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Five Tips for Financial Health Tip 2: Create a Cushion

February 17, 2017
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Since you’ve begun working on cutting wasteful spending using last week’s financial health tip, you’re ready to jump into the second tip, creating a savings cushion. This well-known tip usually suggests putting anywhere from 3-6 months worth of expenses away for emergencies and have it available in cash so its easy to access.

For most, living expenses include housing, food, healthcare, utilities, transportation, and any required debt payments. I would recommend not including nonessential expenses in your emergency savings. Think of these as anything you would cut if something catastrophic happened, including entertainment, shopping, vacations, and saving for other financial goals like college.

The most common issue I see with this tip is people leaving their savings cushion in an easily spendable place, often a checking account. Create a separate, designated savings account that you do not touch unless an emergency arises. Many banks allow you to push money from your checking account, likely where any direct deposits are set up, directly into designated savings accounts. 

Assess your living expenses and begin saving for emergencies as soon as you can. Even setting aside $20/week can add up over time! Check your inbox next week for my next financial health tip!