Foundation: Expenses & Emergency Fund (Checking & Savings)
Before you start taking the steps to invest towards retirement and securing your financial future, you first need to lay a solid foundation.For personal finance, having a solid foundation means:
- You have enough money coming into your checking account to cover your living expenses each month and can contribute additional money that remains after expenses (aka free cash flow) to your savings account
- You have 3-6 months worth of expenses saved that can be used in the event of an emergency or unexpected expense, like my dang AC unit going out in the middle of summer!
WAIT, WHAT?! Saving 3-6 months of living expenses is impossible! That’s so much money!
I know, laying the foundation can be difficult!
However, it IS possible and it IS necessary.
If you’re in this stage and saving money seems impossible, check out this helpful post from Paula Pant (Afford Anything) where she discusses how anyone can save more and introduces the One Percent Challenge
My savings could definitely increase but I’m comfortable at the 3-6 month worth of expenses mark and plan to crush some open debt (car loan) and increase contributions to traditional retirment accounts.
Speaking of traditional retirement accounts, stay tuned for the next step to retirment and financial freedom for details on traditional retirement accounts and the importance of maxing them out if possible!