2 Important Savings Funds the Wealthy Always Maintain
The definition of self-discipline is the ability to control one’s feelings and overcome weaknesses. This means you know what you want in your mind and you do not give into temptation because you realize that it will take you further from your goal. As an adult, self-discipline is what will separate you from the rest of the world.
92% of people that set New Year’s Resolutions, do not achieve them according to research by the University of Scranton.
Less than 3% of Americans meet the basic requirements of living a “healthy lifestyle” according to a study published by Mayo Clinic Proceedings.
The ability to control yourself, will give you a huge advantage in life. I will include a link to my favorite books about self-discipline at the end of this post so check them out if you are interested!
In my last post, I said being an adult doesn’t mean living without. It is all about learning to make a life for you within your means. Now what does that mean? It is completely different for everyone. And it is important you take time to write what it means to you because that becomes your why. You need to know what life you aspire to live.
If you do not already have a personal mission statement, I highly recommend writing one. For more information about how to write a personal mission statement, check out this post here. Mine is: Live responsibly and learn from my mistakes. Live well and love - Live a Life Driven by My Curiosity.
Then make a plan on how you will reach that lifestyle. Within your plan, you should be living a life you love. As soon as you feel deprived, temptation will be there. And if your why power isn’t strong enough, well the plan you made won’t be sustainable.
1. The Emergency Fund
Now, also in my last blog post I mentioned savings. And I want to go into a little more detail, specifically about emergency savings and sinking funds. The absolute first thing you want to save money for is an emergency fund. Even if you are paying off debt, try as best you can to continue paying off the debt but put aside whatever you can for your emergency fund. Because life. We all know things “pop up” that are not normal and cost money. Now the amount of money that you want to save for your emergency fund is going to vary.
A general rule of thumb is three to six months’ worth of expenses. Basically this will cover you living your lifestyle for a few months in case you lose your job. And ideally you will find a similarly paying job within that window of time. Should you continue to be living the same lifestyle if you lose your job? Probably not, I would err on the frugal side just in case but the point is the emergency fund is there for you.
Another factor that you will want to consider before determining the amount of your emergency savings is whether you are a homeowner or a renter. As a renter, if you have a major repair issue such as the air-conditioning going out, that will be your landlord’s responsibility. However, as a homeowner, that is an expensive repair you will need to fix yourself. Also, the more medical assistance you need, the more cushion you will want when it comes to an emergency fund.
2. Sinking Funds
Before I go into what is considered an emergency, and therefore worth diving into the emergency fund, I want to discuss sinking funds. A sinking fund is when you set aside money every month for a known future expense. It is a proactive way to ensure you have enough money for events that you know will happen sometime in the near future. For example if you own a car, you should have a car repair sinking fund. You know at some point you will need to pay for costly repairs. Instead of reactively losing money when your car breaks down, put some money aside every month for this specific purpose. So when it happens it won’t break your budget.
A more fun sinking fund category is for vacations. Save a little at a time and take that vacation you earned! Also, Birthdays happen once every year, it shouldn’t really sneak up on anybody. Holidays are expensive, but it’s not like that’s a surprise. Have a gift fund, it’ll be much less stressful. If you are a homeowner, you can offset your emergency fund by having a home repair fund. If you know sometime within the next five years you’ll need a new roof, start saving now. The home repair fund can even cover appliances, in case your refrigerator or washer needs repair. A medical sinking fund is also practical. The cost of medical care and medicine is rising, and when accidents happen you may not be able to work. If your pay is directly related to you physically working, you will be bringing in no money while you recover. And that is a problem.
What Exactly is an Emergency?
Ok. Now that we have covered some common sinking fund categories, let’s talk about what falls under the category of emergency. Well an emergency in which we can dip into our emergency fund. Obviously job loss is under that category. If you do not have a sinking fund for car repairs, a car accident is an emergency. If you do not have a sinking fund for home repair, for example, fixing a leaky roof will fall under emergency. Ask yourself before you dip into the emergency fund:
Is it necessary? Is it urgent? Is it unexpected?
The expected, necessary and urgent items should be made into sinking funds. However, if they are not yet sinking funds you may need to dip into the emergency fund. Use self-discipline when answering those three questions and you’ll be able to use the emergency fund as it is meant to be used. Meaning, don’t blow it on shopping or gambling, etc. And after you are in a position to do so, replenish your emergency fund. Don’t wait until it hits zero. After you use what you need, fill it right back up so it’s ready for the next little bump life sends.
The wealthy understand the importance of self-discipline. These two important savings funds are the foundation. Without these funds, every single setback can take you straight back to the beginning of your financial journey. Sometimes even into the negative. This is why it is so important to have these funds in place to ensure you continue moving forward, or at the very least, help you recover with minimal loss in the case of an emergency.
My Favorite Self-Discipline Books:
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