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Home / Budgeting / The Five Dollar Millionaire Builds An Emergency Fund

 

Five Dollar MillionaireIf this is your first read here, you may wonder what a five dollar millionaire is. It is a term that I think I coined in an earlier post. Basically, the five dollar millionaire is a paycheck-to-paycheck person or family. These are the people who are most likely to be devastated by a job loss or sudden, unexpected expense. The only way to buffer yourself from these life changing disasters is to build an emergency fund, but how do you do that when you barely have change for the vending machines on payday? Here are a few tips that may help you.

Track Your Cash Outlay

There are several posts on every personal finance website on the internet that stress the importance of knowing where every dollar goes. This website is no different, so give this post a read for specific tips on tracking your money. Many people find that there are ways to save money staring them in the face once they start tracking where the cabbage goes.

Set A Goal

Common advice says that you should have at least three months of your expenses in a savings account. What a load of hokum! For most of us, that would be thousands of dollars. Sure, it is a great end game, but if you are struggling to keep body and soul together, you have to be a little more realistic in the beginning. Try setting a goal of having a single payment for your smallest monthly bill in savings. If you do not have a savings account open, make that your goal. Many financial institutions require at least $10 to keep a savings account open. Find out how much your bank requires and set that as your initial goal. The goal is not as important as having one that is realistic, achievable, and tangible to you. Once you have accomplished a goal, set a new one.

Save A Jar

Even when you are living paycheck-to-paycheck, you still have some spare change. Start tossing it in a jar. Early on, I found that I dipped in that jar. I started separating the quarters(vending machines) from the rest. That helped. After three weeks of keeping my pennies, nickels, and dimes, I was able to save about $15. Not much, but it was gas money to look for a job if I lost the one I had. If you save $15 a month for a single year, you can pad your savings account by $180, just by keeping the small coins around.

Build a Budget

This tip may seem a bit out of order to some. Potentially, it could be the second step, just after tracking your expenses. It is here because setting a goal and dropping some change into a jar are a lot easier to do. Building a budget is essential, but there are many steps in the process. After tracking your expenses for a few months, look for ways to cut back. Notice, the words ”cut back”. Cutting back may mean buying smaller amounts of something or only buying a certain item three times a week instead of daily. This makes budgeting less like self sacrifice and more like the wise move that it is. Be sure to build savings into your budget. Even if you only budget a single dollar each paycheck, you have begun the process.

Automatic Savings

Direct deposit is part of life today. Why not use it to your advantage? Once you have been able to budget a set amount for savings from each paycheck on a regular basis, have a direct deposit started for that amount. For some, the old adage of ”out of sight, out of mind” works wonders when it comes to building an emergency fund.

Save Refunds And Bonuses

Tax returns and cash bonuses at work are great ways to pad your savings account. That is not to say you should put all of it away. By all means, treat yourself, but in moderation. Put the first 5-10 percent of the refund or bonus into savings, then have some fun.

Payday Loans

Payday loans are a parasite on the backs of working Americans. Many have turned to them in order to make ends meet. The cycle of repaying and having to borrow again can go one for years. If you are in that cycle, building an emergency fund is probably the last thing on your mind, but getting free from those blood-suckers is mostly likely foremost in your thoughts. Going cold turkey can be devastating, so try stepping down. For the sake of an example, let’s say you borrowed $500. Now you owe $575. The knee jerk reaction is to pay then borrow another $500 to get the bills paid. The easiest way to get out of payday debt is to borrow $50 less each time you go in. That means you will have $57.50 less each two weeks. It is easier said than done, but it is necessary. If you build that $57.50 into your budget, it may soften the blow somewhat.

You may have to choose between building an emergency fund and paying down a payday loan. If so, you will be best served by paying down the loan. Just getting that monkey off your back could be the path to the promised land of financial stability.

Even a five dollar millionaire can save money. Finding the motivation to do so is often the biggest obstacle to overcome. Good luck!

 

About the author: Jerry Coffey

 

Jerry Coffey spent many years in a debt-riddled gray area somewhere between broke and desperately broke. His seemingly endless need for more and more cash led him to payday loans, repossessions, bankruptcy, and depression. After years of the same financial style, he heard a piece of advice that inspired him to find a way to change. The advice: ''The very definition of a fool is someone who continues to do the same things, but expects different results.'' This led him to a much more frugal lifestyle that sees all of his bills paid on time and a growing savings account. Even the seed of a retirement account has begun to sprout.

 

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3 Comments

  1. I have always used a jar to save money at my house. You would be surprised how much money you can accumulate over time. I would recommend that everyone do the same. If you don’t like to roll coins, just take the jar to your local coinstar at your grocery store and let the machine count up your money for you.

  2. I think you have some good advice here. I think another challenge for many people in this situation is a variable income. Not knowing how much money you’ll have makes it much more difficult to set up automatic savings or a budget. The hardest part is getting to a place where you’re living on last month’s income.
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  3. Pingback: How to Destroy a Budget in 5 Ways - Repaid.org

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