Financial Wellness Tips

Are You Prepared For a Financial Emergency?

June 13, 2023|by Spave

We’ve all been there — you’re cruising along from paycheck to paycheck when, suddenly, life happens. Your dog decides to eat something that’s in no way intended to be eaten and rings up a vet bill that costs more than your rent.

Your best friend invites you to be the maid of honor or best man at their wedding — in Hawaii. Or maybe you decide to move into a new place only to discover the unexpected costs of moving the expensive way.

If you rate your odds of financially navigating a large emergency expense as “low to non-existent,” you’re not alone. According to a recent Bankrate survey, 68% of Americans don’t have enough saved to cover living expenses for even a month.

Want to turn things around and stop living in fear of the unexpected? We’ll fill you in on some tips and tricks to get started.

Get Your Finances In Order

Let’s face it, thinking about savings is a lot harder when you’re already stressed out about how to get your bills paid. Simply getting a clear picture of your finances and creating a budget can go a long way toward reducing stress.

Start by taking a look at your spending habits over the past few months and group every swipe of your debit card into a category, from bills to burritos and burgers. Then compare your spending habits in each category to the amount of money you’re bringing in overall.

You’ll likely discover that there are a few categories that could use a little trim. While cutting back is no fun, it’s much better than receiving calls from bill collectors after a surprise financial emergency.

The unavoidable truth is that clarity is an essential first step to financial empowerment. Rather than wondering where your money goes each month, you’ll be in a better position to actively design how each dollar is best utilized.

Revise Your Savings Expectations

Rome wasn’t built in a day and neither is the average emergency savings account. Many of us are guilty of believing that we’ll get around to saving “someday” when we have a huge lump sum sitting around to stash away.

Unfortunately, emergency expenses have an annoying habit of refusing to wait around until "someday" arrives. Not to mention that the last thing most people want to do with an unexpected windfall of cash is run out and open a savings account.

Maybe the day will arrive when you come across an extra thousand dollars you want to tuck away in savings. But until then, why not save just a little money here and there in the meantime?

Remember the budget you just created in the step above? It’s time to go back and sneak in an extra category for savings.

Rest assured that it doesn’t have to be a huge monthly expense — in fact, starting off with a lower amount may even make the whole idea a bit less intimidating. Over time, you’ll begin to discover that simply tucking back a little extra can add up to a lot.

Rise to the Savings Challenge

While the idea of saving may sound like a snooze, who can resist a great game or challenge? Studies have proven that gamification can go a long way when it comes to summoning the motivation to rise to pretty much any challenge.

Check out our recent round-up of the best money-saving challenges that are currently trending. Each demonstrates firsthand how saving just a little at a time can add up to substantial savings.

Try choosing just one challenge to experiment with how micro-saving can help you build an emergency account over time. If you’re a fan of social media, you might even seek out others who are participating in the same challenge to build a sense of accountability and community.

How Much of Your Paycheck Should You Save?

In terms of solid numbers, there’s no easy answer when it comes to how much money you should save each month. The amount can vary widely based on everything from your income to living expenses.

That’s why it’s a little easier to divide your money up based on percentages. A good goal to shoot for is the 50/30/20 rule which breaks down your monthly income into the following categories:

  • 50% of your income should go to needs like your rent or mortgage, groceries, and utility bills.
  • 30% goes to “wants,” aka fun things like entertainment, eating out, and charitable donations.
  • 20% goes to paying off debts and building your new savings account.

Don’t panic if you feel like it’s completely unrealistic to start setting aside 20% of your paycheck for adulting immediately. The 50/30/20 goal may start out as a solid goal to shoot for as you move forward on your financial journey.

Find Your “Why”

Simply saving money “for the unexpected” is about as bland as it gets. Instead, try envisioning a scenario in which you are met with a major unexpected expense.

Take a few minutes to really imagine how it would affect your life. While this may sound intense, it’s a lot better than going through the same situation in real life.

Now imagine you've built a healthy emergency savings account and can begin to concentrate on saving for other goals like a new car or a dream vacation. Go ahead, imagine the smell of those new leather seats or the sun on your face in detail.

Whenever you’re feeling less than enthusiastic, take a minute to revisit both scenarios in your mind. You’ll be surprised at how far each can go toward keeping you motivated along your savings journey.

Use Your Money For Good

From cancer research to social equality or animal rights, we all have one cause that has a way of pulling at our heartstrings. What cause or causes matter the most to you?

Building a solid financial foundation will not only improve your life in countless ways, but it will also empower you to improve the lives of others. No matter what your job happens to be, there’s nothing more empowering than knowing the work you do is helping change the world.

Imagine just how different the world would be if everyone donated even $5 out of every paycheck to their favorite cause. Check out this beginner's guide to budgeting for charitable giving and learn how Spave can help you put donations on auto-pilot.