If your piggy bank of savings seems more like a starving piglet than a plump porker, you’re not alone.
Consumer Federation of America data shows that less than half of all Americans save just 5 percent of their incomes and another 23 percent of people save nothing at all.
That means that should a financial crisis happen, chances are good those people won’t be able to stay afloat. It doesn’t take much to get into crisis either. A job loss, a car or house repair not covered by insurance, or even a pet’s medical expenses can add up to more than what comes into a home each month as income.
“Having savings is the cornerstone to wealth, it gives you power,” says Brett R. Biggs, vice president/investments at The Biggs Group of Janney Montgomery Scott in Bethlehem. “By wealth, what are we really talking about? It’s not just having a ton of money, it’s having the ability to do what you want when you want. Without savings, when life dictates to you a bad situation you can’t control that situation.”
A common rule of thumb for a rainy day savings fund is to have six months worth of living expenses in savings — in case you are unable to work for six months due to illness, a job loss or some other catastrophic event.
“While this is not feasible for many people it is a good idea to have enough to live in case you lose your job or can’t work for at least a few months,” Biggs says.
A time of crisis is not the time to make big financial decisions or learn about handling money, says Lisa DeStein Strohm, founder and CEO of The Athena Network and Good Life Advisors of the Lehigh Valley. She encourages people to become more knowledgeable about their finances.
If you’ve never saved before, the first step is to figure out what you spend money on each month and from there create a budget. A good way to do that is track your spending for a month. Anything you buy — like a daily cup of coffee — or pay money toward like a car payment, write it down.
“Most people have no idea what they spend,” Biggs says. “You’ll often find areas in your spending that you waste money on. … Once you have identified an area you could trim, start a systematic saving plan where you have a fixed amount transferred into a separate account. After a while you won’t even notice it.”
He says having a financial plan for your future is as important as using blueprints when building a building.
“You wouldn’t build a building without a plan, why would you build your financial future without one? Investments are the tools used to build off of a plan. You need to understand what tool you need before you break ground.”
Biggs adds that if your employer offers a match on a 401k contribution, make sure to take advantage of that tool.
“I can’t tell you how many people we run across that don’t take advantage of the extra money that your company is willing to give you for free,” he says. “There is no investment we have that can multiply your money instantly with no risk.”