Financial Priority: Establish Savings

It's a grim reality to consider, but if you lost your job, how would you cover your living expenses? Would you rely on credit cards to pull you through like so many unemployed do? With credit card issuers slashing limits, raising rates, cancelling accounts and denying applications altogether the unemployed can no longer depend on credit to cover expenses. Emergency cash savings is critical.

Financial experts recommend stashing 8 months worth of living expenses. You're likely thinking, "Yeah, right. How on earth am I going to pay off my debts and put enough away to cover 8 months worth when I'm barely covering costs now?" Well, no one said it was going to be easy. And quite frankly, it may not even be possible for you and your situation. The key is to ask yourself, "Am I doing everything possible to improve my long-range financial security?" This question is a call for complete honesty. It doesn't matter what anyone else is doing, or not doing for that matter, this is about you. Are you doing everything in your power? What is your financial security worth to you and your family?

Given the current economic circumstances, now is the perfect time for serious reflection and evaluation of principles and goals. Here are some simple, yet effective, tips to get the ball rolling.

Stop creating more debt

This is the first step to establishing any kind of savings plan. One, the money that is going toward interest payments could be going into savings instead. Two, by not financing purchases you are getting into the habit of only buying things you can afford now. If you don't have the cash, you can't afford to buy. Third, should an emergency arise where you can't meet all of your monthly expenses, creditors are usually the last to get their money. If you don't have any credit card debt to start with, you won't have to worry about outstanding balances that continue to accrue interest.

Start somewhere

Even if you can only manage to save $25 a month, do it. Most the time it takes baby steps to establish a new habit. Eventually you will see those smaller amounts grow bigger. You will feel a sense of accomplishment and are likely to take another look at your budget and spending habits and find other ways to save.

Roll paid off debt into your emergency fund

When you finish paying off a credit card or other debt, take the amount you were paying each month on that debt and put it into your emergency savings. Your budget will stay the same while you are building your reserves.

Have your emergency funds automatically deducted

It requires discipline to physically put money away every month. There is always something we would rather spend our money on. If your savings are automatically deducted each month, either from your checking account or directly from your paycheck, you won't have to make the decision every month to pull it out. It's done for you and you simply get used to living on a reduced amount of income.

Add it to your other bills

Every month there are bills that need to be paid before you can determine how much you have left over for other discretionary items. Treat your emergency fund like a bill and pay it at the same time every month. Soon it will become habit and you will start to see your savings grow.

Cut back

There is always somewhere you can reduce your spending. Take a look at your monthly expenses and see where you could shave a few dollars. Deposit whatever you save directly into your emergency fund. Some great areas to cut back are smoking, drinking, ordering desert…cutting out any of these will drastically reduce your discretionary expenses. For instance, quitting a pack-a-day smoking habit will save you around $150 a month. Another bonus, you will be healthier and are reducing your chances of dipping into your emergency fund.

Save bonus income

Any time you receive money that is above and beyond your normal monthly income, like a tax refund, Christmas bonus, rebate, wages for overtime, etc., put it directly into savings.

Save change and dollar bills

Don't spend your coins. At the end of everyday put any loose change you have in your pocket or wallet into a jar. The same goes for dollar bills; whenever you get change back from a larger bill, take the singles and put them into your jar as well. Once a month deposit your savings into your emergency fund. You'd be surprised how fast change and singles can add up.

Pick up extra work

Use your skills and some of your leisure time to earn extra money. Babysit, clean houses, do yard work, get a paper route, etc. There are many things you could do to bring in a little extra cash. Plus, by using some of your leisure time taking on extra jobs, you won't be spending as much on recreation and entertainment, adding even more to your savings.

Starting seems to be the hardest part. So, stop procrastinating and put just one of these suggestions into action today. You will experience greater peace of mind simply knowing that you have at least started your emergency savings.