One of the downsides of adulting is unexpected expenses can become more common than not – especially as children join your family. Here’s the good news: the best financial foundation to create for yourself to handle these unexpected expenses is a healthy savings account.
Saving will give you the means to handle most unexpected costs that come your way. However, that can sometimes be easier said than done.
Here’s why it’s so important to save money, the advantages of saving, and how to accomplish it.
Eventually, you’re going to face an expensive problem. Sadly, most of us aren’t ready to, with more than half of Americans unable to afford an unexpected $1,000 charge. Unless you have someone, who can financially support you during an emergency, (the go-to solution for most), a serious financial hardship can be big trouble, and can hurt your wealth-building in the long run, too.
There are many! But to name a few:
1. A foundation for future wealth
2. Financial independence
3. Peace of mind (not having to worry about money)
4. Access to better financial options and opportunities
If you’re living paycheck to paycheck like most Americans and get hit with a big bill, you either must rely on someone else for money, pay with a credit card, or leave the emergency unpaid and unfixed.
In many cases, this can cause a collapse of your lifestyle and lead to long-term repercussions. A savings account is like an insurance policy for life, and it pays you interest.
If you’re making a big purchase, like a car, piece of furniture, or even a home, being able to pay cash (not with financing or borrowed money) can help you negotiate a better price.
You need a minimum of $1,000 in your savings account.
That will help with most basic emergencies, but it doesn’t cover everything, and sure won’t last long if you lose your job. Experts suggest keeping at least 6 months’ wages in savings.
We don’t expect you to have a crystal ball. No one can foresee everything, but you need a line of defense or financial cushion to protect you from big expenses that commonly occur.
Around 90% of Americans own a car. You need to include routine maintenance as part of your planned budget, but eventually, costly repairs or maintenance will come up. Repairs are usually around $500 or so – and they can easily skyrocket from there.
Plus, if you have an at-fault car accident, you’ll need to cover at least the insurance deductible.
If your car breaks down, there may be other expenses that arise as well, like a replacement car, towing, or paying for rideshares.
If you’re underinsured, you can easily see bills of well over $100,000. Overall, the average cost of an emergency room visit is around $1,000.
Owning a Home
If you do, congratulations! Homeownership is the best path toward building equity for your future. But being an owner is very different from being a renter because homes need frequent repairs to maintain value and livability.
A basic rule of thumb is to expect repair costs of 1% of the home’s value every year. This should be put into savings along with your 6 months of saved wages.
If you have them, credit cards can be used for emergencies, but you’ll pay the price if you overuse them.
Expect interest rates around 20% – and when the companies see your usage suddenly swing up, they can cut your credit without notice, so the cushion you think you have can instantly evaporate.
Saving money can likely require certain sacrifices to your lifestyle. Luckily, it may mean eliminating small expenses like skipping a night out with friends or not getting the expensive coffee before work. You may not be able to save enough with your current income, requiring you to find a side job.
Savings should be kept in a bank to keep your money liquid and insured. Having too much in savings may be a disadvantage if the extra money can be invested in a better place.
Great question! If you have high-interest debt (10% or more), consider paying down the debt a bit more than you save. The best strategy, in this case, is to pay the minimum monthly payments until you have $1,000 saved up, then start balancing between your savings accounts and paying extra on the debts.
Excessive fees can easily make banks your enemy instead of an ally. Last year, Americans paid around $30 billion in overdraft fees.
These fees can disproportionately impact communities of color and others who have traditionally been used as society’s piggy bank. At Flyp, we believe these outrageous fees are nothing less than a private tax on working-and middle-class America.
Your bank should be your advocate. That’s why we’re dedicated to eliminating all hidden charges. We have no overdraft fees, no maintenance fees, and no minimum balance.
Our mission is to give you the opportunity to change your financial future. When you bank with us, you’re choosing to be part of the solution, not the problem. Together, we can flyp the story and change banking forever.
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Flyp is not a bank. Banking services provided by Sutton Bank, Member FDIC.