Life’s Money Rules – Rule 2: Save for the Future

While the common term for a savings account is, well, “savings,” I prefer a more elegant title: Contingency Fund. It just sounds better, doesn’t it? But whether you call it a savings account or a Contingency Fund—it’s a key component in a sound financial life. And that’s why it’s rule two in my book 7 Money Rules for Life: How to Take Control of Your Financial Future (Revell, 2012).

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Save for the future is a principle my Everyday Cheapskate and Debt-Proof Living readers have taken to heart. Having a healthy stash of cash put away in a safe, accessible place means regularly putting 10 percent of your net take-home pay into your Contingency Fund (CF). Sound impossible? What if you’re struggling to live paycheck to paycheck, you ask? Start with one percent, or two, or five. Saving for the future is preparing you for the day when you and your income part company for any number of reasons.

Take Grace from Oregon, for example. Not only has she paid off more than $13,000 of unsecured debt, she’s grown her CF to a cool $15,000. She was almost beaming in her email to me. She closed by saying quite casually that she will be laid off from her job this year. She’s not even upset. That’s because she’s been mentally preparing and has several options in mind. With absolutely no debt and money in the bank, what might otherwise be a devastating blow has become her next great adventure.

Kathryn and Galen from Missouri were in a similar position. Before they were free of their unsecured debts, Galen was pink-slipped—again. Unlike the previous time, they were prepared with a $10,000 CF. They knew what to do, and for a long time didn’t even have to touch their CF. The bills were paid, the family fed and, one day at a time, all went well until Galen was gainfully employed and life was back on track.

For some reason it’s so much easier to live frugally and make the sacrifices necessary when you know you have money in the bank.

So what’s your story? Are you prepared or scared? Do you have money in the bank or do you feel like you’re just one paycheck from being homeless? Take the first step to change. It’s the perfect time, too. In celebration of America Saves Week, which runs from February 25 through March 3, 2013, open a savings account. Find out more about America Saves Week at

2013 has the potential of being a financially challenging year for many people. My goal is to equip you with the tools, resources and encouragement you’ll need to embrace the changes you might need to make this year.

If you missed reading about Rule 1: Spend Less Than You Earn, you can get caught up here. We’ll be talking about each of the seven rules over the next couple of months.

Question: What’s the status of your Contingency Fund? Is building a robust CF on your list of goals for 2013? Join the conversation here

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5 replies
  1. cj
    cj says:

    Yes, building a CF is on my to-do list. Here’s a little trick I’ve been using for a while: when I enter the total from any receipt into my check register, I enter the amount spent in black and the “savings for this trip” amount in blue. I deduct both from my balance. At the end of the month I really have saved the amount in blue. Otherwise those “savings” are really just “didn’t-spend-it-this time.” The amount in blue can then be transfrerred to a savings account.

  2. kaetra
    kaetra says:

    For the past 10 years I’ve been building my Contingency Fund. Today it’s at an amount I never imagined it could be, and it all started with the small goal of being able to cover 3 months of expenses. Now we could comfortably live for at least 2 years solely on our contingency fund. It’s truly amazing what you can do when you establish the good habit of saving, and having my bank auto-transfer the money for me each paycheck really helps. As our salaries have increased over the years I’ve also increased the amount we set aside. Watching that CF grow gives me great confidence and it feels SO good knowing that if anything did happen to our jobs we wouldn’t have to “live in a van down by the river” as Chris Farley’s character used to say. 🙂

  3. Sue in MN
    Sue in MN says:

    We have always lived “below our means” At 56 & 60 we were able to retire early with no debt & substantial retirement savings – despite the fact that my husband was “downsized” or reorganized out of careers 3 times and spent his last 10 years working multiple part-time jobs. And we had (and continue to have) significant medical bills & insurance premiums.

    We have always had 3 “contingency funds” = one for day-to-day emergencies like car & house repairs, one for longer-view needs like major home re[airs & auto replacements, and the 3rd a long-term savings – for catastrophes we have not yet encountered. We continue to add to all the accounts in retirement, just at a lower rate.

    We also maintain dedicated accounts for annual expenses like insurance premiums, Christmas gifts & rent on our winter camping lot, so when the time comes to pay it is painless. We each have a dedicated account for our hobbies, and consult with each other to spend more than is in the account. One of our adult daughters is a similar saver, and her sister is trying to get there – both managed to finish college debt-free while living on their own & paying half the cost (we contributed half of tuition only) by choosing community & local schools & working while they went.
    When asked how we could retire so young, we tell people we spent less than we could have, didn’t always have the biggest house, newest cars, or greatest toys, and saved as much as we could.

    • kaetra
      kaetra says:

      What a great story of prudence, and what a fantastic gift you’ve given yourselves – a comfortable early retirement! 🙂 I wish I could take advantage of separate accounts, but my credit union bases the interest rate off the total amount in the account – so the more money in the account the higher percentage interest you earn. For this reason I lump everything together into a single account – I’ve never used separate “Christmas Accounts” or anything like that. Instead I use a strict budget to divide the money into different categories.

  4. Hope's Charity
    Hope's Charity says:

    Every payday (2 weeks), when handed the receipt for my direct deposit paycheck, I faithfully turn to my computer, log into my bank accounts & put 10% of my GROSS pay into a separate charitable account (Malachai 3:10-11), then transfer to my CF 10% of my NET. No pain and lots of gain!


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