On a scale of 1 to 10, how prepared are you for “Worst Case Scenarios”?
What if..
–>Your Car Breaks Down?
–>You Loose Your Job?
–>Someone in Your Household Can No Longer Work, or Needs Care?
–>You Have an Unexpected Housing Expense?
HerMoney recently quoted a study in which only 44% of Americans say they’d be prepared if they encountered a $1K unexpected expense. For those who wouldn’t be able to afford it, 21% say they would use a Credit Card.
Part of having a healthy Financial Foundation is your Savings. Savings can be for many different purposes. You could be saving for a major goal like buying a house, taking a trip, or a special event. You might be putting away money for retirement, so you can pull from it when you’re no longer working. Another reason to stash money away is for the unforeseen events that come up, which we typically think of as an Emergency Fund.
An Emergency Fund is a must if you at all want to stay clear of credit card debt. When the unexpected happens, you can turn to your own money rather than risk incurring interest, which can compound and increase on itself overtime.
The usual advise is to keep an Emergency Fund somewhere accessible, like a High Yield Savings Account (HYSA) and aim to build up anywhere from 3-month’s to 1-year’s worth of your NEEDS (your must-pay expenses like housing costs, rent, food, etc.). The things you would have to pay regardless of income coming in.
The amount of your Emergency Fund will be based on what you think your ability would be to find income again. If you feel that your skills and experience are easily translatable to another job, you can save less. If you think it might take you some time to get back on your feet, save more.
A Spending Freeze February Challenge!
Doubling-down on, and really focusing in and committing to, your financial goals for even just one month a year, can have huge impacts. Similar to a “Dry January” for your health, why not choose the shortest month of the year (February, 29 days this year–coming up!) to make a real impact on your finances?
Ask yourself: Where are you behind, and where might you find the funds in order to:
–>Build Your Emergency Fund
–>Pay off Credit Card Debt
–>Get Caught Up on Contributions to Retirement Accounts
–>Save for Something Fun!
Step One:
Journal your specific goal for this one month. You can use the “SMART” metrics of Specific/Measurable/Achievable/Relevant/Timely. Include WHY you’re doing this and how having this thing taken care of, or at least getting the ball-rolling, will make you feel. Include when you will work on this goal, how you will track progress, and how you will treat yourself for meeting milestones.
Perhaps you have one particular credit card you think you can either pay off, or make a substantial dent in, if you really cut back in other areas for one month. For example, a goal might be “By the end of this one month, I will pay down the X balance of this particular credit card. I will check my progress on Friday nights at 8pm and treat myself afterwards by watching my favorite show.”
Step Two:
Audit last month’s spending. You’re becoming a detective, and you’re getting clarity on where your money went. Print out a bank statement, or look online and make your own list on paper or Notes app. Identify money that went out as a NEED, and money that went out as a WANT. Again, NEEDS are fixed expenses you would have to pay no matter what, while WANTS are the fun stuff that you could technically live without.
Pay close attention to the WANTS you’ve identified, look for patterns of where your money went. You might see that restaurants took a lot of your money, perhaps.
Step Three:
Calculate how much you spent on WANTS last month. Add up the WANTS and see how impactful turning that amount towards your goal could be instead. How much might that amount reduce the credit card debt, or add to your Emergency Fund? This Debt Calculator Tool can help.
Identify which specific WANTS you could live without for this one month. Get Creative. How might you replace that category with a cheaper option?
Step Four:
Once you’ve put a spending freeze on certain WANTS, you may notice you have more in your Checking Account than normal. Making sure you can still pay for your NEEDS, re-route that extra money towards your goal!
It’s one month, you can do this.
Bonus: Paying down debt multiple times/month can increase your Credit Score by lowering your “Credit Utilization”, as long as you’re not making any late payments.
If you’re tempted to spend your extra-found money on something else, go back to your initial WHY and how you want to feel. Go after that feeling! After you’ve contributed to your goal, treat yourself!
Step Five:
Stay on Track! Make your moves, track your progress, treat yourself, repeat. Share what you’re doing. Evidence shows that just telling someone about your goal can be really impactful to achieving results. Or, pitch the February Spending Freeze to a friend in order to have an accountability buddy, you may even find they want to do it with you!
The impacts of doing this exercise are bigger than might appear. Think about it, if you could rid yourself of even just one high-rate credit card carrying a balance, you would have more money in your pocket that keeps you from turning to that card. That could impact you financially for the rest of the year, particularly when an unexpected expense comes up!
On the flip side, if you added an extra amount to a High Interest Savings Account, or a Retirement Account or Investment Account early in the year, you would reap the benefits of interest accumulating all year long!
How might you re-route your money for 29 days?
Unlocking Abundance 