This week, Feb. 25-March 2, is America Saves Week. The good folks organizing this event, the Consumer Federation of America (CFA) and the American Savings Education Council (ASEC), want to increase America’s rate of saving. Whether it’s saving for college, retirement, a car, a house or emergencies, Americans are all better off with a solid savings account.
Myself, I always try to put money aside for emergencies. In fact, in college I negotiated with my mom for the money I needed to stay in Ramen and text books. Eventually she noticed my requests were 10% higher than my expenses.
“Well, “ I answered (likely adding “duh!”), “I need to put some in savings!”
She was speechless; proud of my forethought, or astounded at my nerve? I think we negotiated it down to 5 percent. In the end, I had no emergencies and we agreed I could use the saved money for a student exchange to Australia. My (her) savings turned into an adventure, and I like to think she was proud.
Putting money in savings makes you, and your family, more prepared for the events life sends your way, good or bad. Whether you’re a teen, close to retirement, or anywhere in between, putting money in an emergency fund makes you more resilient to changes outside of your control — and better prepared to create changes (or go on adventures) that are in your control.
According to a 2012 survey by the CFA and the ASEC, the percentage of families earning more than they spent and putting the rest into savings, had decreased seven points in two years, from 73 to 66 percent. There are many reasons for this reduction: higher living expenses, lower income, reduced spending power, continued experience of the recession. And as many other reasons as there are families.
But the survey made a second, more encouraging connection: families with a plan for saving (either a system in place, or a goal for the money) were almost twice as likely to spend less than they made, save the difference, and feel prepared for emergencies. And this was true regardless of income level. Even families with an annual income of less than $25,000 were twice as likely to save money if they had a plan and had confidence in their emergency savings as a result. Having an emergency fund creates a more resilient family, especially if you have a lower income.
So, during America Saves Week, Feb. 25-March 2, make a goal to increase your family’s financial security by building an emergency savings fund. Here’s a one-week plan you can follow:
Monday, open (or re-purpose) a savings account not connected to your regular-use accounts, possibly in a separate or online bank. Determine your goal amount, starting with at least one month’s expenses. If one of the emergencies you’re planning for is unemployment, you’ll want to increase your goal to three or even six months’ expenses, but don’t get overwhelmed if it takes a while to get there. Any emergency amount is better than none.
Tuesday, make a list of “bonus” money sources to send to your emergency fund when they arrive. Consider your tax refund, this year’s raise, an office bonus, your PFD check and birthday checks from your Aunt Phyllis.
Wednesday, set up a system to deposit money straight into your emergency fund every month, preferably before you even see it. With an automatic deposit from your employer you might be able to split your paycheck into both your checking and emergency accounts. If automatic deposit isn’t an option, set up a monthly transfer or online bill-pay payment to your emergency fund account.
Thursday, sit down with your family and determine what you can and (more importantly) what you can’t use your emergency funds for. This is not a vacation fund or the down payment on a new boat (that’s right, honey). Emergency funds are for when you have a necessary expense that, without enough money, other essentials like housing, heat, or food are in jeopardy. If the car that gets you to work breaks down, if the boiler fails in the middle of winter, if you have medical expenses not covered by insurance or you lose your job — with an emergency fund, these are no longer financial emergencies.
Friday, now that your plan is in action, let’s do some guided visualization — imagine you come home from work and the floor is soaking and there’s water an inch deep near the hot water heater. Even with insurance you’re looking at some real money for water extraction, carpet cleaning, dehumidifying, a new hot water heater — the list goes on. First imagine this picture as a family with no extra money; where emergencies go on a credit card that you have no idea how you’ll be able to pay off. We’ve all either been there, or can imagine it. Next, see this picture as a family with a healthy emergency savings; you might use your credit card, but it can be paid off before there are even interest fees. Sigh of relief.
As with any life adventure — travel, education, starting a business — if you don’t have a plan you’ll likely get nowhere. So, during this America Saves Week, choose a financial goal, like creating an emergency fund, make a plan, and get going.
For more information about America Saves Week visit www.AmericaSaves.org
• Sarah Lewis is the Health, Home, and Family Development Agent for the Juneau District of the UAF Cooperative Extension Service. For more information about family resource management, from finances to the pantry, you can call her in Juneau at 796-6241 or stop in at Suite 213 of the Bill Ray Center, 1108 F Street.