When you’re living from paycheck to paycheck, you are constantly scrambling to make ends meet or running out of money before the end of the month. It can be stressful, because you feel that you never have quite enough to cover all your bills and buy those things you need or want each month. Here’s why having some money saved is an important step in achieving financial freedom.
The End of Paycheck to Paycheck Living
Instead of rationing your money until the next paycheck comes in, you can take comfort in knowing that even if that paycheck arrives late, your finances will be unaffected.
The 50/30/20 rule is an easy budgeting method that can help you to manage your money effectively, simply and sustainably. The basic rule of thumb is to divide your monthly after-tax income into three spending categories: 50% for needs, 30% for wants and 20% for savings or paying off debt.
A Healthy Emergency Fund
Ideally, an emergency fund will feature enough cash reserves to get you through 3-6 months of living expenses. If you’re not able to tuck away that much money right away, you can build up those funds gradually over time, making small but meaningful steps toward greater financial freedom.
Saving Means You Can Take Calculated Risks
Part of the importance of saving money is to build cash reserves so you can take calculated risks with less worry. If you don’t have any savings, it may be harder to pursue certain passions or hobbies of yours.