more than one month in another country?)
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To follow up: I personally lean on the side of overall structural changes in one’s lifestyle rather than scraping pennies together. I find when I focus on the latter that I cut back on stupid things, like fresh green veggies.
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I think I’ve used just about 75% of the techniques listed – selling a couple of things, saving the change from breaking a dollar (that’s anywhere from $10-$30 a month for me), but automating savings is really the Holy Grail of savings. My first place I bought using a down payment from savings bonds, money automatically taken from my check each pay period. All of my bills are on automated payment now, with short term savings and a Tax Sheltered Annuity (TSA) just part of the group. So that’s my number one strategy – Make It Automatic.
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Automating has worked very well for me for all types of accounts (retirement, emergency fund, holiday gifts, trips, etc…).
Each time, it surprises me how little if at all I miss the money that’s being automated. I’m positive it would have been spent if not automated.
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I think it’s a great shift in perspective when you can start thinking about making things easier for your future self, like the woman who started out saving just $10 a month, but a decade later had a six-month e-fund. A lot of people who end up in debt are big on instant gratification, so it can be difficult to change this mindset. But once you do, it’s freeing in a way. Maybe you can’t afford a house right now–but if you save just X amount each month, you can afford one in 10 years. Or maybe you’ve been unsuccessful in changing careers–what can you do to set yourself up for a career change in 10 years? What could your emergency fund look like in 10 years? A decade might seem like a long time, but I wish I’d thought of this when I was 20…
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Instant gratification gets us into financial problems. The same desire for instant results can keep us from accumulating savings. In the beginning, developing the saving habit is more important than the amount saved. Once the habit is established, the amount saved will grow. Success begets success. It’s the starting that is difficult. Thanks for the suggestions.
I think people should be aware that a $500 emergency fund, while better than nothing, is next to nothing for most emergencies. People need to be told the truth about personal finance. The same goes for retirement planning. The amount of money that needs to be accumulated is daunting. But it is what it is and we need to act accordingly.
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Taking a step back to compare the effectiveness of a retirement plan and an emergency fund could shed light as to how accounts such as 401k’s and IRAs tend to bulk up savings more than the typical savings account.
Retirement plans are the backup funds for the future while emergency funds are backups for now. While retirement accounts have benefits, their restrictions and penalties deter people from pulling money out. The mentality of “No, I can’t touch this money until I need it” is too easily broken.
Online high-yield savings accounts are slightly inaccessible but people can still see a chunk of savings. There will be much needed willpower against spending it.
CD laddering is a great long-term semi-liquid savings method but as an emergency fund – it’ll be difficult to pull money on a whim.
One way to make it difficult to pull money while also instilling that “No, I can’t touch that money” mentality is a no-penalty CD such as that offered by Ally. It will still require determination in building the initial deposit but Ally’s No-Penalty CD doesn’t require a minimum balance – so you can even build a no-penalty CD ladder!
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Two things:
1. In June of 2010 my husband’s brother passed away suddenly and unexpectedly at the age of 48. He lived in the same town as my in-laws, 10 hours away from us. Obviously, my husband wanted to get there as quickly as possible, but I really didn’t like the idea of his taking on a long drive while he was so shaken. Thanks to our emergency fund, it wasn’t an issue. We called the airline, booked a flight, and didn’t have to worry about the cost of the ticket. We could handle it. I’ve never been so relieved to have some money set aside.
2. We started a Christmas fund by having $10/week automatically transferred to a dedicated ING account. We pretty much forgot about the $10, but at the end of the first year, it was great to have a few hundred dollars to shop with. The next year, we upped it to $15/week and haven’t really felt the pinch in our day-to-day spending.
What I’ve learned from these two things: An emergency fund is worth an awful lot in a real emergency. And automated savings is what really works for me.
