Step 1 for Financial Independence: Start building an emergency fund

Building an emergency fund helps encourage financial management skills and serves as a buffer against some debt.

Having a stable job proved to be a problem for me in my 20s when it came to saving.

Since I could expect two paychecks a month, I used this to justify my pitiful savings account balance. I used “future money” to finance present me’s decisions to purchase plane tickets, new clothes, and pretty much everything else.

What I needed was an actual savings account to build wealth instead of simply trying (and sometimes failing) to pay my bills in full each month. My difficulty getting over that mental block needed to be addressed.

If you’re at all like me, you might ask, “well where is this money going to come from?” I realized I needed to prioritize my savings account balance and “pay myself first” before blowing money on food delivery when I was feeling lazy.

The easiest way for me to start building my savings was by setting up automatic transfers of part of my paycheck into a separate savings account–and leaving that money there to grow. I set up an online money market account right after college, but my terrible habit of transferring money directly back to my checking account to cover credit card bills needed to stop. I made a deal with myself that I would only start with $200 per paycheck in my account and I WOULD NOT TOUCH THAT MONEY.

Here’s a great overview of the types of savings accounts you might consider from FI Principal

I stopped obsessively checking my account and treated the money like it was not there at all. I’m very fortunate to have an extra $200 in my paycheck, but you can start with as little money as you can afford. Most middle income earners, however, may be surprised to find that saving money can be easy if you budget your expenses and automate your savings.

Saving $200 did not hurt me. And seeing my balance consistently grow (I only checked once a month to make sure my direct deposits went through) gave me motivation to eventually change my direct deposit to send more money to that account.

Watch that savings account balance grow!

$200 might be impossible for you. And that’s ok. You can start with something small – as little as $5 a week automatically transferred to an account. You might be surprised at how you do not miss that money. And possibly even increase that amount sooner than you might expect!

A great beginning goal is to build $1000-$2000 in that savings account to help with those small unexpected expenses that usually go on a credit card. Keeping this money liquid (read: quick to access for emergencies) can help cover those car repairs or other costs that seem to creep up when you least expect them. (Note: fun vacations or expensive “treat yourself” days are not emergencies, unfortunately…)

An overall goal for most families is to have 3-6 months of living expenses accumulated in a savings account in order to help offset the major emergencies no one wants to plan for – like a job loss or illness.

Developing strong patterns of savings and can help improve your financial life dramatically. The emphasis on savings for me helped motivate me to rein in my spending and appreciate a growing account balance more than a new pair of shoes.

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