Life today is stressful for all of us at times. Some of the things that may stress us out are things that we can’t control, such as political conflicts, natural disasters or the pandemic. These things affect everyone and it’s only natural to feel some anxiety about these things. 

There are also things that may be stressed about that we have a little more control over. Our health for instance. We can’t guarantee perfect health, but we can improve our health to varying degrees through diet, exercise and lifestyle changes. Health is something that is partially in our control. 

Finances are another major stressor for some. People worry about making ends meet, losing their job, or dealing with an unforeseen expense. This can cause them to suffer emotionally and their quality of life is affected. 

Finances are something we have a great deal of control over. While everyone’s circumstances are different (and we should never discount the advantages some have had just by where they were born), almost anyone can manage their finances and lift themselves to financial stability. The results are not guaranteed. However, just the feeling of taking ACTION on the problem will help to alleviate some of the stress that is felt about money problems. 

No Savings = Stress! 

One of the best ways to reduce stress about money is to save money. Some may feel that saving money is impossible, especially if they feel like they are living paycheck to paycheck. However, no matter what your circumstance, there is likely a way that you can save at least some money, or bump you income in some way to save.  

The crazy thing is this. A large percentage of people in the US do not have anything saved. There was an article on CNBC that said that 40% of Americans would struggle to handle a $400 financial emergency. That is a shocking statistic! No wonder so many people feel stressed about their finances! 

Living life with nothing saved is like walking a tightrope without a net. No, sorry, it’s like walking a tightrope, blindfolded with no balancing pole in a hurricane. Oh, and the rope is greased up and there are man-eating sharks waiting for you when you fall. 

The point is, bad things are going to happen. It’s inevitable. If we are not prepared for them, they become major life changing catastrophes instead of small bumps in the road that we can handle. Some common examples: 

• The car that you need to drive to work breaks down. 
• An appliance fails
• You get a leak in your roof 
• You need emergency surgery or other medical procedure 
• There is a glitch in payroll and your check is delayed a week 
• Your uncle in Phoenix dies and you need to buy a last minute plane ticket to attend the funeral 
• Your landlord decides he is selling your rental and you need to find a new place to live 

Any of the above problems would be stressful enough on their own without money being an issue. Bring a financial aspect into the mix on top of the problem and it makes it much more stressful and difficult to handle. 

How To Get Started Saving 

Even $20 taken from each paycheck and earmarked for savings can go a HUGE way towards building a financial cushion that can give some peace of mind. $20 to save every 2 weeks should be able to be found in almost any budget, or income level. Some examples: 

• Eliminate three lunches at McDonalds ($6.66 x 3) 
• Make coffee at home instead of going to Starbucks ($3.33, 3 times a week ) 
• Downsize (or eliminate) your cable package 
• Sell stuff you aren’t using 
• Take on a handful of extra hours at work 
• Develop a modest side hustle 
• Get your haircuts at home

If you were able to save $20 per paycheck (assuming you get paid bi-weekly) after about 10 months you would have $400 saved. This would put you ahead of 40% of Americans in terms of having a safety net. This would be a really big financial milestone and a great first step towards having some peace of mind about money. 

In reality though, $400 is just a start. While many emergencies could be handled with $400, there are many that could not. I would recommend that the absolute bare minimum to have saved for an emergency should be at least $1000. Dave Ramsey recommends having a $1000 emergency fund before tackling any debts.  

If you have worked your way up to $1000 in savings from $0, congratulations! There is at least some breathing room in case of an emergency. Hopefully you are able to sleep a little better at night knowing that you should be able to handle many common financial emergencies. 

However, I encourage you not to stop at an emergency fund. Saving money for unexpected problems is a basic first step, but savings can unlock even greater things, if you keep building continually. 

Taking Savings to the Next Level 

Imagine if tomorrow your manager called you into their office and informed you that you were being laid off. How long would you be able to last without steady employment? Sure you may get a few weeks of severance pay and unemployment, but it’s likely you will very quickly start having financial problems if you only have a $1000 emergency fund. 

