Are you trying to decide between saving money or paying down debt? Maybe you’re intimidated by trying to save a certain amount because you’ve never been “good” at saving money, or you’re tempted to pay off some of your big credit card balances or student loans with every spare dollar you have. But if you don’t have any savings for unexpected expenses, you’ll be stuck using credit cards and adding to your debt instead of paying it down.
Instead of trying to decide between paying off debt and saving, you can do both by asking yourself a different question: “How can I pay myself first?”
So many of my clients start out saving their leftover money after rent, utilities, and other expenses each month, but I want you to start paying yourself first by setting aside money each month for an emergency fund before you allocate your money anywhere else. Even if it’s just $25 a month, consistently saving any amount helps you build that muscle and lays the groundwork for you to save more over time.
In today’s episode, I’m going to help you rethink how to save money for yourself and reevaluate just how much money you need to save in an emergency fund for your specific circumstances (and it might differ from some of the classic advice you’ve heard before).
This shift in your mindset will let you build confidence in the belief that you ARE someone who can save money, save consistently, and prioritize your own financial health. You’ll be able to plan how you save, find opportunities to boost your savings, and feel in control of your financial future.
In this episode, you’ll learn…
- How you can save money and pay down debt at the same time by paying yourself first [02:07]
- Why you should start saving money, no matter the amount, and how that habit will build confidence in your belief that you CAN save money [03:53]
- How you can create a year-long plan to meet your savings goals [07:10]
- Why $1000 is a starting point for your emergency fund and how to create personalized savings milestones for yourself and your unique circumstances [10:12]
- Why you should keep your emergency fund in a separate account so that you know exactly what it’s for and how it’s working for you [15:19]
- How you can boost your emergency fund to stay ahead of life-style creep, reduce your expenses, and be prepared for unexpected financial upheavals [16:49]
Tune in to this episode of Money Files to start saving for your emergency fund and prioritizing your financial health.
Are you ready to save more and build an emergency fund that is tailored to your financial circumstances? Apply to work with me, and let’s start working towards your financial goals.
Did you find this episde on shifting your mindset around saving to be helpful? Check out this episode on how to set up money dates for yourself too!
[00:00:02] Hi and welcome to Money Files. I’m Keina Newell from Wealth Over Now. I work every day with professional women and solopreneur is to help them get out of financial overwhelm and shame so they can experience more flexibility and ease with their finances. Are you ready to gain confidence and learn to manage your finances intentionally? Tune in and grab financial tips that will help you master the way you think about and manage your finances. Hello and welcome back to another episode of Money Files.
[00:00:34] So today I want to talk to you about saving for a rainy day fund or an emergency fund. And I am specifically going to be speaking about personal finances. I think it’s important for us to have a rainy day fund or an emergency fund. If you’re a business owner, you should have one on your business side as well as on your personal side. I know I had a personal savings before I transitioned into full time entrepreneurship, and then I also made sure that on my business side, I also had an emergency fund or a rainy day fund as well before I transitioned into full time entrepreneurship. Because if you have worked with me or you’ve heard me talk about business finances, like you have your company and then you have yourself. And so you are, for lack of a better word, an employee of your company.
[00:01:26] So if you’re listening to this and you’re thinking about how this may apply, this can still be a goal that you have on your personal side if you are someone who is in business for yourself. And at a later time, I’ll talk about building a rainy day fund or an emergency fund in your business as well. But the reason that I want to talk about this is someone in my Facebook group actually asked them about podcast episodes that would be interesting and topics that they wanted to learn about. And so someone asked me about should they pay down debt or should they save money? And I’m going to get into that not in this episode, because I think I mean, my standard answer there really is it depends because there’s so many different things.
[00:02:07] But I wanted to give you my own personal view in terms of like saving and some of my thinking. So you can adapt anything that serves you and really make saving money something that you do consistently. Because I do believe that you don’t have to have an either or approach when it comes to paying down debt or saving money that you can do both. And I say that because I’ve done both, have been the person who has had credit card debt, had student loans. And I also was saving money because when I think about saving money, the importance of saving money and having this rainy day fund or emergency fund is really so we’re not having to turn to our credit cards and that debt doesn’t increase on that side.
