Thursday, February 4, 2010
FPU: Super Savings
In week one Dave gives a lot of great information about Savings in our society... or lack there of. Our country actually has a negative savings rate. As a whole, Americans spend more than we make every year slowly eating away at our savings. He gives a couple great illustrations that show the importance of saving and starting young. He also stresses that you're never too old to start. If you're "sucking wind" you should be saving money.
He doesn't get in to the Baby Steps in the first section other than saying that savings are handled in Baby Step #1 and Baby Step #3. He says Baby Step #1 is both the easiest and the hardest of the Baby Steps. It's the easiest because we can all scrimp together $1000 (it takes some longer than others, but we can all do it). It's the hardest step because it means you're about to make a change. Change is hard and taking that first step can be very difficult.
So, how do you take that first step? For every one it's a little different. It may be a matter of forgoing your weekly Starbucks in order to set aside $5 per week. You may have to part with some of your favorite things and have a big garage sale. Maybe it's already in your bank account under a slightly different guise. For us, it was the latter. For us it was a mental barrier. Tim would panic if our bank account fell below a certain level. He had never lived paycheck to paycheck and had this set number in his head that he thought had to be there. It was hard to convince him that it was okay to let go of that idea and be happy with $1000.
In order to really make it effective we decided to set up a special account just for our Baby Emergency Fund. The other part of the equation is that you have to have a hard discussion with your spouse and come to an agreement about what is an emergency. Christmas is NOT an emergency. Buying a new iPhone because your current cell phone isn't working is NOT an emergency. Once you have your emergency fund in place, it's important you set up sinking funds so that you are more prepared for your expenses and those regular expenses - plates, insurance, Christmas - don't become emergencies.
Some thing else he discusses that really hit home with me is how having an emergency fund can help you become "Murphy" proof. I think this is more true with Baby Step #3, but I think it applies to any amount of savings. If you have a sudden car repair that costs $250, it's a lot less of an emergency when you have $1000 sitting in an account for such a situation. Yes it sucks! Yes you will have to rebuild the fund, but it's not insurmountable. You did it before and you can do it again.
Do you think an emergency fund can make you "Murphy" proof? Will taking that first Baby Step be the easiest step for you or the hardest? If you haven't already done it, DO IT NOW! Do what ever you can to save $1000. Set it aside in its own account. Don't touch it. Move on.
Next week: Relating with Money