Why Emergency Funds Are So Important For Success And Happiness

The ultimate mark of a financially independent person is somebody who doesn’t need a job to maintain their lifestyle. Instead, they can rely on their savings and investments to see them through until things pick up.

Not all people are in this envious position. Instead, they have to rely on things like emergency funds to see them through when things go wrong – which they inevitably will. In fact, most people who have emergency funds report how grateful they are for them when the time inevitably comes for the money to be used.

Unfortunately, a recent survey reported by Investopedia found that nearly 28 percent of people had no emergency savings whatsoever, and were instead reliant on their next paycheck to pay their bills. More scary perhaps are the statistics among young people. In the age group 18 to 44, almost 49 percent of people have no savings for a rainy day.

It turns out, however, that personal savings aren’t just good from a financial perspective: they’re also good for personal happiness. You never know, as an individual, when you might have to approach a personal injury lawyer and can no longer work. And so having a financial cushion is not only a good for building wealth, but it’s also a great safety blanket.

Figure Out How Much You Should Save

Most banks and building societies recommend that people put away around three months worth of salary so that they can make it through tough times. This way, if you do lose your job or you get injured at work, you’ve got plenty of time to get better and find somewhere else to work.

It should be noted however that three months is just a rough guide. Tally up your living expenses and work out how long both you and your dependents could survive if your income suddenly stopped. Be careful to include all major expenses, including utility bills, mortgage repayments, and groceries.

Work Out When To Use Your Emergency Fund

A second step when it comes to your emergency fund is to figure out when an acceptable time to use it is. Some people might think that paying for a vacation is a good use of emergency funds, but most wouldn’t. Instead, emergency funds should only be used for when there are interruptions in your income. Everything else, including unexpected bills, should be absorbed by your paycheck. The reason for this is to avoid so-called “financial creep” where dipping into your savings becomes acceptable for an ever-widening range of expenses.

Paying Down Debts And Saving At The Same Time

Many people think that it is best to pay down debts first, before building up emergency savings, but this isn’t the only policy that can be effective. Another popular policy is to do both at the same time. Experts on Investopedia say that it is possible to strike a balanced approach, paying down debts while you’ve got an income, as well as building up savings. Even if you’re only putting away a few dollars a month, it’s the beginnings of a financial habit that will help you enormously in the long term.

The Psychology of Overspending

Almost everybody overspends, and if you do it, too, then you’re just part of the crowd. However, from a logical perspective, overspending makes no sense.

First, it’s not easy to earn enough to beat the rising cost of living. Since we live in inflationary times, it means that the purchasing power of our money is declining over time.
Second, we spend a lot of time and effort to acquire our money. We may even have invested years in college acquiring our earning level ability.
Third, we often run into financial problems, racking up credit card debt, making late payments on our car and mortgage payments, and creating all other sorts of problems for ourselves.
There are many things that we overspend on. A few examples might make this point clear.

How We Overspend

1. We overspend on entertainment.

A dinner and a movie night sound like fun, but we could easily spend $25 a person, $50 for a couple, or $75-$100 for a family. We also have to factor in gas, parking fees, and any other incidental expenses. On the other hand, we could just as easily stay at home, cook our own dinner, and have a blast enjoying streaming movies or playing Internet-based video games with other players around the world because we took the time to snag DIRECTV bundle deals.

2. Weddings.

No one is disputing spending money on a wedding. After all, it’s a special day, and the money is well-spent. The problem arises when we throw our budget out of the window and overspend on everything to make the day memorable. The excessive amount of money would have been better used paying for a great honeymoon or a down payment on a house.

3. Consumer shopping.

It’s fine to shop for the things that we need, and it’s wonderful to get the luxuries that sweeten the quality of our life. What’s more, there is no need to buy inferior quality when we like nice things. Overspending creeps in when we buy things without doing a price comparison check. It’s amazing how it’s possible to buy exactly the same thing if we take the time to do a Google search. Often, too, a retailer will match the lower price if we can show that it is available elsewhere.

