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I consider myself a financially cautious person. Though my parents always managed to put food on the table when we were growing up, there wasn’t a lot of spare money to go around.
Now, as an adult, I have a lot of friends who routinely fall back on their parents when unplanned expenses come their way. I don’t have that luxury, nor would I want to burden my parents at a time when they should be spending their money on themselves and saving for retirement.
But still, the fact that I don’t have family to bail me out of a financial crunch makes me antsy at times. And so I take these two important steps to combat those worries.
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1. I maintain a solid emergency fund
As someone who writes about personal finance, I often advise people to sock away three to six months’ worth of living expenses in a savings account for emergency purposes. But if I’m being honest, my personal emergency fund is far more robust.
I typically like to keep at least a year’s worth of bills on hand in savings in case home repairs pop up, my car has issues, or my income takes a hit. I recognize that I could probably get away with having less money in the bank — and instead invest more of that cash for better returns than what I earn in savings account interest. But keeping a year’s worth of expenses in my emergency fund gives me a lot of peace of mind.
I should also mention that as a self-employed writer, I’m generally not entitled to unemployment benefits. So that’s a big reason why I feel the need to err on the side of keeping more money in savings.
2. I own a home that’s well under budget for me
As a general rule, it’s a good idea to keep your monthly housing costs to 30% of your income or less. That 30% threshold should include your mortgage payment, property taxes, insurance, and any other predictable monthly expense related to your home.
When I bought my home, all of those costs amounted to just under 30% of my household income. But since my household income has, thankfully, risen over time, I’m now in a position where I can afford a more expensive home should I choose to buy one.
Only I won’t buy that pricier home. The fact that I spend much less than 30% of my income on housing doesn’t just buy me the flexibility to spend on other things that are important to me, like traveling and stocking my kitchen with healthy food. It also helps me avoid stress because I know that if my bills rise or my income declines, I could still keep up with my expenses without having to dip into savings.
Protect yourself and ease your worries
It’s natural to worry about money from time to time, and for the most part, I don’t do that. But that’s because I’ve taken steps to protect myself from emergencies and rising costs.
If you’re the type to worry about money, it could pay to re-examine your budget and work on boosting your cash reserves. It may be just the thing you need to sleep better at night.