Real Answers for Life’s Money Challenges
Im 28, and I just paid off all my debt.
But after reading your column I realized I had done something foolish.
I used all my savings to pay the full balance.
Now all my accounts liquid savings, emergency, long term are at zero.
I have no debt, but no assets whatsoever.
Im planning to save 20% of every paycheck per my budget.
-J.
Dear J.,
I cant guarantee you that tomorrow wont spell disaster.
So yes, if the world implodes tomorrow, youll be in serious trouble.
You spent your lifes savings to pay off debt.
Youll be in a better position long term for having done so.
But youve put yourself in a dicey situation for the next few months.
You want to have that credit open for any worst-case scenarios you encounter while youre rebuilding your savings.
Plus, keeping old credit accounts open and using them occasionally helps you keep a goodcredit score.
Beyond that, every extra cent goes into your savings account until youve built three months of emergency savings.
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In 10 days,these 10 practical stepscould help you get back on the right financial track.
Once youve built your three-monthemergency fund, give yourself a pat on the back.
Youre not done yet.
Your ultimate goal is to build six months savings.
Its extremely easy to set up anIRS payment planwhen you owe taxes.
There are no easy answers for how to deal should you encounter an emergency before youve rebuilt your savings.
You say youre planning to save 20%.
Is it possible to squeeze just a little more out of that paycheck?
Lets say you make $3,000 a month after taxes.
You live on 80%, or $2,400, and you save the remaining 20%.
You need a $7,200 emergency fund.
If youre saving $600 a month, it will take you 12 months to build one.
But suppose you’ve got the option to live on 75% and save the other 25%.
Youd only need to trim $150 a month from your budget.
Youd lower your minimum emergency fund needs to $6,750.
Saving $750 a month, it would take you just nine months to get there.
It may be more doable than you think since youre no longer making debt payments.
If saving more than 20% of your current salary isnt possible, consider taking on aside hustle.
It doesnt need to be long term.
Just pocketing some extra cash for a few months can help you rebuild your savings quickly.
There are few scenarios where your finances are truly doomed at 28.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder.
Send your tricky money questions to[email protected].
