Everyone needs at least six to eight months of living expenses in your emergency savings fund. Try to have more if you think your company may be going through layoffs soon. Here are some of the worst reasons I have heard from people for not saving:
1. Money is too tight now.
Money is always tight if you don’t make it a priority to save. What do Mike Tyson (boxer), Donald Trump (entrepreneur), and Larry King (talk show host) all have in common? They all made lots of money but filed bankruptcy anyway. It’s not how much you make that’s important but how much of what you make is actually saved.
The best way to save is to always pay yourself first by having part of your paycheck automatically deposited into your emergency saving’s fund. In addition, you should set up your accounts to automatically deposit any extra cash you get into your emergency fund. Extra cash includes things like getting a raise, a tax refund, a bonus, or a windfall. If you get a 5% raise, put 2% into your savings account.
2. I deserve to indulge myself and buy whatever I want.
The purpose of an emergency savings plan is not to deprive yourself but to help you and your family in an emergency. If this is your favorite excuse, try having two accounts. One for emergencies and one for occasional indulgences.
3. I’ll get around to it later.
That someday never comes. You can never predict when you will have an emergency.
4. I don’t trust banks.
This is actually more common than many people think. However, it is difficult to build up savings if you don’t have a safe place to park your money. The key is making sure your bank is FDIC insured up to the amount of your deposit.
5. I’m going to win the lottery.
Sorry, but this will most likely not happen. But even if it did, about 35% of lottery winners of more than one million dollars are in financial difficulty or have filed bankruptcy within 10 years of hitting the jackpot.