Back to Basics – Saving

When it comes to finances, there are several concepts that provide a foundation for understanding the basics. Over the next couple of weeks, we are sharing these basics, and how to implement them. This week, we are sharing savings and how to start.

The Why

First and foremost, why is it important to have savings? And why is it important to make it a part of your regular budget? Having money set aside for various reasons is an important step to financial freedom, as it sets you up for success in the event of an emergency. Often times when trying to gain financial freedom, families struggle due to unforeseen circumstances. They start savings, then a tire blows out. They build a budget, but then their car breaks down. It becomes an endless cycle of saving, emergency, saving, emergency. By creating savings, you can prevent this cycle from repeating.

The How

At finance free life, and other experts, we recommend starting with an emergency fund of $1000. We recommend saving $1000 as quickly as possible. Start with a goal of $500, and then $1000. By creating this cushion, you are effectively preventing an emergency from derailing your finances.

Prior to being able to save an emergency fund, you need a budget. This is the first step in understanding how much extra you have to save each month. The first post in this series covers budgeting. We also have many other resources covering budgeting, including our free budgeting tool.

The When

When it comes to saving, it is best to start ASAP. Don’t wait until next month, next quarter, after the next big event, etc. Even if it’s only $10, start today. Of course, start with the budget to see where you can save money each month. Another option is to look for things to sell – we all have extra clutter around the house. Go through some fall cleaning and sell some of those things you have laying around. A third option is to pick up some extra work, part-time. There are many rideshare options to bring in extra income, as well as online work from home as well.

Ultimately, starting a savings comes down to how much you want financial freedom. What are you willing to do to gain that freedom? Work a 2nd job, sell some belongings, cut back on your monthly expenses?