Building a cash cushion should be a priority — just like planning for your retirement. But unfortunately, many people get caught in a trap of spending money and completely forget the importance of saving for a rainy day. But even if you don't have a dime in savings, you can take steps to build your account. Here are seven reasons to get serious about building a cash cushion.
If you depend on mom and dad to pay for your wedding, you might not get the wedding of your dreams. However, building a cash cushion can potentially bring your vision to life. Your folks might be able to kick in some money; and if you also add cash to the pot, you can plan the wedding you and your partner want.
There is no such thing as true job security — just ask the thousands of people who are laid off from work each year. And unfortunately, if you don't have a cash cushion, you might be unable to survive this financial setback. Don’t count on unemployment to get through these tough times. Oftentimes, unemployment is only a 1/3 of your regular salary.
Whether it's your homeowner's insurance or health insurance, a high deductible can put a heavy burden on your shoulders, especially when you need to file a claim or use your insurance. But if you plan for this expense and set cash aside to cover your deductible, you won't have to rely on a credit card or borrow from relatives.
Some people despise monthly payments but if you need a new car, getting a loan might be the only way to get a new set of wheels. However, if you save your money and build a sizable cash cushion, you might be able to pay cash for your car.
There is nothing wrong with renting but if you want your own place, and if you’re tired of yearly rent increases, buying a house might be the answer. Unfortunately, purchasing a home requires a minimum down payment of 3.5% to 5%. Getting serious about saving your money can help you reach this goal sooner.
It doesn't matter how well you plan, unexpected costs will occur. And if you don't have disposable income, you might have to use a credit card or borrow money from family. This is where it pays to have a cash cushion. When these costs arise, you can dip into your savings account.
Even if you don't have a specific goal in mind, saving money is financially responsible. This way, if you ever decide to make a major purchase or set a long-term goal, money in your bank account gets you a step closer. Going forward, deposit 10% of your pay into savings. And if you don't have any disposable money, get creative and think of ways to generate extra cash.
Building a cash cushion is not easy. It requires sacrifice and a lot of discipline and unfortunately, some people fall off before reaching their goal. But if you recognize the benefits of saving money, it'll be easier to develop a routine of paying yourself first.
What are other reasons to build your savings account?