Tightening the belt on your finances

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If the unexpected arises, how much do you need to stay afloat?

By Mike Brady, Michael Brady & Co. Wealth Management

Unless you are completely unplugged from the world, it was impossible for you to not have heard about the recent 35-day shutdown of the U.S. government. The media reported on many government employees who, without a paycheck or adequate cash reserves, were unable to pay their rent or mortgage, pay for heat and electricity, and were unable to feed their families.

According to 20SomethingFinance.com,

“Fifty-five percent of Americans are living paycheck-to-paycheck (and these are the folks who have online access, which one would assume are better off than those who don’t). Actually, that’s inaccurate. Thirty-six percent are living paycheck-to-paycheck, 19 percent are actually worse off than that—accruing debt.”

It’s been suggested that you stash three to six months’ worth of expenses in a savings account to stay afloat. Every household is different, so this can vary. How much you need also depends upon whether or not your income is steady. For example, if you work on commission or rely on tips. Also, a homeowner may need to have more in the emergency fund than a renter to cover sudden expenses such as a hot water tank failure or a leaky roof repair.

Do you have a quickly accessible emergency fund from which to withdraw funds to keep the lights on, the car running and the Netflix streaming? If not, here are a few tips to help you through tough times—whether it’s another government furlough or simply an unexpected expense like a medical emergency or a car repair.

First, try to tighten your belt—one month of no Starbucks, eating out, or Amazon could be a start. And, who knows, you might realize that you can permanently go without or cut back.

Second, get a side hustle, yep, an extra job. Put all of those earnings into your emergency fund and when it’s full, quit that job. Life’s short.

Third, set up a monthly allotment from your paycheck. A small amount that you can live with each month can build up your reserves without you missing the extra income.

Fourth, temporarily reduce your IRA or 401K contributions—only until you’ve met your reserve target number. Once you’ve saved enough, return your contributions to the original amount, or, heaven forbid, consider increasing it by one to two percent permanently. You’ll thank me at retirement.

The bottom line is to be prepared and not be a victim of events you cannot control.

Michael Brady is a fee-only, full-time fiduciary and certified financial planner. To set up an appointment, call 440-235-2100, email Mike@MichaelBradyCo.com, or visit MichaelBradyCo.com.