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Cheap Geek: An emergency fund puts you in control
Cheap Geek

As of this writing 800,000 federal workers are about to miss another paycheck because of the partial government shutdown. Sadly, the workers and their families that you see interviewed in countless stories say they are in a financial crisis after missing just one or two paychecks.

 According to a report in Forbes Magazine, 78 percent of all US workers are living paycheck to paycheck. One quarter of workers say they are financially unable to set aside any money for savings and three quarters are in debt.  A separate report shows the average credit card balance of households is nearly $6,000.

 I’m here to say that even if you think you can’t do it, you can put away money each month to create and add to an emergency fund that will give you peace of mind in any situation you encounter.

 For years, financial advisors have recommended each household have enough money saved to cover at least three months of living expenses (defined as mortgage, cars, utilities, food, etc.) If monthly expenses are $5,000 to cover those necessities that means you need $15,000 saved.

 I know, it seems like a lot, and during the Great Recession last decade, it was wise to have several more months in savings (as much as nine months to a year) because people were going that long without a job.

 The economy is better today, but the more you can save will not only get you through those tough times when you lose a job (or impacted by a government shutdown) but allow you to pay cash when your car breaks down, or you have a medical expense, instead of putting that on a credit card.

 Again, you are not alone. A survey found that half of adults have less than $1,000 in savings, and 25 percent have $0.

 In talking to others over the years, I discovered that there are two misconceptions about saving for an emergency fund. 1. “I simply don’t make enough money. Only rich people can save money,” and 2. “I can’t reduce my expenses to come up with the money. Everything I pay for is a necessity.”

 Let’s look at that first point. In every survey, it’s not just lower income individuals who say they haven’t saved – it’s people we define as middle or upper middle class (with incomes nearing or exceeding $100,000 a year) who also claim they don’t have enough money to save for an emergency fund.

 In other words, statistics show if you’re someone who makes $25,000 a year and say they can’t save, you’re no different than someone who makes $100,000 who doesn’t save. It’s not about being rich. It’s about the expense obligations you have.

 Which brings me to the second point. Let me be blunt. We are a society of over spenders. In my Cheap Geek columns, which focus on technology, I have shown you ways to cut expenses on everything from smartphones and your outrageous monthly coverage plan, to being bold and “cutting the cord” on cable TV expenses.

 Those two items, which we Americans now say are necessities, can cost up to $500 a month. Cutting back in just those two places is enough to start that emergency fund today.

 And you can start small.

 For most, start with $50 to $100 and let your savings build. If you haven’t already, sit down and create a budget. Know where every dollar goes, line by line. Surely you’ll be able to identify areas that can be avoided or altered, like getting that latte once a week instead of five, or using coupons for groceries or dining out.

 Once you have the money, you’ll want to park it in an online bank that will pay you two percent or more in interest and allow you to pull out money in that emergency. I discussed online banks in a previous column.

 Ideally, once you have that emergency fund and written budget established, you can attack other areas of concern, like debt. Maybe you can pay that home mortgage off early, contribute more to your retirement plan, and buy cars with cash.

 You can get to the point in life where you’re truly living within your means and no longer afraid when life puts an obstacle in your path.



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