Having an adequate amount of money saved is important for everyone, but when you are counting on yourself to cover all expenses and support your family, the importance of having a decent sized savings account skyrockets.
Financial gurus around the pf world recommend having an emergency fund of at least 3-6 months worth of living expenses. In my opinion a single mother (or father) should have a bare minimum of one year’s worth of expenses saved. With only one income coming in and no one else to help pick up the tab if you were to lose your job being prepared for an emergency is absolutely essential.
How to Factor Your Living Expenses
First of all, you need to factor in that if you lost your job your expenses will be lessened. Your transportation expense would be mostly eliminated, day care expenses would be gone, and you can also dwindle the fun money back.
For example, my working budget is around $1771 per month.
Take a look:
- Loan Payment for the Trailer $226
- Credit Card $45 (recurring donation)
- Car Insurance $52
- Phone $28
- Internet $70
- Electricity $120
- Water $25
- TV $55
Total Utilities/Bills – $621
- Gas $200
- Food $250
- Babysitting $300
- Fun/Misc. $400
Total Everything Else $1150
Total Expenses – $1771
Now if I wasn’t working I would immediately eliminate the following expenses
- Cut gas down to $50/month
- Babysitting $0
- Misc. take down to $100
Which means my monthly expenses would be $1021 if I didn’t have job. And ofcourse if needed I could cut my budget back even further by getting rid of the cable and internet.
So I need to have $12,252 in savings! I had set the goal to have $5000 in an emergency fund, $2000 in retirement savings, and $2000 in a general savings account by November of 2013. By the end of December I should be hitting the $4000 mark in my emergency fund category, but I clearly have a long way to go to hit the $12,000 mark. But thats okay, because saving money takes time!
What If You are In Debt?
This is a tricky one. Currently the only debt that I have is the $10,000 loan I took out on the trailer. I don’t view this debt as a bad thing. The interest is very minimal and I view this payment just as you would your mortgage or rent payment. I have a four year loan on it and at this point I don’t feel the need to pay it off early.
If you have debt with high interest rates, you want to tackle that pretty aggressively. I would recommend saving up six months worth of living expenses (calculated based on not having a job) and pay your minimum payments on all of your debt while you work on your savings.
Once you hit the six month savings goal then tackle the debt with full force and free yourself from debt stress. After you have a handle on the debt you can then increase your savings to a full year worth of expenses.
Don’t feel overwhelmed. Saving money and paying off debt takes time (a lot of time). Nothing worth having comes easy. Set small goals that lead up to the larger one. Make your goals realistic with your income.
Several small steps forward will make a huge impact on your finances with time. Be patient and dedicated. When you get your savings built up you won’t have to worry about how you are going to pay the bills or support your family if you were to lose your job. You will know that you can support your family – no stress, no sweat, your hard work will reward you. (Oh the beauty of planning.)