[00:02:54] So that’s why I want to just to specifically pull out how I think about saving money and give you some thoughts that I have about saving money to help you build an approach for yourself. So one of the common problems that I see or hear about in working with clients is that they save what’s left over at the end of the month. If you could see me right now, I have my hands are moving downward and I am mimicking like an upside down triangle because I think at the top of this triangle, which I would think of it as like a funnel at the top of that, I want you to always be paying yourself first. We pay everyone else, right? Like we pay whole foods. We pay Netflix, we pay Amazon, we pay our gas company, we pay our mortgage, we pay our rent. But so many of us are not making sure that we’re consistently paying ourselves. We give ourselves the last of what’s left over.
[00:03:53] And you might be in a position where you’re like, I don’t have a lot of money to save and I can’t look at your finances. So I don’t know if that’s 100% true, but what I do know is that you can start somewhere. Saving is about building a habit, and so if you can commit to the habit of saving, you’re going to build your belief that you’re someone who saves. So you can consistently save maybe $25 a month, $50 a month, $100 a month. Don’t let the fact that you think that you if you can only save $25 a month, then it’s not worth it, because that’s not true for some of my clients. Like we might have to start at $25 a month or $50 a month, but I still encourage them to put it in their plan because I want them to build the habit of saving. Then they’re going to build the belief, like I said, that there’s someone who saves. Then they get to build the belief that there’s someone who saves consistently.
[00:04:57] And as they continue to increase their income over time, they’re also going to prioritize saving money as they make progress. Because now saving money is something that they’ve proven they can do. They’ve proven they can do it consistently, and they’re looking for more opportunities to save. And it starts to feel good that they’re saving money like, Oh, I’ve never had $300 before. I never had $1,000 before. I’ve never even been someone who could save money before. And so if you’re listening to me and you’re thinking like. I don’t have any money to save. I want you to start paying yourself first and just start somewhere. Hear me clearly. Start somewhere. And I, like you, have had to just start somewhere.
[00:05:44] And I’ve had to be the person who can save $25 a month. $50 a month, because I had other obligations as well. Like, I’ve had the rent. I’ve had the student loans. When I moved to D.C., my income increased, but my expenses increased. And so my ability to save really went down compared to where I was living before I moved to D.C.. So now I’m only telling you what I actually know works, and I’ve actually implemented this in my own life. So prioritize saving money and then as you make progress, you will continue to save more money. And you’re also going to be able to think about if I get extra income, how can my first thoughts be about saving money when I get this extra income? It’s going to help you just shift your way of being. I think about if you get an extra $100, you might be like, okay, well, let me put 10% towards my rainy day fund because that’s just what I always want to do. Then if you always have that way of thinking, or maybe you’re going to put 50% of it towards your rainy day fund, if you have that way of thinking when you get $100, you’re going to put let’s say you’re going to put 50% of it away. Well, then that would mean that you put 50 $50 into your rainy day fund. If you get $1,000, that means you put $500 towards your rainy day fund.
[00:07:10] But do you see how you’re just going to be able to build this way of thinking? You’re going to be able to build habits. And so that’s going to help you increase your saving over time and be that person who saves. So wanted to start there to tell you to build the habit and to start somewhere. Another approach that I offer to clients is to create a goal for how much money they want to save in the next 12 months. So if in the next 12 months, let’s say you wanted to save $6,000, well, you would take the $6,000 and you would divide it by 12. And so that means that you would want to commit to saving $500 a month. And if you’re going to save $500 a month, I suggest that you set up a savings account that’s attached to a high yield savings account. So maybe you’re using Ally Capital One has a great performance savings that at the time of recording this podcast, interest rates are up near 2% or in high yield savings accounts. And so you can then set up automatic transfer. So you have the $6,000 goal that’s going to take $500 a month. If every time you get paid, you can get $250 transferred automatically to this high yield savings account. And the auto transfer is really where the consistency comes in, because if it’s just the thing you do, you’re going to become the person that pays themselves automatically.
[00:08:39] That’s just what you do if you want to take it a step further, my favorite hack is to ask your H.R. department to separate your paycheck so you can tell them, Here’s the routing number, here’s the bank number. Every time I get paid, please put $250 into this bank account so it won’t ever hit your actual account. And so you’ll just have this account over to the side where you save money. So I love the idea of being able to create a goal divided by 12 and that be the amount that you set aside each month. You want to say $1,000. That means you’re going to commit to saving $83.33 every single month. And so you can set that up and you’re going to know that you’re going to reach that goal because we’re all going to have a budget that’s aligned to this. You’re going to reach your goal because you are setting that intention. So remember, you’re starting somewhere. You can also approach your goal by creating an overall goal to say, Here’s how much I want to save within the next 12 months. Divide that by 12 and set up auto transfers. So I know that a lot of people come to me and they have already saved $1,000 because on the Internet, there’s a lot of information about saving $1,000 like that should be your emergency fund. And I think that $1,000 is a really great starting point.
