Fiscal Fridays: Budgeting, part 3

I'll be honest...today's post is less of a "how-to" and more of a persuasive argument. I'm talking, of course, about saving money. I can't really tell you how to save more, because frankly, I struggle with that myself. Hell, I had to get a job waitressing so I could have extra money to put into savings. And maybe that's what you need to do, too. Or maybe you need to stop going out to eat, or start shopping exclusively at thrift stores (another thing I've decided to do, but that's a post for another day). Whatever your method, the end result should be the same: to save more for your emergency fund.


(image via Wikimedia Commons)

So how much should you be saving? Well that, my friends, is the million-dollar question. Conventional wisdom says that you should have enough money in a savings account to cover three months' worth of bills, should you get laid off, become hospitalized or encounter a similarly horrible situation. And that's a great goal to set. But you won't get that much money saved up overnight. In fact, depending on your situation, it could take years to save that much extra dough.

This is where your short-term emergency fund comes in. Ideally, you should be setting money aside into two separate savings funds: your long-term emergency "three-months'-bills fund, and your short-term emergency my-car-just-broke-down fund. The amount your short-term fund should have will, again, vary with your situation. But if you're unmarried with no kids, I suggest having around $1,000 to $3,000 in that fund at all times. I myself am shooting for $2,000 or so.

This short-term fund is exclusively for those random little annoying things that pop up and completely destroy your budget: a car repair, an unexpected doctor or vet bill, etc. This fund is NOT for "oh my God my favorite store is having a 1/2 off everything sale let's go shopping yeahhhhh!" Nor is this fund for things like vacation, weddings, or other events that you plan ahead for. You should have a third savings fund for those kind of things, since you can plan them out ahead of time. Don't have the extra money to set aside for that vacation? Guess you're staying home this year.

To summarize, you should have at least two (if not more) savings funds: one with enough money to cover three months' bills for catastrophic emergencies, one with a grand or two for minor emergencies, and any other smaller funds to cover planned expenses like a vacation (or, if you want, a major shopping spree). I suggest keeping the major emergency money and the minor emergency money in two separate savings accounts (plus, you sometimes get a cash bonus when you open a savings account, so there's a bonus). The vacation-wedding-shopping-spree-new-computer fund money could stay in your minor emergency savings account, or you could even keep it in your sock drawer.

I know what you're thinking. "Emma, I'm 25 years old, I make crap money at my job. I'll never be able to do this." Believe me when I say that I know how you feel. That's why I'm waitressing. I knew I'd never save the money without another job, and I knew that it was time to grow the heck up and start planning for things like an adult. You can't depend on your parents to bail you out of financial emergencies forever. (Well, maybe you can, but I can't, so here we are.)

Is saving money easy? No. Is it fun? Hecks to the no. But is it rewarding? You bet. I can't wait until the day when I know I have enough finances to cover whatever life may throw at me...that's a kind of security and comfort that money simply cannot buy.