Enjoy this excerpt from the February issue of The Family Forum newsletter.
I’m starting to understand why it’s great to have savings instead of putting every extra penny towards debt repayment. What a great feeling to pay cash for needed items or emergencies instead of pulling out the credit card!
I read the book America’s Cheapest Family Gets You Right On The Money by Steve and Annette Economides. They go over every aspect of a budget and I learned a lot from their section on Savings. This really is a great resource and I highly recommend it!
There are two kinds of savings—one for emergencies and one for expenses that you know are coming up in the future.
Emergencies would include things like unexpected travel expenses, home repair, car repair or unemployment.
Here’s the breakdown on what to start saving for those categories:
Emergency Travel—How many people are in your family and how much money would it cost approximately to fly them wherever you’d need to go to visit family unexpectedly? Our family has 4 x $500 = $2000.
Home Repair—About 1% of your home’s value. Our family needs about $1800.
Car Repair—About $1000-$1500 per year above gas and maintenance.
Unemployment—3 to 6 months worth of pay.
Realize that these savings could take years to build up (!), and that’s OK (breathe).
Now for the expenses you know will come up sooner rather than later—car replacement, property tax, kid’s activities, even CAA and credit card fees. (We only have a card with fees because we collected a bunch of Aeroplan miles from the home renovations. We might cancel this card soon, but we earned enough points for Josh to fly to Chicago 5 times to finish his Master’s degree!)
Assign a value to each of your upcoming expenses, put it in the budget, and start saving! It feels great to watch the savings grow and the debts shrink.