If you’re not sure where or how to cut back on expenses in order to increase your savings, try this exercise.

I’ve written and spoken about this issue before, but it bears repeating because this truly is a national crisis: The single worst money mistake you can make is to fail to maintain a cash cushion for emergencies. And, unfortunately, almost half of Americans today have fallen into this mistake. (As The Atlantic pointed out recently, 47% of Americans would not be able to cover an unexpected $400 expense without borrowing or selling something.) This is an incredibly precarious and stressful situation to be in. Eventually, an event like a job layoff or a medical emergency will happen to most of us. Without an emergency fund, this can trigger debt that gradually spirals out of control.

Reality check:

  1. It’s only a matter of time before everyone is faced with an emergency expense.
  2. If you assume friends or family will be able to help you when an emergency arises, you may be unpleasantly surprised when the time comes.
  3. No matter how small or large your income, you need an emergency fund.

Give yourself the security that comes from knowing unexpected expenses will not derail you. Start now.

  • Increase your monthly savings and deposit as much of that as possible into an easily accessible savings account until it reaches about six months’ worth of expenses.
  • After that, build up another 18-24 months of cushion to weather more serious emergencies.

If you’re not sure where or how to cut back on expenses in order to increase your savings, try this exercise: take a “No Spend Month.” Eliminate all non-essential spending for a month. The simple act of sorting your expenses into “wants” vs. “needs” for one month can be eye-opening and liberating.  You’ll find it easier to sacrifice luxuries like expensive dinners or a vacation when you understand what you stand to gain: security and peace of mind.

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1 thought on “The single worst money mistake you can make – and you are probably making it”

  1. I use a coffee no spend month to save. In the summer I love to entertain outside so I participate in a no spend month of dinner eating out with friends. I invite them to my home and make a BBQ and fresh veggies from the garden.

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