Are you concerned about your ability to save money for an emergency, like if you lose your job or become ill and cannot work for a period of time? The general recommendation is to have between three and six months of expenses on hand in case of emergency situations. This money should cover everything from your bills to the essential items that you need every day. Unfortunately, many people go about saving money the wrong way. For this reason, we want to talk about how to save money the right way.
1. Understand How Much Your Spend Every Month
The first step to effectively saving money is to figure out where you spend your money. This is easily accomplished by creating a spreadsheet of all your bills. Include items like natural gas, petrol, car and house insurance, electricity, cable and/or TV subscriptions, credit card payments and every other recurring bill you have on a monthly basis. Next, include items like groceries, personal hygiene products, vices (alcohol, tobacco and gambling), fast food and entertainment. Once you have those categories listed, create a column for what you think you spend (Anticipated Expense) and an actual money spent column (Actual Expense).
2. Objectively Look at Your Expenses and Begin the Process of Cutting Back
Once you know how much you spend every month, it’s easier to calculate where you can save money. Objectively look at your expenses to determine where you can cut back. Do you really need subscriptions to Netflix, Hulu and Amazon Prime? Are you cutting coupons and doing your grocery shopping according to the sales at your local grocery stores? Are you taking advantage of grocery rebates, like those offered by Savings Star and Ibotta? Do you need full coverage car insurance, or can you choose liability only car insurance? Can you cut back on fast food and entertainment expenses?
3. Create a Savings Budget
Once you’ve figured out how much excess money you have every month, put it in your budget. If you’ve determined that you have $200 extra every month after cutting expenses, make that your savings goal. If it’s less than $200, don’t worry, you can put any amount in your saving column and work your way up to higher numbers. The goal here is to make sure that you do not have any money left at the end of the month because you’ve put all your excess cash in your savings account.
4. Don’t Pay Full Price When Possible
If you do need to make larger purchases, like appliances, computers and home repairs, try to wait for sales. The biggest sales always come between Thanksgiving and Christmas, especially Black Friday. If you need a service, like HVAC maintenance or a new roof, make sure you get several quotes to ensure you aren’t paying too much for your needed service.
5. Apply for a Credit Line When Needed
In some instances, you’ll face an unexpected emergency where you need to cover a large expense, like a medical bill or a critical car repair. If you’ve accomplished all the steps listed above, you should have the tools in place to weather this financial storm. But if the cash in your savings account doesn’t add up to that of your unexpected expenses, you may want to apply for a credit line for the amount that you need. Once you get your line of credit, focus on repaying the loan quickly with any additional money you can save to avoid incurring additional debt. When you do this you won’t be saving any money for a few months, but will be able to resume building your savings when the line of credit is paid back.