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Now more than ever we need to build our savings, but how can you get started? Joe Mecca from Coastal Credit Union shares his strategies and tips on saving money during a crisis!
Prioritize Saving and Building Your Financial Cushion
We’re continuing our mini-series about how deal with finances during the coronavirus crisis.
We’ve been discussing how to prioritize your bills when you’ve lost your job or have seen your income drastically reduced.
Today we’re going to dig into building up your financial cushion. Joe Mecca from Coastal Credit Union and I discuss:
- how to figure out how much you need to save in your emergency fund
- finding money in your budget to transfer into your financial cushion
- why automation can help make saving money much easier
You can watch the video right here or check out the edited transcript below.
- [0:52] Making Savings a Priority
- [1:14] Emergency Fund vs General Savings
- [5:27] How Much Do We Need to Save for Emergencies?
- [7:18] Where to Find Money in Your Budget for Savings
- [8:36] Automating Your Savings
The Challenge of Making Savings a Priority
Elle Martinez: Joe, thanks again for joining me and part two of our mini-series about handling your finances during this Covid 19 crisis. I appreciate you coming on the podcast again.
Joe Mecca: Well, thanks for having me back. It’s always good to come in and talk about what we’re seeing, what we know, and just trying to help people through the situation. So it’s good to be back and excited to talk about… What we’re talking about today?
Elle Martinez: We’re talking about your favorite thing, which is savings. Like if you guys haven’t listened to earlier podcasts with Joe, he is the savings nerd.
Elle Martinez: And I mean that and the best way possible. The nerds are celebrated here because you’ve automated it. You’ve done a great job.
Emergency Fund vs General Savings
Elle Martinez: And I think especially now in a time like this, Joe, where there’s a lot of question marks when, for example, in North Carolina, when are things going to open up?
How how much should we have put aside in savings? You know, we want to have that financial cushion. So I wanted to talk to you about emergency funds and a little bit more about, first of all, the purpose of emergency funds versus general savings.
Joe Mecca: I want my favorite topics. So I had to make sure I was trying to simplify talking about emergency funds, not giving you all the complexities of spreadsheets and tracking things 50 different ways. But emergency funds are exactly that.
They’re for emergencies there or that thing that you think isn’t going to happen happens anyway. You want to have that savings set aside for when it happens. Not it’s not for a trip or a car or a fun weekend getaway. It’s you know, it’s for when something goes wrong.
And the reason it’s an emergency is you just don’t see it coming.
Two Keys Tips to Keep Your Emergency Fund Safe
Joe Mecca: The two most important things that I say in regard to an emergency fund is, one, it needs to be readily accessible.
So you keep it in savings or keep it in a checking account, but make sure it is there ready to access and then to don’t use it for non-emergencies.
And here’s the problem with that. Here’s the problem with that. To have it readily accessible and not use it for non-emergencies, it’s just it’s there. It’s tempting. It’s yeah. Yeah, it’s it’s the guest towels and they’re there. But don’t put your hands on there for when we have guests.
Elle Martinez: Yes. Yes. And you bring up a good point, because when I was first starting to learn how to save its, I kept it in checking and it was not quite good for me because again, like when you something comes up, it might not be an emergency, might be a fact that I should have planned better. Like, for example, car maintenance. And now I’m dipping into that.
Now I don’t have an emergency fund for saving. So I love that you point out, you know, to kind of keep it, keep it accessible, but don’t make it tempting.
Joe Mecca: It takes a little discipline because, yes, you know, the biggest requirement of an emergency fund is also its biggest flaw in that student’s readily available when you need it.
Don’t Be a Rate Chaser
Elle Martinez: Yeah. And also a good point is, yes, we’re all about getting like the best rate in return for our money when we’re investing and maybe some savings long term.
But when we’re talking about an emergency fund, don’t get hung up on, you know, moving your money just to get it actually like point zero one percent find something that if you need it, you can dip into it.
Joe Mecca: Yeah. And, you know, you don’t want it tied up for the long term. You don’t want it. You don’t want to have to go through extra steps to access that money. So for an emergency fund, you’re not chasing rates.
It’s all about making sure that I put, you know, put a little bit in checking in as a buffer on top with spending money. And then some of it’s in my money market account. But I know that if I needed to tap into my emergency fund, I can get to it was in within minutes if I have to. So that’s what it’s there for.
Elle Martinez: Exactly. I’m the same way I have a buffer in my checking it. Just peace of mind. And then if we need to just make that automated transfer and if it’s in the same institution as your checking, it’s instant. Yep.
Joe Mecca: And then on the other side of it is when you’re, you know, you’re looking at true savings and and, you know, maybe for some short term goals or special projects or something, you want to save up to buy something. You make something fun or make it a treat.
You keep that money separate. Yeah. Or keep it separate in a way that makes sense to you.
Like, I like actually to keep money mostly in one account, but I use a spreadsheet to keep it all separated on paper.
So if I know that I want to go do something and I’ve got money set aside for that purpose. I know. Look, I don’t look at the account balance. I will get, you know what I have actually set aside for that amount.
When it comes to an emergency fund, [it’s about] committing to putting money into it. And then and then keeping it separate.
You know, if you have to physically keep it somewhere else and do that, you put it in a different account.
