HOW TO AVOID BUSTING YOUR BUDGET
A 3-part strategy for dodging financial pitfalls triggered by unexpected expenses.
"Unexpected expenses" might be one of the more ambiguous phrases in use today. It can refer to anything from a major car repair to a job layoff or an accidental trip or slip that requires you to be away from work for an extended period. But here's why you can't necessarily call them unexpected: They can – and often do – happen to all of us at some point.
And if you're not prepared for them, they can quickly derail your financial life.
So what can you do?
The general rule of thumb is to set aside enough money to cover three to six months' worth of expenses. And that means everything you spend money on in a month, not just your bills.
If you're self-employed, you probably want six to nine months socked away. After all, one of the emergencies a freelancer or sole proprietor often faces is the feast-or-famine cycle of projects and payments.
True, that's a lot of money to save on top of what you're already putting away for retirement, college and other big-ticket items. How can you save that much more?
The best advice: Do it slowly. You might be surprised how much you can save without much strain. Here's a three-part strategy.
The first step is figuring out what you really need to spend money on versus what you can live without. One way to do that: Write down every single thing you spend money on for one month, no matter how small.
That will help you see what you really need to spend money on. Obviously, you'll need to pay your utility bills and make your car and mortgage payments. There's food, of course. But after that? What do you really need?
The general rule of thumb is to have enough money on hand to cover three to six months' worth of expenses. And that means everything you spend money on in a month, not just your bills.
It's a common question: How do you save for an emergency fund if you have debts, like a high-interest credit card?
Start with a plan of attack. First of all, if you haven't set up a household budget, now's the time. List your planned income and expenses for each month. Then track what you actually spend. You could well uncover regular purchases you could easily do without. Cutting them may give you some flexibility to beef up those emergency savings.
Meanwhile, continue to pay down that credit card. Budget enough so that you're paying more than the minimum each month. And don't use it! Once the plastic's paid off, you'll be able to contribute even more to your emergency fund.
You won't be keeping it in an old coffee can, of course. Some better locations for where to stash emergency cash may include savings accounts or money market accounts. You may not earn a significant amount of interest. But you may have easier access to the money if – and when – you need it.
An emergency fund can provide you with a robust line of defense when disaster strikes. Need help figuring how it can fit into your larger financial picture? A Thrivent Financial professional can help you understand your options.
No matter what stage of your Wise With Money Journey you're in, we can help you explore a wide range of financial products and services to help you reach your goals.
Insurance can help support several aspects of your financial strategy. We can help you use insurance as a buffer between you and financial hardship – and as a means for funding future goals.
With our fee-based Financial Planning Services, you'll work with a Thrivent Financial professional who can provide ongoing, objective advice and help you create a holistic, personalized plan.
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