If you are like most Americans, you are sitting on a shaky financial foundation, at best. You need to build a good financial foundation so you can weather everything life throws at you.
A report from the Government Accountability Office found that 41% of households age 55–64 have no retirement savings. About 60 percent of Americans don’t even have enough money saved to cover a $500 emergency.
Only 20 percent of Americans could raise $1,000 in a hurry if necessary.
That’s scary stuff.
There are any number of things that can cost more than $500. For instance, if you need a new catalytic converter in your car, you’ll be shelling out about $1,200. Live in a home and need a roof repairs? Minimum $3,000.
I can tell you the primary reason Americans don’t have an emergency fund: they spend more than they make. So, the first thing you should do is come to grips with what you are spending.
Sign up for Mint, the budgeting app from Intuit. You link up as many accounts as possible, and Mint gives you a picture of where your money goes, as well as how to stretch it farther.
Now, since we are getting a handle on our spending, it’s time to talk about debt. How much do you have?
Visit this calculator, plug in what you owe, and the interest rate. This tool will tell you how soon you can pay off your debt. It can be sobering, but it is essential. Debt, as they say, is a bill you can get paid off. We do want it paid off as soon as possible but I really want you to have an emergency fund for peace of mind. So, that’s next.
No matter your age, you should start right now to set aside an emergency fund. Life is full of unpredictability. You could lose your job tomorrow, or have an accident that keeps you out of work. Having that emergency fund gives you one less thing to worry about. A $1,000 emergency fund is going to be the first brick in our financial foundation.
Our friend, Ramit Sethi, who runs I Will Teach You To Be Rich, has developed the free save $1,000 in a month mini-course, which you can take to help you identify ways to save money, grow your income and sell items you don’t need or use. According to Ramit,
I’m not trying to save $1 or even $10 per week, because it’s not worth changing your behavior for that kind of money. We’re aiming to save $1,000 in 30 days. That’s why this series will not include suggestions like “Start a garden” or “Buy day-old food from bakeries.” I certainly won’t tell you to cut your rent or move to a cheaper place, because NOBODY WILL DO IT! Does anyone ever follow those tips? No, but it sure makes other personal-finance authors feel good about themselves for coming up with a suggestion that theoretically, maybe, somehow could save money for the moron who would do it. Not here.
A few of his suggestions include:
- Pack lunches — here are some lunch ideas for you to try
- Optimize your phone bill — try Billcutterz for your phone and other monthly bills
- Sell something on eBay today
- Create a “No Spending Day” once a week
- Use only cash for the next 30 days
- Shop for better deals on insurance — check out the NerdWallet online tool
- Use the best credit card for rewards (I recommend the Chase Sapphire Preferred. I have enough points right now to receive a check for $800)
- Get a side gig. TaskRabbit has openings for a variety of quick, one-time jobs, ranging from lifting and moving heavy objects to handyman repair.
Saving money is great, but for building this emergency fund, generating more income should be your primary goal. I’ve been augmenting my writing income by finding additional business on Thumbtack. It’s not just for handymen. You can find lucrative writing, photography and social media jobs on there as well.
As your emergency fund is growing — and I know it will — put it somewhere easy to get to with low or no penalty fees. Consider a credit union. They tend to pay more interest on savings accounts. This tells you how to find a credit union near you. NerdWallet compares interest rates on credit union accounts.
Increasing your savings rate is another way to build assets. There are a number of ways to place saving money on automatic pilot. I know, I know. You’d rather eat raw green beans than think about saving money. So, let’s review a few apps that can get you help you save painlessly. Here are the Top 8 Automatic Savings Apps.
I want you to get into the right mindset that will lead you to financial freedom. Napoleon Hill’s book, Think And Grow Rich, is your first read. Next up: Dave Ramsey’s The Total Money Makeover. Ramsey knows how to get your money into shape. It’s not some get-rich quick scheme, but instead a smart approach to your finance.
Keep us posted on how you are doing in building your financial foundation.