[00:10:12] But there’s a couple other things that I want you to consider. One, I want you to consider. How much debt am I in? Okay. I want you to consider. Do you live in a high cost of living area? And then lastly, consider how much would you need to cover a month’s worth of essential expenses to keep the lights on? And the reason I want you to consider all of these things when I think about like how much debt you’re in, sometimes I have clients that are really trying to accelerate how fast they’re paying off their debt, and maybe they’re in a lot of debt. And I also want them to have some type of sometimes we’re going for also by creating balance so that they can actually have some money that they’re saving. And we’re not putting all of our money towards debt. We want to actually save some.
[00:11:03] And the reason that we want to save some is, like I said earlier, is you want to make sure that you’re not using your credit card for things that would normally catch you off guard. But when I moved from Saint Louis to D.C., I moved to a high cost of living area. And I knew that $1,000 wasn’t even enough to pay my rent. And so I wanted to be able to make sure that I could take care of food and shelter for at least a month when I thought about my emergency fund. And if I think about this thousand dollar goal, like I said, that wasn’t enough to pay my rent. Also, if I lived at a lower cost of living area, so in St Louis I paid like $600 for rent. And then the last apartment I had in D.C., I was paying $800 for rent. Like guys at 1800 dollars for rent. I didn’t feel like I could go work in McDonalds and like afford to pay my rent. Whereas in D.C., not in D.C., but in Saint Louis, I felt like if I needed to, I could have picked up a job at McDonald’s and made enough money to pay my $600 worth of rent.
[00:12:17] And so really thinking about the cost of living shaped how I also thought about how much money I wanted to save in my rainy day fund and how quickly I wanted to save that money because I knew things like unemployment really wouldn’t be able to cover like my essential expenses. I knew I didn’t have access as an educator at the time to the severance package, and so that wasn’t going to be an option. And picking up extra hours at minimum wage wasn’t really going to help close the gap. So those are the things that I considered when I thought about how much money I wanted in my emergency fund.
[00:12:53] So I think $1,000 is a really great starting point. But then from there I said just that your next milestone is to build an emergency fund that equals at least one month of your expenses so you can think about your essential expenses. So just thinking about all the bills you would need to make sure that you pay, including your rent, utilities, your cell phone bill, write like those things and identify what that number is or if it’s easier. You could also look at like, how much is my take home pay in a month? And you could let that be your first goal beyond the thousand dollars. So get to $1,000. I think that’s definitely worth celebrating. And then after you get to the thousand dollars, get to a month of expenses, that’s my recommendation.
[00:13:40] And after you get to your one month of expenses, you don’t just want to stop there. Your next goal would be able to get to three months and expenses. And so that’s really thinking like, you know, if you had to cover a job loss and you couldn’t find a job for 12 weeks, what would that look like to make sure that you could cover your expenses from month to month while you’re engaging in a job search? And it’s going to allow you just to experience more ease and less drama about what’s going on. And then eventually you also want to get to six months. So like you can go from $1,000 to one month to three months to six months. And it is going to help shape over time how much money you want to be saving.
[00:14:26] And I think there’s different reasons that people use their emergency funds or their rainy day funds over time. And please know, I should also have said this earlier, that when I’m talking about a rainy day fund, when I’m talking about an emergency fund, this money is not things that I’m talking about, like using it for travel. I’m not even necessarily talking about like auto maintenance because when I’m talking to my clients, the thing that I encourage them to do is like, you know, that you have a car. And so I want you to be able to plan that you would get tires in your car, an oil change on your car. Like hopefully we would have those things built in and hopefully you would have those things built in because you’re going to listen to my podcast or you’ve worked with me already, or you’re here today and you’re gaining tips and you’re going to download my spending plan and those are going to be things that you plan for.
