This probably goes without saying, but having a bank account with a balance of $0 is probably not a good idea. Ordinarily I’d think that most people would know that and that I wouldn’t need to devote a post to such a topic. However, after reading an article recently that said that 60% of Americans couldn’t survive a $500 unexpected expense (aka nothing substantial in savings), I think it might be worth repeating a time or two.
Before getting on my soapbox, let me first say that I can understand where you’re coming from if you fall in the category of not having much in savings. It’s tough out there. Life is full of curve balls and lemons, and it’s not always easy to turn those lemons into lemonade. Having a job that doesn’t pay enough is all too common and somehow our expenses just don’t seem to understand that our income levels aren’t high enough. From even covering basic necessities like rent, gas or food (groceries, not even eating out!), our paychecks could likely be eaten all up. I’d like to propose though in the following paragraph or two that unfortunately there isn’t much of an alternative. Being stuck in a situation like that sucks and unfortunately most of us won’t win the lottery, get a new job doubling our salary or have a rich uncle leave behind a massive inheritance for us. Life is tough, no doubt, and unfortunately you often have to look out for #1 and start digging yourself out of your own financial mess if you want to get out of it.
No room for error
A $500 unexpected expense isn’t all that farfetched. Being out with the flu for a week, getting in a car accident and having to pay your deductible, having to take the car in for repairs, losing your phone, any of these could derail you! Without anything in savings, you’re basically telling yourself that you can’t get sick or take a day off. That means every Mon-Fri (or whatever your work schedule is) you have to be at work. That also means that work can’t slow down. Better hope that you don’t have a snow day! Take a step back…that’s a scary thought right there. You’re basically having to lie to yourself and tell yourself that you’re superhuman. No sick days? No days off? Yikes. Really you’re just delaying the inevitable; sooner or later something will come up and you’ll be forced to address your financial shortfall.
No room for hope
After coming to the realization that you have no room for error in your financial life, that sort of can leave you in a hopeless financial state. Realizing that sooner or later something will happen and that you won’t be prepared, and that you can’t really do much about it really sucks. Wow, talk about a bummer. What’s worse is that your current financial state really doesn’t have an end in sight. Sure you might get a little bonus or a little raise at work next year but that will likely get consumed in your expenses. Without a plan in place to get out of the mess, you’ll likely find yourself in a pretty hopeless situation. No room for retirement, no room to buy a house, no room to grow a family! And without hope, what do you really have?
Pay yourself first
A friend of mine told me that some of the best financial advice came from her granddad who told her to always “pay yourself first”. That means that before writing the check for rent, filling the car up with gas or buying groceries that you should put aside a little money for savings. Right now this savings will probably be going to a savings account to become your ‘emergency fund’. As you build that up, the savings should start going into your retirement account (target goal of 15% of your income). Then once you achieve those goals, your savings can start going towards other things (saving up for a house, saving to go back to grad school, etc). To pay yourself first though, you’ll have to make sure you have enough to pay the rest of your bills. Take a good look at your finances and see where you can start making cuts, or see where you could start earning a little more. Once you find a little extra space in the budget, devote that to savings, and make sure that’s the first transaction come payday. Money has a way of moving pretty fast come payday, so paying yourself first will ensure you have some money going into savings. Start small; even $10 a paycheck is a start. Take a look at what’s feasible and start saving!
Living paycheck to paycheck, aka without any savings is a terrible idea. Really you’re just pushing your luck in the game of life with the knowledge that sooner or later it’ll catch up to you. Learn to live by the “pay yourself first” mantra and start setting aside even a little bit. Savings is a crucial necessity in life, so start with this very next paycheck!