Name it something else. Don’t get a debit card attached to that account. It makes a little bit harder to access. But you want you don’t want it to be accessible when the situation arises and you’re not going to know what that is.
How Big Should Your Emergency fund Be?
Elle Martinez: Well, that’s kind of an emergency. Yes. Yeah. And I know for us, you know, the big question is like how much?
And I think, at the very least, especially now, if you don’t have that three to six months of essential expenses, which means you have to be aware of what which of your expenses are essential.
So on the plus side, it’s good news. It’s not going to be as large as you probably are thinking. But on the other side is, yes, you still need a significant amount if you’re going to be covering groceries, your rent or your mortgage and then your other essential expenses like utilities and so forth.
Joe Mecca: Yeah, it’s kind of a scary thought because for the longest time we’ve been saying, you know, most people can’t handle a $400 expense or at least since dollars and then work on getting to a thousand dollars and then work on three to six months.
And then overnight, everyone needed three to six months. And it’s, you know, it’s kind of scary to think about.
So we definitely recommend, you know, working toward that three to six-month goal. And at this point, now a minimum.
Elle Martinez: Yeah, I agree. And I think. As bad as the situation is, you know, we’re all in this. It can also be an opportunity because we’ve we’ve known we need to have a financial cushion. So if we can now try to get into the habit, it will at least minimize, hopefully, any of the financial stress we might be having with what’s going on or what could be happening, you know, down the line, because we are going to be reopening. And as they find that pace, you know, you don’t know if your job might cut their hours temporarily or if you’re only going to go back part time for, you know, different situations with family. But getting into that habit of saving is crucial. Definitely. Even now, you know what? Especially if you’re saying it’s better.
Joe Mecca: And if you’re someone who’s still working, still drawing an income right now, I’m willing to bet you’ve seen your expenses drop because you’re not going out to eat. You’re not spending money on entertainment. You’re just not going shopping.
You may have been plowing a little bit extra money into household projects like I’ve been. But, you know, you probably are spending less than you were prior to being quarantined at all.
So if you have a little bit of extra cushion, this is a good opportunity for you to set that aside. And you do that through a few paychecks and suddenly you’ve got a little bit saved up.
And then it’s just a matter of maintaining that habit and carrying that forward so that you can build up that that reserves for, you know, when you do need it.
Elle Martinez: Yeah. And my favorite way, and I know you do this, too, is automating it. Treat it like a bill with the transfers. I know for us the first paycheck of the month it hits and then two days later our bills come out and one of those bills is savings and just make it a habit. We are all guilty of if we wait and say, oh, it’s in a month and I’ll save, you probably aren’t going to have as much money as you could have by automating it.
Joe Mecca: Yeah, absolutely. Well, automation, you know, for me it’s transfers because it’s mostly in-house from from one account to the other. But I’ve got those set that the day my paycheck arrives, a set amount moves into another account for for whatever savings purpose I have set aside. Yeah.
Elle Martinez: Yeah, absolutely. I mean, we’ve used that we started with the emergency fund because that’s like the foundation with finances. And then when you build that habit, then you notice, like, you know what? I didn’t really miss that money. You know, you start off small. What you can do 20 a paycheck or 100 a paycheck, whatever it is. And you build up that habit, you can use this later, hopefully when things are better and back to normal, saving up for house down payment or, you know, your car down payment, whatever it is. This is something that we should be already in the habit, but if not, we can start now.
Joe Mecca: You know, I’ve noticed I’ve noticed, too, that the better you plan for emergencies, it seems like the less of an emergency something actually is when it happens. You may you start to identify things that might need maintenance instead of home repair or instead of replacement or just, you know, you’re not it’s not a shock and a huge surprise like something went wrong. You’re ready for it and you handle it. And it’s not this big, stressful situation that it could be otherwise.
Elle Martinez: Yes, I’ve personally noticed a difference, like when I had very little savings or no savings. You know, work in college, get every little hiccup. It could be a delay, just an a paycheck or something. Got mixed up was just like a five alarm fire, you know, for my finances. It was just driving me crazy. And then I’ve heard some people where they were expecting a direct deposit for the stimulus check and now they find out they’re going to get a paper check and they’re stressed out about that. And so, you know, we can’t anticipate every situation.
Elle Martinez: So this is why we need to have an emergency fund. It helps us right through life. There are going to be bumps. Unfortunately.
Elle Martinez: Absolutely. Absolutely.
Elle Martinez: Well, Joe, I know. I know we do the best we can, and I know this is like your favorite subject and you and I can probably go on for forever, but just get started.
Guys, if this is a takeaway is if you don’t have the habit, if you haven’t started building your emergency fund, please start today, even if it’s as small as, you know. Twenty dollars a paycheck.
Build it up, because having that financial cushion will make your stress levels go down, give you some peace of mind.
And if you’re in the triangle area of North Carolina and you’re looking for a better baking option, please check out Coastal Credit Union.
We’ve been members for over five years. I’ve been extremely happy with them. And speaking of savings, they have competitive rates on their savings account. And if you want to find more, just go to bankbetter.org. All right. Thank you so much, Joe. I appreciate you helping me out and chatting with me today.
Joe Mecca: No, no problem. It’s always a pleasure.