Be Prepared for Unexpected Expenses 

Experts recommend 3-6 months worth of living expenses (necessary expenses like rent, student debt, car payments) for an emergency fund. It might not be fun making some adjustments now to attain your savings goal, but it will be worth it later. 

These funds are to be used in case of unexpected situations and expenses (including traveling to a funeral, a family member getting sick who you must care for), unemployment, or a medical bill for either you, your child or pet. It can also be used for gifts, property taxes, home repairs, or vehicle maintenance. 

Having a reserve fund gives you freedom to make choices when a situation presents itself, like paying off a bill or repair cost, helping a family member, or even investing in a business. It should not be used for making a down payment on a house, college expenses, vacations, or a new car because you should be planning for those things separately.

A savings or a money market account are good options because you want these funds to have liquidity and availability while also earning some kind of interest. A checking account is ok also, but usually they don’t offer interest, or a minimal interest rate. To maximize your savings, you should consider short-term and long-term CDs that offer various rates and terms to meet your savings goals and risk tolerance. 

Using Credit Cards and Lines of Credit for Emergencies

Don’t confuse having available credit, such as credit cards or lines of credit, as a source of savings. Credit cards and lines of credit are short-term resources to be used for emergencies, but treat them as such. Using credit to pay for things should be considered a 12-month or less commitment. Interest rates on these types of credit can add up and cost more than they are worth, so make it a goal to either pay off credit lines monthly or as quickly as possible. 

A smarter use of credit are things like refinancing home loans to consolidate longer-term debt and establishing Home Equity Lines of Credit for emergencies. These tend to offer better terms and rate options and could potentially offer tax advantages. 

Plan Your Savings Based on Your Goals

Motivate your savings plan with goals, such as saving for a big purchase, going on vacation, retiring early, or investing in your children’s education. Always keep a portion of your savings for strictly emergencies, but having these other financial goals will keep you focused and prevent you from using credit cards for long-term or large purchases that could cost you more in interest than necessary. 

Set Incremental Saving Goals

Start saving today and aim for a reasonable amount, like $500, and then once you reach that, shoot for $1,000 and so on and so forth until you reach your personal goal. 

How much do you need to save and for how long to reach your first marker? A little each paycheck, even thinking of it as $20 once a week for 6 months, can make a difference and you’ll have $500 by the end of that period. Any amount is better than none. 

Smart Management of Unexpected Income

If you receive a bonus or tax refund, consider using a portion or all of it to contribute to your reserve fund. Set aside your savings as soon as you receive your paycheck so you don’t spend it on anything else. Or consider setting up automatic payments directly into your savings account each pay period. 

Before using your savings cash to pay off your credit cards, make sure to set aside some funds in case of emergency, at least $500-1000 so that you won’t have to rely on paying with a credit card while working to pay it off.

Here Are Some Ways to Build Your Savings

Here is a checklist of saving options that you can incorporate into your spending and savings habits that can quickly add up.

• If you have some stuff in storage or lying around the house that you aren’t using anymore, consider selling it in a garage sale or on community sites to earn some extra cash. 
• Consider getting a second job for a while to help achieve your goal quicker. Working from home might be an option if it helps you with commuting expenses or day care costs, even if just a couple days/week. 
• Be aware of your home consumption, meaning leaving lights on, letting the water run, your current cable package or making unnecessary purchases at the grocery store. 
• Eat in and save money on eating out. 
• Order water at restaurants to bring down your bill. 
• Make your coffee and lunch at home. 
• Skip vacation one year and stay home or choose a cheaper location/trip. 
• Use only your bank’s in-network ATMs to avoid unnecessary transaction fees. 
• Think of free options of entertainment. Many local cities have dozens of free events or low-cost suggestions. 
• Talk to family and friends about gift spending limits, especially during the holidays. 
• Shop around for auto insurance and home insurance rate options.

There When You Need Us

Talk to a Home Bank of California banker today about your personal and business savings goals. Call us today at (858) 270-5881.