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No doubt you’ve heard that you should have a rainy day fund of three times your monthly expenses, be saving for retirement, and of course there’s that dream vacation you’d love to go on someday. These goals can seem way out of reach for ordinary, everyday working class people who are often living paycheck to paycheck.
If you find yourself caught in the working class trap—making just enough to get by and not enough to get ahead—having a savings account is especially important for you.
Consider how these common emergencies could put you under financially if you don’t have any savings:
- Your car fails inspection because you need new tires or you need other costly repairs.
- Your child gets sick and needs an ambulance ride or other medical services.
- Your house air conditioner or heater breaks down and needs to be replaced.
- You or a loved one gets into legal trouble and you need to pay legal bills or bond.
- You file your taxes to find out that you owe the IRS money.
These types of situations can be a significant hardship for someone who does not have a savings account to fall back on.
For the average person, building a savings account will take time and the account will grow slowly. That’s okay. What’s important is that you get started now!
Here are some ways you can start building your savings:
1. Reduce your credit card debt
Many people do not realize just how much they are paying in credit card interest charges. If you carry a balance of even just a few thousand dollars you are probably literally paying hundreds of dollars in interest charges every year—throwing money away that you could be saving! One key to building savings and financial security is paying down your debt. Look into debt consolidation programs, always pay more than the minimum payment, and stop using your credit cards.
2. Start an automatic savings plan
When you start saving put aside the lofty goals. Many banks will set up an automatic savings plan that will automatically make daily or weekly deductions from your checking account and deposit it into a savings account. Even $1 a day or $10 a week can really add up. With an automatic transfer you’ll hardly feel it.
3. Reduce your expenses
Look for ways to reduce your expenses such as lowering your cell phone, internet and television bills by reducing your service plans. Most people spend a surprisingly large percent of their money on entertainment and eating out. If you typically eat out twice a week, reduce that to once a week or even twice a month to easily save a couple hundred dollars a month. Look for little opportunities to save like using in network ATMs to save on fees and making your morning coffee at home.
4. Increase your income
If your situation allows it, consider taking a second job temporarily to build up your savings and reduce your debt. If you cannot do this, look for creative opportunities to make money like selling items from your attic on ebay.
5. Look for creative ways to get by in emergency situations
If you find yourself in an unfortunate financial emergency look for ways to avoid going into further credit card debt. If you have a medical emergency you can often negotiate very low payments, sometimes as low as $10 a month.
Creating a savings account is challenging for the average person, but well worth the feeling of security it brings. And, once you’ve built up that emergency savings fund, you can start saving for your dream vacation!