Until now, we’ve been staunch fans of the Dave Ramsey method, which is to save $1,000 as your minimum cushion.
But Liz Pulliam Weston, author of a must-read new personal finance book, The 10 Commandments of Money: Survive and Thrive in the New Economy, has a more accessible savings solution:
Having run the numbers on what life really costs, she writes, that even saving $500 “is enough to avoid bounce fees... and cover most minor emergencies so you don’t have to add to your credit card debt.”
In other words, all it takes to break free of the paycheck-to-paycheck loop is having five hundred bucks set aside. And you can save that this year, maybe by summer. Here’s how:
Do the savings sweep. Take whatever cash you don’t 100% need right now--whether it’s in your purse or in your checking account—and sweep it into your savings. Always save at a bank or credit union that is NOT linked to your checking and NOT linked to an ATM card. Open that stand-alone account now. For one month, or the rest of this one, buy ONLY necessities. You’ll be amazed how much cash is left over. Earmark some or all of your tax refund for savings (hint the average refund is $2,000!) Make one big move: quit smoking, ditch drinking, give up the second car, give up the gym, don’t buy clothes, don’t eat out—just until you hit the big 5-0-0.
Pony up. Do you find that most of your minor crisis expenses are $500 or less?