This one tweet describes my weekend.
And, these two words: exhausting and expensive.
The good news: we have an emergency savings account, and we both happened to be on vacation on Friday so we could deal with the situation. The bad news: I had to dip into the funds I planned to use to buy a new dining room table.
The experience taught me a few things:
1) I need to separate my savings accounts for each of my goals. My goals include a) travel, b) major purchase and c) emergencies, and d) fun money. Currently, I just have one account. But, separating them would help ensure I don’t use my emergency funds for vacations. And, it would help me evaluate each of my goals individually. For example, my “fun” money is for buying gifts and shopping, and once that money is gone, it’s gone.
I currently use Capital One 360 because I love the functionality within the mobile app, their rates, and their service. Both of my kids’ have teen accounts with Capital One, and I can transfer money to their accounts each month. I can also see my auto loan and credit cards with Capital One within the app. The ease of seeing most of my accounts with one app is such a time saver.
Side note: Capital One just reminded me that Taylor will turn 18 soon and her teen account will convert to an adult account. She can either remove me or add me as a joint account holder. I asked her to keep me as a joint account holder because there are so many more things to learn about finances before entering the real world. I’ll let you all know how that goes.
I discovered I could open a new account for each of my savings goals with Capital One. Since I’m a fan of the little by little approach, I’m going to open a second account for major purchases. So, as of today, I have two goal-based accounts: emergencies and big purchases. I picked major purchases because I want a new dining room table and a living room set. And this will be a fun goal to achieve.
2) Emergency funds are supposed to account for 3 – 6 months of your current expenses. Do you currently have six months of living expenses saved? Most Americans do not. Bankrate published a survey earlier this year that said only 41% of Americans could cover a $1,000 expense with their savings account. The rest would either put it on a credit card, borrow from friends and family, or take out a personal loan. Read more here.
So, what’s the best way to build your emergency fund? Little by little. Set an initial goal of $500. Once you reach $500, set your next goal at $1,000 and so on. Little by little, until you reach your goals.
Another great way to build your account is an unexpected windfall. I earned $235 for working the Delaware primary in September. I decided to put all of this into my savings account. Think about any unexpected money you may receive and use it to boost your savings. It may be a year-end bonus, tax refund, or other windfalls.
3) I feel so much better-paying cash than charging on a credit card. The “old me” would have thought the victory had a credit card with a limit high enough to cover the charges. Thank goodness for growth! I avoided paying interest by tapping into my savings account.
4) I have some great financial habits and a few that are still questionable. (I’m human). For my savings account to work, I can't have access to the funds. I’m not tempted to use the funds if there is no debit card, and the account is not linked to my checking account. What motivate you to save?
5) Get started today! Open up an account with your favorite financial institution and set a savings goal. Next year, around June 1, evaluate your progress against your plan and make sure you’re on track. You may need to increase your savings or increase your goal, depending on your progress.
Here’s what I’m working on for 2021: 1) Save $5,000 for furniture purchase and 2) Rebuild our emergency fund.
Whether it’s for car repairs, medical bills, or a costly appliance repair, we know that emergencies happen. Be prepared for the unexpected, and set your savings goals today.