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A couple of notes on the selling of stuff:
Ebay used to be a good proposition, now they skewer you with fee upon fee and then they have a second helping of your money with paypal. Then there’s the shipping they calculate for you so no margin there.They are really squeezing the last penny the can so I find it worthless. And I’ve never tried craigslist because I don’t want weirdos calling or coming to my home.
So the best thing I’ve found is flea markets– for a flat fee of $10 to $25 a day (in my area) you get a spot with parking, electricity, and crowds willing to buy stuff. It actually turned out to be lots of fun to peddle the merchandise, and coming home at the end of the day with a wad of cash was a nice reward.
This past holiday season we made a killing at flea markets. People would buy things we didn’t even know could sell– used clothes rejected from the consignment stores, paperbacks, hats I haven’t worn in years and thought I should trash, a digital TV converter like the bazillions you see going unsold on ebay… all cash, no commissions, no waiting, no trips to the post office; if you price it right for your market, *everything* sells. Different markets will have different crowds with different tastes/needs/incomes, so know your demographics and you’re good to go.
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In response to the comment about pets…I agree, if you can’t afford proper care (shots, food, emergency vet) then you shouldn’t own one. I’d have to say, though, that I got my dog eight years before I lost my job.
I now sell my plasma to bring in a little money. When I couldn’t afford to repair my truck, I sold it to rebuild my Emergency Fund. (It was paid for, 1999 model and had 200,000 miles on it). Selling stuff on eBay and Craigslist will give you a start for your Emergency Fund. It will give you a cushion while you are changing your spending habits.
As for changing your habits, do one or two things at a time so you don’t get overwhelmed. I found Dave Ramsey worked for me.
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I agree with some of the previous posters. While these are great tips for people who really are in a tight spot, not having enough money to save after monthly expenses is a larger issue that should be addressed by re-examing your budget.
I’m a newlywed, and we’re only living on my salary since my husband’s in school. We haven’t been saving because of a lot of extra expenses (our wedding, my sister’s wedding, Christmas and buying some furniture for an empty house), and we think this is unacceptable…
so we’ve put our entire budget into an Excel sheet and are starting to see where we can cut back to start saving and investing, even if it means having an empty living room for another year and not owning a car for another 5 years.
The good news is that once my husband starts working, we should be able to save/invest his entire salary, but we’d love to learn to start saving some of mine as well.
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I’ve saved money by participating in my own pantry challenge. In 2009, we went two months without grocery shopping. Last Jan-Mar. we went three months. While it can be a “challenge” it’s certainly a way to use up what you already have, appreciate fresh food, and save some serious $$.
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I just started secret shopping for extra $$. I made $45 just for test driving a new car and writing a little report.
It is really fun for the secret actor in all of us – plus you get to pretend you are living ‘the high life’ when really I don’t even own a car!
That money is part of my overall financial goal to fund $5,000 into an IRA this year. I know it won’t happen overnight, but if I an make that extra even every two weeks, that is $1170!
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@#17
“I’m wondering how many people actually experiment with different lifestyles before committing to one–how many adults have ever tried not owning a car for a while in a place with decent public transportation? (What fraction of Americans have grown up in the suburbs and then tried living in a city? How many have never lived for more than one month in another country?)”
I feel your questions are loaded with judgement. In most places, public transportation is either not decent or plain non-existant. I don’t live in the suburbs, but I understand that for some people due to economics or their personal preference, it’s what works best for them. And what does living in another country have to do with anything?
Most people try to make the best decision they can based on their current circumstances. No one buys a house, car, or pet with the idea that they’ll be unable to afford it in the future. Sometimes they don’t plan as thoroughly as they should. But it doesn’t make them bad people. Just people who have made a mistake. That’s why articles like this are written, to help those who have gotten over their head find their way out. Unless someone is personally asking me for money, I feel I don’t have any right questioning why they choose to live the way they do.
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@28 Kandance I don’t understand your challenge.
Please elaborate how are you appreciating fresh food if you are living on packaged staples that cannot be close to fresh?
