Preparing for Life’s Little Surprises
Life is full of surprises, good and bad, and the timing of the not so good ones can take a toll on our finances and increase our stress. A recent article on CNNMoney reveals that 52% of younger workers do not have enough savings to cover an unexpected expense, which could be detrimental to their financial future. These young workers have secured a job and are paying their monthly bills, but haven’t been hit yet with car repairs, their pet getting sick, having to replace an appliance, or even a job loss. Life’s little surprises happen to everyone, so it’s important to be prepared with some extra savings, often referred to as an emergency fund, to cover these unexpected events.
The main purpose of an emergency fund to keep you from having to take on debt to deal with a surprise expense. If you have a financial emergency and you’re not prepared, you’ll have to put it on a credit card or borrow the money somewhere else. This is fine as long as you can pay it off quickly, but if you can’t, the interest you’ll be charged over time will only make the matter worse. As the debt grows, it can also impact your credit score and ability to borrow in the future. Suddenly a $500 car repair actually costs you over $700 and that’s just the immediate dollar impact. Read more about why you need an emergency fund here.
How do you start an emergency fund? Look at your monthly income and expenses to see what’s left over each month. Take the extra cash each month and transfer it into a separate account where you can’t easily use it for other things. If you don’t have any extra at the end of the month, it’s time to look at your monthly expenses to see where you can cut back or consider ways to bring in additional income. A budget never sounds fun, kind of like a diet, but is a helpful tool for getting you on track with your money. BrightDime believes an emergency fund is fundamental to being financially healthy and that’s why we start everyone off with a goal of $500. A mature emergency fund will eventually cover 3-6 months of monthly living expenses (the must-pays) and takes time to build (to read more about the size an emergency fund should be, click here). So, start small and increase it as you can over time. And remember, it is an emergency fund, not a vacation or new clothes fund so don’t dip into it until life brings you that unpleasant surprise.
If you need help or have questions about starting an emergency fund, BrightDime coaches are here to help. Just login to your account and start the conversation.