For many, 2020 was an unprecedented year as COVID-19 rocked the world with its devastating impacts on families, jobs, hospitals, businesses, and even our social life. It was indeed a year that none of us will ever forget. If there is one lesson we can take away from 2020, we must be prepared for the unexpected. When it comes to your finances, the best way to be prepared is to have an emergency fund.
A healthy emergency fund is a savings of three to six months worth of expenses sitting in an account, untouched and used for emergencies only. This may seem like a hefty savings goal, but you can accomplish this by breaking it down into small steps. Your first savings goal should be equal to one month worth of expenses. Knowing the exact dollar needed to finance everything from buying toothpaste to paying your rent/mortgage will help understand how much money it truly takes to operate your household. Once you have identified this number, you will have a target for your first savings goal.
This year I highly encourage you to make saving a priority and complete the first step of your emergency fund as quickly as possible. Sell the extra bed in the attic, work overtime, pick up a second job, have a garage sale, explore your talents, and turn them into a business, cut back on eating out. Do what it takes to start your emergency fund today and when the next emergency arrives, hopefully not another year like 2020, you will feel more prepared. One month of expenses is just the start of building your financial plan.
Meet the Alstons; they are a local family who became completely debt-free, including their home and created a business to help others find financial freedom. You can reach out with any questions at firstname.lastname@example.org.