While the common term for a savings account is, well, “savings,” I prefer a more elegant title: contingency fund. It just sounds better, doesn’t it? But whether you call it a savings account or a contingency fund, it’s a key component in a sound financial life. And that’s why it’s rule two in my book “7 Money Rules for Life: How to Take Control of Your Financial Future.”
Save for the future is a principle my Everyday Cheapskate and Debt-Proof Living readers have taken to heart. Having a healthy stash of cash put away in a safe, accessible place means regularly putting 10 percent of your net take-home pay into your contingency fund (CF).
Sound impossible? What if you’re struggling to live paycheck to paycheck, you ask? Start with 1 percent, or 2, or 5. Saving for the future is preparing you for the day when you and your income part company for any number of reasons.
Take Grace from Oregon, for example. Not only has she paid off more than $13,000 of unsecured debt, she’s grown her CF to a cool $15,000. She was almost beaming in her email to me.
She closed by saying quite casually that she will be laid off from her job this year. She’s not even upset. That’s because she’s been mentally preparing and has several options in mind. With absolutely no debt and money in the bank, what might otherwise be a devastating blow has become her next great adventure.
Kathryn and Galen from Missouri were in a similar position. Before they were free of their unsecured debts, Galen was pink-slipped — again. Unlike the previous time, they were prepared with a $10,000 CF. They knew what to do, and for a long time didn’t even have to touch their CF. The bills were paid, the family fed, and one day at a time, all went well until Galen was gainfully employed and life was back on track.
For some reason, it’s so much easier to live frugally and make the sacrifices necessary when you know you have money in the bank.
So what’s your story? Are you prepared or scared? Do you have money in the bank, or do you feel like you’re just one paycheck from being homeless? Take the first step to change. It’s the perfect time, too. In celebration of America Saves Week, which runs from Feb. 25 through March 3, 2013, open a savings account. Find out more about America Saves Week at AmericaSavesWeek.org.
2013 has the potential of being a financially challenging year for many people. My goal is to equip you with the tools, resources and encouragement you’ll need to embrace the changes you might need to make this year.
If you missed reading about Rule 1: Spend Less Than You Earn, visit my blog at EverydayCheapskate.com and click on Mary’s Perspective. We’ll be talking about each of the seven rules over the next couple of months.