I’m not talking about what you “could have” spent if you didn’t get those shoes on sale. I’m talking about purposeful, methodical accumulation of funds. A savings attitude will serve you well when Wealth Building for retirement and kid’s college funds. However, first and foremost, you will need to build a healthy Savings account. This Savings Account, known as an Emergency Fund, will be the buffer between you and that sense of doom, that horrible overwhelming feeling when disaster calls. Believe me when I say disasters come in spades.
Surviving or Thriving?
A well-funded Emergency Fund is the key difference between surviving and thriving as a Single Mom. As a Thriving Mom, you are taking control of your money. You are on a budget, out of debt and now you are building a safety net to keep you and your kids safe from the unexpected pitfalls of life. Things like illness, job loss, or any interruption in income can be difficult for most two-income families. It can be devastating to a Single Mom.
Last October, my son had to be hospitalized for 3 days from an infection from an indoor swimming pool. While still paying for what the insurance didn’t cover, he then had to have his front teeth rebuilt from a biking accident. This month alone, my slab has sprung a leak ruining my laundry room and hallway flooring and my car bumped fenders with another car (so not my fault but no one wants to believe me). Of course, I have insurance, but I also have deductibles that need to be met before my insurance will kick in for the rest.
The point is… disasters will happen and sometimes they just refuse to wait until you have recovered from one before the next disaster takes up residence in your life.
Enter the Emergency Fund!
As recommended in my blog “Money and the Single Mom – Debt” , you should have a small emergency fund of $500 – $1000 to cover unexpected emergencies as you focus on getting out of debt and stop using credit as a safety net. The next step is to make a BIG Emergency Fund. This fund should be large enough to cover your minimum living expenses for up to 3 – 6 months. This fund can support you should you lose your job, or have to take time off from work for a child’s illness, or even replace a refrigerator or buy a reliable used car. This is not the “Momma needs a Cruise or a New Car” or “The Kids Deserve an Xbox” fund. This fund is your security blanket and your Superpower.
How to Start Saving
The rule of thumb is to take 10% off the top of each paycheck and start socking it away into a savings account. Sounds easy enough, but most people who don’t have a habit of saving will most likely find this a difficult step. Most of us are stretched to the limit, as it is. Here are a few ideas to help you get your Big Emergency Fund started:
I recommend reading “Live Your Life for Half the Price” by Mary Hunt (Everyday Cheapskate) to get great ideas on how to live well for less. Borrow the book from the library and start shaving that 10% off your lifestyle and moving it into your savings account.
Look closely at your budget and start getting rid of unnecessary expenses. Revisit your insurance, your electric company, your cable and phone bills and find out if switching companies can get you cheaper rates or remove features that you really don’t use or could otherwise live without. Do this on an annual basis. You will be surprised how many new luxuries make their way into your budget each year.
Selling stuff is a great way to clear out the clutter and beef up your Big Emergency Fund. When I sell stuff, I immediately put the money into my SmartyPig account. Do you have anything that you can sell in a garage sale, eBay or Craigslist? Then take a picture and get it posted.
If you have successfully paid off all your debt, then move that payment into your savings. You’ve been living without it all this time, you won’t miss it.
A second job or overtime is always a great way to stockpile money quickly, but is not always an option for a Single Mom.
Remember that 10% should be your target, but if you can only scrap together 3% or 5% for a while, then don’t let that stop you from getting started. You will be surprised how fast it can grow even from the smallest input.
Where to put that Money!
That money needs to be some place where you can get to it when you really, really, really need it, but not so easy that you can just transfer it over to your checking account to cover an unexpected “retail therapy” shopping spree.
I recommend having it in a different bank all together and have found that some of the online banks like SmartyPig, ING, Ally can give you the best interest rates available. Do your research and you can set up an online account tied to your regular checking account with $25 or less. Then set up automatic withdrawals on your pay dates.
It will take some patience, some sacrifice and some time to reach your 3 or 6 month goal and there will be setbacks, since emergencies come unannounced all the time. Don’t give up. There will be a peace like you’ve never know when an emergency comes to take a bite out of your fund. While you will be sad to see the money go, (and it will be done with a lot of kicking and screaming) it will feel less like doom and more like a simple inconvenience.
Now You’re Thriving!
I recommend the following books for more insight into budgeting and other money matters:
The Total Money Makeover – Dave Ramsey
Debt-Proof Living – Mary Hunt
Next Wednesday: Wealth Building