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I’m another “try living without a car until you can afford it” – I’m from a very small town, only 2 miles across, and when I started biking there it was TERRIBLE, people threw things at me from car windows and tried to run me over at corners. But it gave me the freedom to up and move after less than a year of living there & working a not very highly paid job – I wasn’t tied down to the car loan so many of my friends got as soon as they were old enough to sign the papers.
But about the instant gratification- it’s not all about your future self. That $10 in savings can be an instant *mental* gratification, look at me, I’m getting more responsible, I am taking care of myself, I’m acting like an adult, etc. It’s all about the mental self-talk, not just sacking up and deferring gratification.
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Geography really plays a role. Good public transportation is getting more rare in a lot of the US, and more expensive in many places, too. And, where you live even affects things like “street money.” I’ve been willing to pick up street money for more than a decade. I save it all year and put it in my checking account on New Year’s Eve. In all that time, I’ve never had more than about $7.00 at the end of the year (sigh). A friend who tried this for a few years was more successful — she spent time every day walking to and from her gym and for some reason that route was really productive, she would find actual folding money! But even she didn’t get over $20.00 for the year.
Still, it has been a fun hobby, and my understanding is that in big cities there is a lot more to be found on the streets.
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A friend mentioned that he had several boxes of baseball cards that he wanted to try to sell. We worked out a deal that I would help him sell the cards on eBay in exchange for half the profits (we can usually avoid fees by taking advantage of their no-fee posting specials or by keeping bid prices under 99 cents). At first I didn’t think it would amount to much but in just a few months we’ve already made well over $100. We spend a couple of hours every few weeks on this project – he sorts and prices the cards while I scan and post them online. Yes, it is a bit tedious at times, and it’s not a huge amount of money but I get to earn a little extra pocket cash by pretty much just hanging out with a friend. And, I’m learning a lot about baseball cards – I still don’t really understand the collecting of them but it’s fun to see which ones sell and which don’t. People really will buy anything! This type of thing may not be for everyone; I’m also the type of person that saves grocery receipts all year and then adds up how much we saved by bringing our own bags or with coupons (in 2010, almost $450!). Someone else mentioned nickel-and-diming your way to savings – it’s certainly possible, or if it’s not huge savings then at least you may come up with a little extra to go see that movie, or buy that pair of shoes (or baseball cards!)…
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I used to live in downtown Sacramento without a car. We have a good light rail system. I was a lot skinnier (without even trying) however, life was limited (and I didn’t even know it). When I bought my first car I realized how great it is to have one. I now commute 20 miles to and from work each day (not fun). I want to get to a lifestyle that is in between. I want to walk to and from work, but I want my car on hand just to have.
I refer to my efund as “my car is blowing up on the side of the freeway fund” The name alone reminds me not to touch it.
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I saved up using the automated small withdrawal each paycheck. You can increase the amount if you find you still have a comfort level, you can increase the amount if you get a raise. You can put any bonus or tax refund in there, too. That’s how I built mine up. Now the money I had been automatically saving into the emergency account has been diverted to more ‘fun’ savings accounts.
CD ladders are a good idea in theory, but it was just as hard for me to save up for a CD as it was to save money in an emergency account. And my ‘ladder’ ended up being only two CDs because I couldn’t devote that much savings to it. And a two-CD ladder is useless in an emergency unless it happens at just the right time of year. Also, I earn more using my rewards card than I do in interest on my CDs.
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Many years ago when I was single and wondering how to make ends meet, I started rounding up in my checkbook, just because I was too darn overworked and tired to be bothered with trying to balance the checkbook perfectly. My lifestyle never changed and I never kept track of the ‘extra’. Five years later, I nearly fainted when I learned I have over $2600 and it took no effort at all. It really is true that every little bit helps.
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I spent a year in a small town in Germany where I biked everywhere and loved it. I took the train to the next town to visit friends and took the bus to closer areas. I love the idea, but America is just not set up that way.