[00:15:19] So your rainy day fund and your emergency fund really can be for a rainy day or an emergency, and you can look at having money for travel and things outside of that. So I just wanted to say that because I also encounter that people sometimes have like one large pot of savings and I ask them what it’s for and it has like 18 jobs. It’s like, oh, this is like my home phone plus my wedding fun. Plus if anything bad happens and travel in this and this and that. And so they have like a litany of things that this one pot of money is supposed to do. So I make them, like, separate it out to name exactly what the money’s for. So when they go to their account, they can actually see, Oh, this money is for travel emergencies, whatever that may look like for yourself. That’s another tip I should give you is that I love the function on a lot of the bank websites where you can actually name your accounts. So you can name that account emergency, you can name that account live in the life. You can name that account. I ain’t got no worries. Whatever it is that makes you excited about saving and knowing that that money is going. Or, you know, when you’re in a pinch and you want to make sure that you can live with ease. Name that account. Make it something that brings you joy.
[00:16:36] So we’ve talked about the habits that I want you to build with saving. We’ve talked about an approach to like setting your goals. We’ve also talked about how much money should be in your emergency fund. I would also tell you to consider ways to boost your emergency fund. So the plan that you have to save consistently each month. And then there’s also going to be opportunities where you like might be able to give your emergency fund some big boost. And this comes from you choosing to be intentional about how you want to manage your money. So you can decide in advance ahead of time. And you could say, whatever, I get extra money. I’m going to set this percentage of my extra income towards my savings. So maybe you want to say, like, I always put half of this towards savings. I always put 20% of it towards savings. And so you don’t have to feel guilty about extra money coming in and maybe like wanting to spend some of it because you know, that you set a priority, that whenever I get extra income, 20% of it always goes towards my savings. Right.
[00:17:49] And specifically, remember here we’re talking about rainy day fund, an emergency fund. If you want to go to a travel fund, set another percentage for that because they’re not the same things. Another way that you can boost your emergency fund is to increase the amount you’re saving per month as you pay off your debt. So if you’ve paid off all of your debts, like I have clients, for instance, let’s just talk about like paying off a car. I generally ask them to consider, okay, you’ve paid off your car. Let’s look at your emergency fund. Like, how much are you actually saving each month? And I like to inch them up closer and closer to the fact where, like, they’re saving for figures every month. Can you save $1,000 a month? Can you save 1200 dollars a month? And the way that we get there is by being intentional about how we’re going to increase the amount that we’re saving over time.
[00:18:40] And by being intentional with these things, it also, one, it prevents lifestyle creep. And then two, if you are in a pinch where you lost your job, it’s going to make you the person that you’re not actually consuming and spending all of the money that you have. So you’re not going to have your expenses aren’t going to be as high if for some reason you lost your job or maybe you just intentionally want to leave your job. And so you’re not going to have to worry about the fact that you make a set amount of money each month, but you literally are spending all of it. You’re going to have more flexibility over time.
[00:19:14] And then another way that you can boost your emergency fund is to increase the amount you’re saving per month as you earn more. So when you get an annual raise, if you negotiated your salary and you got a new job title, like those are great opportunities that when you see that next paycheck or before you even see the next paycheck, before you go and commit that money to something else, make it a priority to start paying yourself more. So to increase your savings. Because remember, you are someone who saves money and you are someone who saves money consistently, and you are someone who prioritizes their own financial health. And so part of prioritizing your own financial health is to be looking for those opportunities to create increased financial security, to make better decisions, however, that may look in your life to be intentional about how you save money and how you spend the money.
[00:20:13] So that’s the podcast episode for today. I just like I said, I wanted to dove in here and talk about saving money because I think that we can talk about paying off debt and we can talk about saving money. But I wanted to just give you this nugget, if you will, where we could just talk about how you’re thinking about saving money. Because so many times we just hear like save $1,000. But what does that actually mean? And so I want you to be able to break this down and think about what does this mean for you? What does it mean in your life? Because this is something that I want you to fill decided on. I want you to feel in control of.
[00:20:51] So if you’re looking to change your relationship with money and you want to gain more financial peace and you, as I said on social media a couple of weeks ago, you want to be able to buy the fancy GS and not worry about your bank account balance, then apply to work with me in my five month coaching partnership. If you go to wealthovernow.com/appointment, you can grab a time on my calendar and you will have 45 minutes with me and we will dove into your financial challenges. I’ll help you identify the solution, and then you’ll have the opportunity to talk about what it would look like to work. With me. So have a great week and thank you for listening. Thank you so much for listening to Money Files. If you’re ready to take the next step to reach your financial goals, head to www.wealthovernow.com/appointment And let’s get started.