Financial Freedom in 2021! Take Action: Day 3
You’ve set your priorities, but how much money will each require? And how much more must you set aside for emergencies and retirement on top of amounts saved for the fun stuff?
According to the top names in personal finance, setting up an emergency fund is first on the list. What’s that number for you? Research shows that nearly half of Americans would not be able to cover a $400 emergency without using credit cards. Because of this data, many experts recommend having cash saved up and accessible in the amount of 3-6 months of expenses. During these uncertain economic times, many are saying to double that number.
However, in episode #153 of the How To Money Podcast (pre-pandemic), hosts Joel and Matt revealed that $2,467 is the specific number to shoot for according to some economists. Only you can determine what your emergency fund comfort level is. Take into consideration the following personal situations that may have an additional effect on it: family member in declining health, an older vehicle, an unimproved home around 15-20 years old, and/or desire for a career change or business start-up.
Whatever your number is, strive to reach it as quickly as possible. Priorities, goals, and dreams may become distant memories if a financial emergency thwarts your personal progress.
After identifying your target for an emergency fund, decide how much money to set aside for your other top priorities this year. Here’s an example of how to determine what to budget for a specific purpose:
- Priority: Early Retirement (by age 50)
- Goal: Contribute $24,000 to investment accounts in addition to 401K investing
- Deadline: Dec 31, 2021
- Frequency of Contributions: Max out Roth IRA’s by Feb 28th and then contribute monthly to brokerage account
- Necessary funds: $6000 in Jan, $6000 in Feb, and then $12,000 from March through Dec ($12,000/10 = $1,000/month)
Take some time today to place a total dollar amount and a deadline next to each of the top priorities you listed yesterday. (If you don’t already have a sufficient emergency fund, you might want to determine an amount that’s comfortable for you and add that to the list.) Prepare to include these totals in an annual budget, and as the month goes on, I’ll share a few ways I was able to increase our family’s savings rate from a negative percentage to about 30%, in addition to what we budget for travel, family traditions, tithing, tuition, and gifting.