Saving for emergency situations and unexpected expenses is always recommended, but if you’re on a budget can seem out of reach. 3 to 6 months of living expenses is the rule of thumb for setting up an emergency fund, but when you look at it as a whole, that’s a lot of money! Although that should be the ultimate long-term goal, I recommend you start with something smaller and try to get one month ahead.
What Does One Month Ahead Mean?
Being a month ahead simply means that on the first of the month, you already have that month’s expenses sitting in your checking account. Not aside in savings or stashed away in an investment account, but directly in your checking account.
What Are the Benefits of Being One Month Ahead
Aside from the relief of knowing all the month’s bills will be paid there are lots of other awesome things about being a month ahead for your monthly living expenses.
- You can automate your expenses and spend less time touching your money (meaning there’s less temptation to spend it!)
- You will have a better idea of whether your expenses match what you have budgeted (if here’s money left at the end of the month, yeah!. If not, you can reassess your budget to see where things got off track.)
- If there is an urgent need for money, you have quick access to your money (this should be reserved for life-altering emergencies that do not include those shoes you’ve been eyeing that just went on sale) 🙂
- You’re likely to save more money. As you’re paying with cash and you have the allocated amount each month, you’ll be more diligent about staying within budget. Make it a game! If there’s money left in the account at the end of the month, treat yourself, or use that money to bulk up your savings!
- You can ease up on the credit card spending.
- It forces you to make a budget. You can’t set your month ahead savings plan without creating a budget to know exactly what you’re spending. This is a chance to evaluate your unnecessary expenses and cut them out. I use the You Need a Budget app, which helps me not only track my spending, but also tracks actual vs. Budgeted spending in each category I set.
- No more bank charges. No need to worry about overdraft fees.
You can automate your savings and investments. Your budget should include money set aside for savings. Pay yourself first!
Things To Watch Out For
Don’t want to feel you have more money than you do. Stick to your budget
An Emergency Fund is Still Important
For anyone who experienced the economic disaster back in 2008, you understand the importance of having an emergency fund. While we all want to get out of debt, you need to be ready for the unexpected. A car repair bill. Or water heater that decides it’s warmed its last shower can put you in a serious hole. I recommend paying yourself first and then attacking that debt. I mean, keep making your regular payments, but don’t do anything drastic until you’ve taken care of yourself first.
You buy insurance for everything else (car insurance, health insurance, homeowner’s insurance, or renter’s insurance, etc.) Why not make a way to insure your finances? Put on your oxygen mask first If you are self-employed (or hope to be one day) having savings set aside is especially crucial given the uncertainty of income from one month to the next. It can be feast or famine.
Start with $1,000
If you’re on a tight budget, start with saving $1,000. David Ramsey outlines a plan for creating a $1,000 emergency fund which you can read about here. I read this book when I was starting out in getting my financial life on track.
What tips do you have for saving your first $1,000 and getting a month ahead? We’d love to hear them!