Most locations in the US you cannot hold a job or have a life without a car. Obviously some cities with good public transportation are the exceptions, but most of America does not have that option.
That being said, I live in the Phoenix area my husband and I only have one car and a scooter and that saves us thousands a year. However, life would be very hard without the one car. We could never visit our parents or his brother who live 1-3 hours away (no public transportation to get there) It would take hours each week to grocery shop with public transportation. My commute to work would double. I have tried to ride my bike, as I love road biking, but nearly lost my head several times to trucks and stupid drivers. Not even a good bike lane to be found. (Also different than Europe) You just can’t compare the US to Europe when it comes to car ownership.
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I was amazed at how much extra money we have after creating a written budget. We set aside a set amount for out ‘blow’ money, food, gas and household items.
A few years ago I sat down and totaled our monthly payments, divided that in half and have that much taken out of my bi-weekly paycheck and put into a ‘bill paying’ bank account. All of our bills are on autopay (utils are taken out by the utility companies and the rest is paid using the banks auto billpay). Since I get 26 checks a year, that’s an extra month’s worth of bills that gets deposited into that account. Enough to make extra payments on credit cards or to help add to our emergency fund.
The remainder of our paychecks go into our other account and we take out cash for our ‘blow,’ gas, food and household expenses end put that into envelopes. We leave a little in that account for small emergencies. We do have an emergency fund, but that’s for BIG emergencies.
This has been working for us for a while. But, it was changing our behavior that made the difference. We are finally living below our means, paying off debt and not aquiring any more debt. We haven’t used a credit card in over 6 months, even for emergencies.
As far as retirement savings, my wife and I are public-sector employees who have to pay into a mandatory plan. Almost 10% of our gross goes into that account with our employer matching that same amount. We also invest in a 457, deferred compenstion plan.
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for a while, everytime I got a receipt that showed me the dollar amount I saved while shopping I put that amount in savings. It adds up pretty quick.
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RE: Jan – I don’t think its a cultural thing, its a sparse population thing. In big cities, public transportation is good and there are sidewalks to walk on. But in small to mid-sized cities it isn’t so.
I used to walk an hour down a highway with no sidewalk or bike lane just to get to the nearest bus stop, and then it was an hour bus ride to work (it would have been a 20 minute car trip in total). I was only able to do that because I was young, single, and only worked part time, so I had time to burn. I would NEVER do that if I had children in tow, it was way too dangerous.
That is not to say that people should have cars if they truly can’t afford them. But, in a lot of areas a car is as much a luxury and having two sets of clothes. Do you *need* more than one set of clothes? No, but the minute you have the means to buy a second set you will.
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I think the better way to look at this is that you are going to need an emergency fund one way or another when an emergency arises, so wouldn’t you rather plan ahead and have one ready to go? The alternatives to ready cash are more costly, stressful, and/or uncertain.
I’m sick of all the bike-riding and coupon-cutting testimonials. I get it. I just happen to hate riding bikes and cutting coupons. The bicyclists in the city that I live in are constantly running red lights and stop signs — and riding on the sidewalks where they are not allowed. If you decide to go the bike route, at least try to obey the traffic laws.
Note: I walk and use public transportation for work.
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Automating my savings has saved my butt. I started out by having $50 automatically withdrawn from my checking account every payday and transferred to an ING savings account. I like it because it’s accessible without giving me same-day access to the money – I know I’d spend it as fast as I get it that way. I’ve upped the payday withdrawal by $5 every so often, and I’m currently up to $70/payday. Next payday’s transfer was going to push me over the “minimum” I want in the emergency fund, and I was so excited to be able to shift some of that recurring draw to paying down other debts. Of course, now I have to have some unexpected car repairs done, so the fund is going to dip a bit again, but I’m reminding myself that that’s ok – that’s why the fund is there in the first place! I can replace the windshield on my car and not have to turn to credit cards!
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I like Jan’s suggestion. I really wish I could ride a bike wherever I went. This just isn’t possible for everyone. Sure would help the inversion we are facing here in Utah.
