Money Management

It’s important to have a basic emergency fund. But what exactly does that entail? Read on to find out. 

You never know when you might be on the receiving end of an unplanned bill that your regular paycheck can’t cover, whether it’s a home repair, a car repair, or an invoice for medical care. That’s why it’s so important to have money in your savings account at all times.

Without an emergency fund, you could end up having to resort to costly credit card debt to cover a bill you weren’t expecting. The result? A lot of wasted money on interest.

Recent data from Webster Bank finds that 57% of Americans consider saving for emergencies a top financial priority. But unfortunately, a good 31% of Americans don’t have emergency cash reserves. And only 23% have an emergency fund that could cover more than six months of expenses.

But does your emergency fund really need to cover upward of six months’ worth of bills? Or are you okay if you save less?

The general convention

For years, the general advice that’s been doled out in the context of emergency savings is to sock away enough money to cover three to six months of essential bills. The logic is that in the event of a lost job, that sum will, in many cases, tide someone over until they’re able to find work again. A sum that large will also, in many situations, suffice in covering an unplanned home repair, car repair, or medical bill.

It’s worth noting that some financial experts have changed their tune on emergency savings in the wake of the COVID-19 pandemic and now encourage workers to set aside up to a year’s worth of essential bills in the bank. That’s not bad advice, but it may be overkill for some people — and it may put an undue amount of pressure on you.

If you’re someone who’s part of a dual-income household, a three- to six-month emergency fund should generally suffice, because even if one of you loses a job, chances are, the other will remain employed. This assumes, however, that you don’t work for the same employer or in the same industry. It also assumes you’re an employee who’s eligible for unemployment benefits (and possibly severance pay) in the event of a layoff.

To be clear, in this situation, you could save more than six months’ worth of expenses if that’s what you need for your own personal peace of mind. But you may be perfectly okay with a savings balance that can cover half a year of expenses. And if you’re sitting on, say, a three-month emergency month, that’s not necessarily something to stress about, because you’re still pretty well protected.

When it pays to save more

While a three- to six-month emergency fund should suffice for most people, some workers can benefit from saving beyond that point and socking away up to a year’s worth of expenses. If you’re self-employed, you’re in this category. That’s because your income may be variable to begin with. And depending on your line of work, in a recession, you may be the first expense your clients drop.

Also, when you’re self-employed, you’re generally not eligible for unemployment benefits. And you’re certainly not entitled to severance pay because you’re not anyone’s employee. So it’s good to have that extra protection.

Another scenario where you may want more savings is if you work in a niche industry or have a very unique job that isn’t easy to replace. If you’re a bookkeeper, chances are, you’ll find work in a reasonable time frame if your employer has to let you go. If your job is to source coffee from far-off locations and put import contracts into effect, that’s a harder position to replace, which warrants more savings.

All told, it’s not surprising to learn that only about 1 in 4 Americans have more than six months’ worth of expenses in savings. But if you have three to six months’ worth of expenses in the bank, don’t assume you’re in a bad spot.

However, if you have no emergency savings, you’ll want to make an effort to build some ASAP, whether by cutting your spending or getting a second job for a while. You never know when you might face a hefty bill or layoff, so it’s important to always be prepared.

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Saving money often means getting creative. Read on for some interesting ways to grow your savings this month. 

The start of a new year is a time when people tend to be pretty focused on saving money. Recent research from The Ascent found that 16% of Americans resolved to save for a significant milestone in 2024, like buying a home or getting married. And 12% resolved to save up for a large purchase, like new electronics or furniture.

There’s also the 8% of Americans who are resolving to build an emergency fund this year. That’s an important thing, because without emergency savings, you might end up stuck with costly debt when unexpected expenses arise.

But saving money isn’t exactly an easy thing to do — especially at a time when inflation is still an issue. In the aforementioned survey, 85% of respondents with a financial New Year’s resolution said inflation will make it harder to keep.

As such, you may need to get a bit creative if you’re intent on saving money and improving your personal finances this month. But here are a few things you can do to make that happen.

1. Sell unwanted holiday gifts

The purse your sister got you for Christmas may have been a gift from the heart. But if it retails for $120 and it’s just not your taste, why hang onto it?

Instead, see if you can sell it for cash and put that money into your bank account. You can do the same with smaller items you don’t have a need for, too.

Plus, there are several sites that allow you to swap unwanted gift cards for cash, like CardCash.com. You shouldn’t expect to get the full face value of your gift cards if you go this route. But if you were given $50 to Starbucks and you’re not a coffee drinker, you might as well see if you can get $40 cash for that card.

2. Sell unwanted items you’ve had a while

It’s not just holiday gifts you can sell this month to drum up more cash for your savings. If you take the time to do an in-depth inventory, you may find that there are a host of items sitting around your living space you no longer need.

The approach you take to selling unwanted items should depend on the items in question. For electronics or designer clothing and handbags, a site like eBay may be your best option. Or, you can try selling through Facebook Marketplace to find local buyers.

For less expensive items that won’t make sense to ship, host a yard sale. Better yet, round up your neighbors to do the same so you’re not stuck sitting out on your lawn alone on a chilly Sunday afternoon.

3. Have a series of no-spend Saturdays

Saturday is, for many people, a big spending day. It’s a day when many people don’t work and don’t have to get up for work the following morning. So that means you may be tempted to spend your Saturdays dining out and staying out, all the while spending money.

If you’re eager to save money this month, consider a series of no-spend Saturdays. This means limiting your spending to essentials only, like groceries.

