Emergency Savings vs Savings

Tip #4:

There is a difference between an emergency savings and a regular savings. The regular savings can be used to buy a car, for a down payment on a home, or for preparation to take a trip. An emergency savings is a small fund that individuals invest into for a “rainy day.” The emergency savings should not be touched unless there is an emergency. Shopping is not an emergency. Going on a trip with friends at the spur of the moment is not an emergency. Your car breaking down and that is needed to get to and from work is an emergency. Your child needing emergency surgery that your insurance will not pay for is an emergency. You just want to be able to take care of anything that comes up in your life without stressing.

You want to keep both accounts separate. Even if you invest $15 from each check into the emergency savings account, that will leave you with $360 a year that can be used in a time of need. Start putting something away in your emergency savings and savings account. Every penny really does count. Budgeting is the best way to see the plan.

Let’s walk that path of financial freedom!

Small Spending

Tip #3:

It is not the big spending that puts us in financial trouble. The $7 here, $5.25 there, and the $12 everywhere is what gets us in trouble. Yep! Small spending does it all the time. Smaller amounts may look like no big deal until you check your bank statement. A lot of times, the smaller amounts come from unnecessary spending. Small amounts do add up! One minute, we will have $500 in our account and then we will look up and have $285. Watch your small spending and keep track of all receipts. A lot of those unnecessary expenses can go towards paying on your credit card, paying on some loans, or even in your savings!

One step closer to financial freedom!

Sale Does Not Mean Saving

Tip #2: Sale does not mean saving!

Just because an item is on sale does not mean that you are saving. The fact still remains that you went out and spent money. This was one of the hardest lessons that I had to learn. I thought because of a price being $50 to $100 cheaper that I was saving. In reality, I still spent money. The market price of the item might have dropped, but so did my value of my finances.

Saving is the putting away money without touching. Spending is the act of transferring cash from your account to someone else’s. When I go spend money on sales, I am still transferring money out of my account. A lot of times, the sale are on items that have been marked up at least twice of their cost, so you are paying the original price or a price that still brings about profit.

Three Times Rule

Tip #1: The Three Times Rule.

After purchasing an item, one should have three times that amount left in their account or on-hand (cash). If one will not have three times the amount of the price of that item, then one cannot afford it. The reason of the Three Times Rule is to make sure one has money for emergencies. For example, I go to the store and see a pair of shoes that are on sale. The shoes are $150 and regular price, they are $250. I check my account and see that I have $200. I remember that all bills are paid and this is my fun money. I buy the shoes and on my way home, something foes wrong with my car. To get my car fixed is going to cost $150. The car is needed to make sure that I get to and from work every day to continue making the money that I spend. Now, I have to find a way to take the shoes back to get the money I need to fix the car. Given that I would only have less than $50 left (don’t forget about the sales tax), that does not leave much wiggle room for me. The shoes are not a priority. My financial future is.

Now, everyone has a different budget. Necessities are not included in The Three Times Rule. The rule applies to unnecessary spending. Try to cut back on your unnecessary spending and put it towards your savings.