Why We Overspend

So if overspending makes no sense, then why do we do even do it? It’s because there are many psychological reasons at play.
Here are five reasons why we find it difficult to control our spending behavior:
1. We’re trying to buy happiness. Life is often difficult, stressful, and many events and life situations make us feel angry and frustrated. As a result, we buy things to make us feel better. We buy comfort foods because we feel lonely, and we buy beautiful clothes because we want to feel special. We use hedonism to mask our emotional emptiness.
2. We’re impatient. Advertisers have taught us to get what we want when we want it. We are pounded by hundreds of messages each day promising us goods or services that provide instant gratification. We can’t even stand to wait a short amount of time until we have a better cash flow to get the things that we want.
3. We feel guilty. Since we can’t spend as much time with our loved ones, our spouse or children, as we’d like, we tend to feel guilty. We overdo the gifts and treats.
4. We’re trying to look more successful than we are. Few of us like to admit how much we struggle to make ends meet, that we earn less than others think we do. As a result, we purchase the illusion of a lifestyle that we can’t afford.
5. We have never taken the time to evaluate how much money we have in our bank accounts. Instead of balancing our checkbooks and keeping track of our incoming and outgoing cash situation, we choose to go unconscious. We don’t want to admit to ourselves how poorly we are managing our lives.
Understanding the logical reasons why overspending is a bad idea is not enough for us to change and get our budgets under control. We overspend for psychological reasons and until we resolve our emotional pain, then no amount of logic is going to help us get a handle on spending and living within a sensible budget.

Ready To Do It On Your Own?

Whether you have been working for a corporate company for years, or working for a small business for a short time, have been working freelance for different companies for as long as you can remember, or run a business with a friend or family member, there is one thing in common with all of these types of employment: hard work and dedication is involved. Working for a corporate company can involve lots of paperwork and seemingly never ending statistics and data analysis, while working for a small business can involve doing a mix of jobs which were not necessarily made clear you would be doing when you were initially employed and can range from administration to social media marketing to meeting with clients to reception duty. If you work freelance, you will be used to working all different kinds of hours and working hard to fit your work around your personal life in order to meet deadlines and workloads; and if you run a business with a friend or family member you could be used to swapping ideas, taking on different managerial roles, seeking out advice from your business partner and having someone there to help finance anything which needs to be paid for.

Working for and with other people can sometimes be tedious if a person feels that they are not being appreciated, their time in the job has become dated and unfulfilling, their wage simply is not allowing them to live a life which fits with their needs, or if they have an idea for a business which they are passionate about and find themselves thinking about when they are working in their current job role. There comes a time in life when everyone needs to move on from a job, and while some people go ahead and leave a job to fulfil their needs or accomplish their dreams, other people may feel they want to leave a job but do not have the drive, determination or extra finances available to do so.

If you have a business idea, and decide to leave your job and go through with your dream, you could be surprised at how much calmer and happier you may end up being. However, before making a snap decision, you will need to think about all the aspects of starting your own business which may affect all details of your life. Of course, if you are already running a business with a partner then you will be aware of what it is that you have to do in order to achieve your dream. But, this time you will be on your own so it is still important that you are aware of the different essentials you will need to put into place, do research on and put into place. If you have not yet run your own business, then you will really need to assess your current situation and think properly about what aspects you will need. For example, are you going to work from your home until your business completely takes off? Are you going to set up a website on your own or are you going to employ an agency or a freelancer to set up one for you? How many employees do you need? And, how much do you need to save or how much do you need to earn from your business to keep you afloat and sustained until the big profits come in?

Lots of early start-ups begin from home, and while this may not necessarily be the best situation for some people, it is essential that you save early and easy costs such as immediately moving into an office space elsewhere. If you have a spare room, you could use that as your office or if the house is quiet during the day is everyone is out at work or the children are at school, set up a space for yourself on the kitchen table, in the basement, in the garage, or absolutely anywhere where there is a comfortable space for you to work in.

Setting up a website is a clearly vital asset to any business. Consumers, customers and clients are now more likely than ever to research your business online rather than approaching you to speak about your business face to face. Your website must be slick, accessible, easy to use and it needs to clearly outline what your business is about and what it offers. It can also help to have an ‘About Us’ page – or something similar – which allows copy to be written in a personal and characteristic manner. Some businesses actually make more profit through their website than they do with hard sales, is a website is a must for a new business. Incorporating social media use into the website and business is also a positive aspect to own, as it allows a different kind of medium to interact and engage with customers.

As your business grows, you may find that you need to hire employees. It may have been just you working on your business for a while, so when you do begin to hire make sure that the right person (or people) are put into place. Do not rush into making a decision, as essentially you will be paying these people to help you and your business – your lifeline, dream, and goal.

If you have sufficient savings, then you could go ahead and hand in your notice and begin on your new business. A decent amount of savings will allow you to live comfortably for a while, until your business begins to rake in the profits. However, be careful with how much you spend on your business as you will also still need to buy daily essentials, such as groceries, and will still need to pay the bills. If you feel you have not got suitable savings, then perhaps you may need to bide your time at your current job and save monthly. This way, when starting your business, you won’t be struggling for cash.