So what we go out? That’s how it’s supposed to be, while we are young and wild and free. Can’t we do those things and save money at the same time though? 69% of Americans have less than $1,000 in savings and that is not okay. Put down your $1,000 IPhone X for a second (unless you are using it to read this) and let’s fix this problem together.
Why is $1,000 important? It’s not really. It’s actually a bit of an arbitrary amount. According to Vangaurd you should aim to have 3-6 months sacked away in case of an emergency. With the average rent in the US hovering at around $1,000, plus monthly groceries and transportation expenses, we estimate that your fixed monthly costs are going to be about $2,000 minimum. This is the amount that you need to feed, bathe, and generally function as a respectable adult so you can get your life back on track after an emergency. The only bright side here is that ramen is in right now, so you’ll still have plenty of cheap food pics to keep your instafame game strong.
Using $6,000 as a guideline to cover 3 months of expenses in the event of an emergency only about 19% of American’s would be prepared to weather a major life event financially without putting themselves into debt.
So, how do we fix it?
Get yourself on the path to financial freedom. Living paycheck to paycheck is frustrating, and while spending your hard earned money on Sunday Funday is super rewarding before the hangover kicks in on Monday, being stressed out about money is not rewarding.
Step 1: Know Your Budget
How much money are you making each month and what are you currently spending your money on? With the rise of digital wallets and plastic, cash has become less common. You are less likely to actually think about the amount of money you are spending each month on an aggregate level because of this. While this is great for retailers, it is bad for your budget. You have to have transparency with what you are buying each month. $5 a day for that pumpkin spice latte on your lunch breaks doesn’t sound bad day to day, but that adds up to $1,200 a year on a coffee like beverage. Most credit cards will break your monthly spending out in categories for you on your monthly statement. The point is, you can’t make good decisions if you aren’t looking at your bad habits.
Step 2: Define Your Budget and Put Processes in Place to Control Spending
Good. Now you realize how dumb it is to spend 35% of your budget on uber eats. Just because you can have ramen delivered to you in 15 minutes at any hour of the day doesn't mean you should. You can make that ramen yourself, like a boss. We have faith in you. There are a lot of good tools out there today to help you manage expenses. A prepaid card like Simple will allow you to set daily budgets to meet your spending goals. Link your cards to a budget you set in Mint and get alerts as you approach your monthly budget or use a tool like YNAB (You Need a Budget). The goal here is to control your spending on a day-to-day basis.
Step 3: Cut Costs
Part of this exercise will require you to identify your fixed monthly expenses. What bills are showing up month after month. You might be surprised to see that you’re still being charged for that HBO subscription even though Game of Thrones has ended. Is your phone bill over $50 a month? There may be a better phone plan out there for you. It might be the right time to look at cutting cable out of your life. Switching from AT&T to Hulu saved us about $80 a month and we haven’t looked back. You can use a company like BillShark to reduce existing bills. Need to cancel a monthly subscription and hate talking on the phone? Us too. Phones are for internet-ing, not talking. Truebill will review your monthly expenses and cancel unwanted subscriptions. Pay for what you need and save the rest.
Step 4: Start a Savings System
Again, apps to the rescue. Putting money in a savings account and leaving it there is hard. The easiest option is to set up a recurring transfer from your checking account to your savings account at your bank. The trouble with that is, it is an instant process to move that money back and then spend it on mimosas. Acorns is one good tool to help with this. Acorns will round up your purchases to the nearest dollar and then invest your spare change during the month. There’s a $1 fee a month for the service on balances less than $5,000. Once you’re over $5,000 the fee is 0.25%. We average about $60 a month in savings without even thinking about it. That will get you to $1,000 in about a year and you’ll be ahead of 69% of Americans. A third option is setting up recurring investments in EFTs or stocks using a platform like Stash. We take a multi-prong approach here. Some methods work better than others for us and we suspect the same for you. Put a program in place and see what you’re able to stick to.
Step 5 - No, Your 401k Doesn’t Count
Partaking in a 401k offered by your employer is great! Don’t stop doing that or sacrifice savings there to beef up your personal savings. With that being said, you can only access 401k funds in limited circumstances outside of retirement. We’re trying to build an emergency fund, not a retirement fund.
Step 6 - Evaluate the Financial Products You Use
Are you getting as much as you can out of your savings account? You can easily get an APY over 1% in today’s market. Is your checking account free or are you racking up monthly fees? You should never pay someone to hold your money. Are you carrying a hefty balance on your existing credit cards? Look at balance transfer offers to help reduce your interest expense. You may as well be throwing money away at that point. If all your financials look pretty good from that standpoint, see if you are getting the most rewards out of your spend. 2% cash back is a fairly common reward rate for cash back on credit cards these days. There are even prepaid and checking accounts that offer 1% cashback. If you’re getting less than that, you are leaving money on the table. Do you travel frequently? Look at rewards cards to help you reign in some expenses associated with travel, like complimentary breakfast, free checked bags, or loyalty points to help get your next hotel night or flight on the house. Make your bank work for you, whatever your need is.
Step 7 - Watch Your Savings Grow
Being smart with your money is hard and having fun is important. You need to find the balance that works for you so you can continue to have some fun when times get a little hard. Set a budget. Stick with it. Save some cash. You don’t have to be a boring friend just because you bought one less shot of fireball last night. That $5 was for a stock purchase. That’s right. You’re a big deal. You have stocks now.
Step 8 - Compare Offers
1) Our list of savings accounts is here.
2) Our list of investing apps is here.