This isn’t a practice you have to uphold all year. But doing it for a month might result in a nice boost to your savings to start off the year on a positive note.

And remember, not spending extra money on Saturdays doesn’t have to mean being bored senseless every Saturday. Round up some friends to take a hike, or host a movie night where everyone chips in by bringing a snack that’s already sitting in their pantry.

Saving some amount of money in January could work wonders for your morale. Employ these tips to kick off 2024 on the right track.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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It’s important to talk about college costs in depth. Here are some key points to hit. 

When your kids are still in diapers, it’s hard to imagine them ever being old enough to pack up and leave for college. But it’s also important to start saving for college when your kids are young. Ideally, you’ll invest that money, whether in a traditional brokerage account, 529 plan, or even a Roth IRA, to grow it into a larger sum over time.

And these days, with long-term CD rates being pretty high, it’s not a bad idea to keep some of your college money in the bank, especially if your kids are already in high school and college isn’t so far off. That way, you won’t run into an issue with that portion of your college savings if the stock market takes a wild turn for the worse in the coming years.

But while it’s important to do what you can to save for your kids’ college education, it’s also important to set expectations and talk about how far that money can go. Here are some key points to touch on when having those conversations.

1. Review the differences between in-state and out-of-state tuition

The type of school your kids choose will make a huge difference in the cost of college. U.S. News & World Report says that for the 2023-2024 academic year, the average cost of tuition and fees at a public in-state college is $10,662. For a public out-of-state school, it’s $23,630.

And then of course there’s private college, which is a whole other world. The average cost there is $42,162 for the current academic year.

It’s a good idea to review these costs with your kids, so they’re not set up for disappointment. Your children may start to fall in love with small liberal arts schools in quaint towns with a $60,000-a-year price tag. If colleges like that are out of reach, you’re better off saying so upfront.

2. Discuss working while attending college

Working while attending college is a great way to bank cash and offset some of the costs involved. And it might make an otherwise too expensive school attainable if there’s a pressing reason to go there.

But working during college isn’t easy. In that scenario, there’s the pressure of reporting to a job on top of taking classes, pursuing internships, and getting involved in extracurriculars.

Your kids may be willing to work during their studies — before they realize how that might result in a world of added stress and less time to socialize. So make sure to review both sides of the coin.

3. Run through the costs your kids will face outside of tuition

Paying for college doesn’t just mean covering tuition, fees, and books. There are additional expenses to think about, the obvious ones being room and board and transportation.

But there’s a less obvious expense to consider as well — entertainment. If your kids are excited to go off to college and enjoy a new set of surroundings, they’ll need to work the cost of visiting local eateries and taking day trips into their budget.

One thing you may want to emphasize is that the more you spend on actual tuition, the less money your kids will have left over for the fun stuff. So that’s a balance they’ll need to strike.

It’s definitely important to save as much as you can for your kids’ education. But you should also make sure to have open conversations about college before your children become high school seniors. That way, they’ll have a better idea of what to expect, and they might have an easier time deciding which schools to apply to once that time arrives.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Heating bills may be cheaper for some this year, but they won’t be going back to pre-pandemic levels. Find out how to keep costs down. 

Thanks to falling natural gas prices, some homeowners will see heating bills that are around $160 lower than last winter.

While that’s great news, most experts don’t believe bills are going to fall to pre-pandemic levels. And Americans have been struggling with high heating costs, with an estimated 8 million people requiring government help during the prior winter and an estimated $20 billion in overdue utility bills compared with $12 billion prior to COVID-19.

Whether you’re worried about how you’re going to pay the bills or are just interested in keeping a little extra money in your checking account, these simple tips can help you to keep your heating expenses as affordable as possible. You can do more obvious things like turning your thermostat down, but here are a few tips you may not necessarily have considered. They could help you keep a little more money for yourself and lessen the impact of winter cold on your personal finances.

1. Change your air filters

If your air filters in your heating unit are dirty, your unit is going to have to work a lot harder to heat your home. Fortunately, this is a quick and simple fix that can reduce your heating bills by 5% to 15%.

You should easily be able to change the filters yourself if you can find where in your home they’re located (they’re usually in the walls or in the heating unit itself) and check the size. Hardware stores like Home Depot and Lowe’s carry most standard sizes, and filters usually just pull in and out of a slot, so you won’t need special tools to complete the chore.

2. Use a humidifier

Water tends to hold in heat, and moist air can feel warmer than if you are living in dry air. As a result, adding some humidity to your home using a humidifier can allow you to lower your thermostat while still feeling comfortable.

If you keep the humidity to around 25% to 40%, you can typically drop your thermostat by a few degrees without noticing the temperature change too much. Each degree you can drop your thermostat can result in around a 4% reduction in your heating bill, which is a pretty significant savings.

3. Sign up for budget billing

Most utility providers offer the chance to average out your costs rather than having to pay a lot more during the winter months.

Typically, utility companies look at your past use to estimate total average costs during the year and divide that amount up so you pay around the same each month instead of getting hit with huge bills during the season when you’re using more energy.

Say, for example, you were spending $125 a month for four months in the summer, $95 a month for two months in the spring and fall and $400 a month for six months in the winter. Your utility provider could instead charge you about $258 every month. This way, you can fit a set bill cost into your monthly budget.

While this wouldn’t ultimately lower your total bills over time, it would help if you’re struggling with the cost being different from one month or season to the next.

It’s worth making an effort to try to keep heating costs down this year, so give it a try. And if you really are concerned about paying to heat your home, reach out to your utility provider today to find out about programs you could sign up for that could offer assistance.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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