It is bound to happen. You will have a little extra cash leftover when you budget, maybe a few pennies, maybe a few dollars, and you question what to do with it.
First off, don’t just spend it! Unless you have a plan for that money (such as a necessity), leave it. You’ve worked hard or sacrificed a little something for those extra few dollars, and they will add up over time.
You then want to ask one very helpful question:
Are you ok with the pace you are paying off your debt?
For me, I am trying not to throw extra chunks of money at my debt repayment, as I am happy with the pace I have set, and see the end of it! A great way to avoid getting into debt any further and pushing yourself farther from your debt-free goals is to have savings.
Let’s say that some sort of emergency or unexpected bill comes up. Where would you think of putting this cost first? Do you have enough extra in your current checking account? Probably not. Then I bet the next thought you have is placing it on your credit card. Again, adding to your debt. To avoid this, I highly suggest placing any un-budgeted money into a savings account that you can access quickly.
For example, I have a $130 bill from a doctor sitting in my “to pay” file right now. This cost was unexpected, but, I am not putting it on my credit card. Instead, I am turning to my savings account that has grown little by little over time.
What is a good number to start with in your emergency fund? Many people recommend having anywhere from $500 to $1000 to start. Honestly, I don’t have that much saved up, but I am working towards it. Luckily, I do have enough to cover that doctor’s bill and then some. As you reach that $1000 mark, as I am going to do, it is ok to start putting that extra towards your debt to help you pay it off faster. $1000 may take a bit to get to, but damn you’ll feel less anxious knowing you have all of that money in case of emergency!
Have you run into situations where you know you don’t have enough cash to cover the expense? How do you add to your savings?