Building up your savings a great stress reducer
Stress for Success
May 20, 2008


Spending less than you earn seems simple enough, but apparently not for Americans. CBS News reported recently that Americans’ annual savings rate is only .4%, versus Germany’s 10.4% and France’s 12.8%, leaving many Americans financially stressed!

It’ll lower your stress to create an emergency fund in case you lose your job, or a hurricane blows your roof off. Aim for enough cash to cover three to six months of expenses. For monthly expenses of $4000, you’d need $12,000 to $24,000. That’s a lot of money.

Difficult as it may be, it’s worth it because of the freedom it provides. So if you hate your job but feel powerless to leave because of financial responsibilities, having this cash gives you options.

To successfully create an emergency fund you must:
Save money regularly. Consider savings a bill that you must pay.
Use it only for emergencies

To get started:
First, pay off all credit cards and commit to never carrying a balance again. Since credit cards typically charge a minimum 18% interest, and savings pay only 3%, logic says to pay them off before starting your emergency fund.
Saving $12,000 could take years so start by putting aside at least $1,000 as a cushion to help break your dependence on credit cards. Use it versus credit to cover unexpected expenses.
Split your income above expenses between savings and investments. Once you’ve reached your emergency fund goal, put all extra money into investments.

The Kiplinger Letter, an excellent financial newsletter, also recommends that you:
Pay yourself first, at least 10% of your income or as much as can, from each paycheck before it’s spent on anything else. Have it automatically deposited into your savings.
Plug spending leaks. Track your spending for a few months. Check out Kiplinger’s system at http://www.kiplinger.com/personalfinance/tools/budget.html. Include virtually everything you spend, including that $2 morning coffee. Once you know where your money goes look for areas to reduce. What can you give up? Cut back? Downsize? Create a revised budget and track your expenses for as many months as necessary until you automatically live within this new budget.
Save extra money, weather from Uncle Sam or a work bonus. If you get a raise, stick to your existing budget and put the extra income into your savings account. Once you’ve paid off a monthly bill in full, continue to put that money into your savings account.

Consider three features for where to put your emergency cash:
§ Accessibility: because it’s for emergencies it must be available whenever you need it. Earmarking money in your checking account is too available. Open a separate savings account and access only in case of emergency.
§ Safety: put your savings into an FDIC-insured account versus the stock market.
§ Profitability: get respectable interest. Talk to a financial advisor about high-yield money market accounts or go to Kiplinger’s free Internet search for the best rates at http://www.bankrate.com/kip/rate/mmmf_mmasearch99.asp?web=kip&prodtype=chksav

Get started saving something soon, no matter how little it is. It’s a great stress reducer.
Jacquelyn Ferguson, M. S., of InterAction Associates, is a trainer and a Stress Coach. E-mail her at www.jackieferguson.com with your questions or for information about her