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I agree that the example is a bit ridiculous (financing a single tire for a year? Really?) And the complaint that with interest it takes “14 months” to pay back — that’s only two more payments than it would be with no interest at all. It’s less than $20 total. It doesn’t make the interest payment sound so bad.
The numbers in this article are so small as to seem inconsequential. I mean, it talks about setting aside $2/week, making the assumption that in the long run, it adds up. And then it tells you that after a *year* you have $104, which we can gather from the rest of the article, is not quite enough to buy a single new tire for a car.
How can you read that and *not* think, “what’s the point?” Especially if you’re trying to save up a $500 emergency fund. What if you have an emergency sometime sooner than four years from now? In the last four years, my salary has doubled, I’ve moved to new cities twice, and I’ve gotten married. If *I’m* still working on that $500 emergency fund, it seems like I’m just going way too slow.
Every paycheck (bi-weekly) I have a total of $875 deducted into two separate savings vehicles (a 401k, and an ESPP) and that actually adds up to something. $2, or $10 seems like nothing at all.
I guess “a little” is better than “none”, but in this case, just barely.
And why do the people who love to bitch about how cyclists don’t follow the rules and run red lights never do the same about drivers who constantly speed, change lanes without signaling, roll stop signs, etc? 99% of road users are breaking a rule every ten minutes, don’t pretend cyclists are unique here.
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I had many failed attempts at saving an emergency fund. I finally had some success when I actually decreased the amount I was saving for an emergency and built it up slowly over time.
When I saved every last nickle for emergencies, I had no buffer in checking, so I would always tap my fund. So now I have a double buffer, the checking cushion plus the small amount tucked away every month.
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“And why do the people who love to bitch about how cyclists don’t follow the rules and run red lights never do the same about drivers who constantly speed, change lanes without signaling, roll stop signs, etc? 99% of road users are breaking a rule every ten minutes, don’t pretend cyclists are unique here.”
This.
On topic: It’s true these amounts are piddly, but for people living close to the bone they make a difference. For others, not so much. I’m kind of in between; some of the suggestions are valuable, and some are not worth my time. Time to gather up some books to sell… yay for Powell’s.
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Donna’s point about banking the savings from lifestyle changes can definitely work. One of my friends used to smoke and when she quit she added to her incentive to stay quit by creating her “cigarette fund.” The “cigarette fund” was where she banked the money that she would have spent buying cigarettes, and she allowed herself to use this money for fun splurges and vacations. Every year, she adjusted the amount she saved to keep pace with the increasing cost of cigarettes. She’s still adding to her “cigarette fund” and she hasn’t smoked in over 20 years now. Last year she used the funds to go to Morocco; this year she’s going to Egypt.
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I love the idea of automating my savings. However, my income usually changes every four months, but can be different among each set of four months. It’s hard to know if this month I can move over $200, or if this is the month I’m going to NEED $200 just to get by.
Last year, for the beginning, I did work at moving the extra from my chequing account over to savings at the end of each month. But, I couldn’t keep it up once I had to start paying for plane tickets and hotel (and needing money to pay off the credit card before reimbursement).
I haven’t figure out the best way to try and save this year. I’ll have to see once I get paid – which happens once a month, on the 2nd last business day of the month.
Any thoughts?
ETA – I agree with Ely and Tyler about bikes and cars. I can’t tell you the number of times I’ve almost been hit by cars not looking to see if I’m crossing a street (in a crosswalk) and never by a bike. But, yes, some cyclists are idiots – just like some drivers.
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@#45. while it is great that you have $800+ deducted from each paycheck, not everyone can do that. what may be a pittance to you, actually adds up to me. a little less condescension would be appreciated.
i think the point of the article is that you have to start somewhere and everyone has a different somewhere. mine is rounding up, not spending change, and selling cans. no, it isn’t 800 dollars, but it will be.
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