Now picture that you have saved six months or a years’ worth of living expenses. Perhaps this money is in savings account, money market, CD, or even invested in a brokerage account. How would having this larger cushion impact how you feel about getting unemployed? 

If you know you have six months plus of cushion against unemployment this may give you a lot more peace of mind about the situation. Instead of getting laid off being a catastrophe, maybe it’s just an annoyance as you have to go through the process of getting another job.  

On the other hand, maybe it’s even better than that. Perhaps you are even (wait for it) HAPPY that you got laid off. Now, instead of unemployment being a disaster, its actually an OPPORTUNITY! Here are some of the reasons why you might be happy about losing your job if you have a decent sized cushion: 

• You didn’t really like the job. You felt underappreciated and under paid. You knew you could do better but didn’t have the motivation to look for a new job. 
• It’s been years (or decades) since you had some meaningful time off. You have the opportunity to take a few months off and then start looking for a new job in earnest. 
• Turns out you have no passion for accounting (or whatever you were doing) anymore. You use your unemployment as a chance to take photography classes at the local community college. 
• Since you were a kid, you always wanted to see all 30 major league baseball parks. You take your severance and unemployment and embark on an epic summer road trip, make memories and have the experience of a lifetime. 
• You are a great baker. All your friends say you should start a business selling cookies for events. You always thought it was a crazy idea, but now that you have the time… 

The list could go on and on. Insert your own dream here. Think about what you would do with a period of unemployment if you didn’t HAVE to go back to work immediately. Maybe getting laid off isn’t so bad after all. 

Saving a year of living expenses is not easy. If you only save 10% of your income, it will take you 10 years. On the other hand, if you save 50% of your income, you can do it in one year. The key is to get started. Make savings a habit. Over time you will see your savings rate grow and you will have increasing peace of mind about the level of problems you will be able to handle with a cushion. 

Longer Term Opportunities 

Remember what we said about savings giving opportunities? Well, the real value of saving money for the longer term goes beyond being able to handle unexpected bumps in the road. Options and opportunity expand as your savings (and net worth) grow. A basic emergency fund, or savings/net worth of a year’s worth of living expenses is a great start, but there are other amazing opportunities with expanded savings. 

For instance, imagine if your net worth was 10 times your annual expenses. That would mean you have a 10 year cushion. Things like needing a new roof, an appliance breaking, needing a new vehicle or other major expense does not really put much of a dent in your savings. If you are properly investing, your net worth is expanding without you having to do anything. This is basically where I am currently on my financial journey. 

Maybe with that type of a cushion, you wouldn’t wait to get laid off to find a new job. Perhaps a job that pays less, but that is more fulfilling or in a field that you are more passionate about. Or, maybe your cushion will give you the peace of mind to take a big risk and jump to something completely new and exciting, perhaps starting your own business, or joining a startup. With a big chunk in savings, you don’t have to worry that your next big move will completely derail your finances. You have more confidence to try things and take risks. 

The Ultimate End State 

The ultimate end state of savings is achieving financial independence. For many people, this is when they have accumulated a net worth of 25 times or more of their yearly expenses. This total is based on a concept called the “4% Rule” which basically defines a “safe” withdrawal rate for a large sum of money that will result in probably never running out of money. 

When you have saved enough to be financially independent, your options increase exponentially. You have gained the most precious asset that is out there.. Time. In addition, you can sleep well every night knowing that your basic needs are cared for and that you can weather financial storms both big and small. I am about 40% of the towards financial independence, so I can’t yet tell you what this feels like. But for me, time and options are the most exciting parts of the savings process. 

Bottom Line 

Saving money is a must if you want financial stability and eventually financial independence. Start small and accumulate enough savings so you can handle the inevitable things that come up in life. Make savings a habit and build bigger cushions and net worth to open up more peace of mind and options to you!