In times of financial struggle, “a penny saved is a penny earned” is more than a wise and historic saying by Ben Franklin. It can be life-saving, financially speaking. And being prepared for money hardships isn’t as hard as it seems.
When it comes to finances, people forget to expect the unexpected, says Tricia Salvatore Ludgate of Financial Planning Advisors Inc. in Wyomissing.
But with some forethought and planning, we can be better prepared if the unexpected happens.
“Before embarking on a large financial commitment, consider how it will be handled without your current income,” says Tricia.
She continues, “Should you lease or buy that expensive car or rent the apartment with cool amenities will depend on how you answer the next questions: Can you afford it if you lose your job? Will you be able to find another job earning the same income quickly or will it take a while? How long might it take? Do you have anyone to financially depend on if you can’t make the payments? Do you have cash reserves if suddenly unemployed? What happens if you can’t make the payment? How much does it cost to break the lease? If you share expenses, this might help financially, but can your partner take on this added burden?”
Think about taking the less expensive route, saving for what you want and buying it with cash whenever possible, Tricia says.
According to David W. Patti, Director of Communications and Marketing at Customers Bank in Wyomissing, in January, bankratre.com reported that “only 41 percent of American adults have sufficient savings to cover a $1,000 emergency.” These emergencies could include a health-related expense, auto repair or home repair. And such emergencies are not unusual.
What can people do to change this?
“Financial experts have long advised, ‘pay yourself first,’” says David. “It’s good advice and easy to follow.”
You can “pay yourself first” with long-term and short-term needs in mind.
“For the long-term, take advantage of tax-deferred 401(k) programs – especially if you have an employer match,” he explains. “Make a payroll deduction at least sufficient to maximize your employer’s match thereby doubling your money.”
While taking care of yourself for the long run, you can set up an automatic transfer from each paycheck into a savings or money market account at your current bank.
Tricia concurs.
“Getting started on a saving journey may be the biggest hurdle,” she explains. “Once in the groove, it’s much easier to add to it.”
The magic ingredient is making it automatic.
“Small incremental steps lead to success, so don’t worry about not having enough to begin with – just start,” Tricia continues. “Saving $25 works.”
Making it automatic – by saving at a regular interval like with each pay – adds up.
“If you’re paid bi-weekly, that’s $650 in a year, and weekly, it’s $1,300,” she says.
David agrees.
“Get the money out of your checking account as soon as it’s deposited so you won’t spend it and can start accumulating some savings,” he says. “A transfer of just $40 per bi-weekly pay would, at the end of the year, give you the $1,000 for an emergency.”
Hopefully, you won’t have an emergency, he adds, but don’t go on a spending spree to celebrate.
“Continue to save,” he says. “If the savings balance becomes high enough to cover two or more emergencies, you might think about being proactive: take $500 from the savings during an appliance sale to replace that old water heater or refrigerator before there is an emergency.”
But the key is this: Don’t stop saving.
“We laughed at our grandmothers for keeping money in multiple envelopes, but many people follow similar strategies with bank accounts, and it works,” he says.
And, as long as your bank doesn’t charge statement or other fees just for having an account with them, you can mimic your grandmother and open a second savings account with automatic bi-weekly transfers to build-up a fund for that Hawaiian vacation you want to take in a few years.
What are some other things that people should prioritize financially?
“Protect your credit like it’s cash in your wallet,” Tricia says.
Those with a good credit score will be afforded many more options than will those with unfavorable scores. It “buys” the best interest rate on everything from a car and home, a great rewards credit card, better employment opportunities and even lower insurance premiums, she adds.
If you’re in a financial pinch, immediately contact the lender at the number on the bill to let them know what’s happening. During this year, many have lost jobs, have experienced reduced income or are having difficulties making payments.
“It’s time to swallow your pride and ask for help,” Tricia says. “Do not ignore the bills coming in. Make the call. Document who you spoke with, the date and time you called and what was discussed.”
Ask if payments can be skipped or reduced to what you can currently afford. Request a lower interest rate on credit cards. Get specific. If you don’t get an answer you like, ask that your request be elevated to a next level service provider and remember to document that person’s name and what they say.
“By taking the time to make these calls, your credit score will be preserved, and you’ll be better equipped to dig out,” she explains, adding to be consistent with your payments. “Consider automatic payments to avoid late payments and fees. It’s surprising how many more options are available if you ask.”
