The average savings account balance for all households in the US is just $4,830. A shocking 40 percent of all American adults do not have enough cash to cover a $400 emergency. Many people want to hide more on a rainy day. Being an extreme saver can be the way to go.
What is Extreme Savings?
Most financial experts recommend that you save somewhere between 10 and 20 percent of your income. However, risk savings often exceed that amount. They aim to save 50 to 70 percent or more of their income.
Now, the money they save does not necessarily all go into a regular savings account. Some may be in retirement or investment accounts, for example. This means that all money is not always very liquid. Instead, it can be in an area that retains or may increase its value and is linked to a real financial product or service, not to other options such as real estate or antiques.
Many who would consider themselves extreme savers adjust their lifestyle to make that mindset part of their long-term plan. However, that doesn’t mean you can’t use the same strategies in the short term or for a specific goal. Here are some situations where an extreme savings approach can make sense for anyone.
Your savings account is empty
If you don’t have an emergency fund, taking the idea of saving to the extreme can help you improve your budget and stash away some cash for a rainy day. Many financial experts recommend that you have at least $1,000 in a savings account, to ensure that you have access to cash if disaster strikes.
However, having several months of living expenses saved is usually a better choice. It can protect you from unexpected periods of unemployment or make unexpected expenses, such as medical expenses or home repairs, more manageable for now.
Buried in High Interest Debt
High-interest debt can be a huge burden on a family. While it may seem odd to focus on saving when you have huge debts hanging over your head, having a basic emergency fund can help you avoid more debt in the future. In effect, you’ll be building a financial cushion, giving you a source of cash to handle the unexpected that doesn’t involve taking out a credit card.
However, if you already have an emergency fund, you can use the same idea to deal with your high interest debts. Instead of sending money to your savings account, make extra payments on your debts. This can help you reduce prices faster. It also helps free up space in your budget and provides financial peace of mind.
You Want to Buy Something Expensive
Whether you dream of owning a home, want to buy a new car, or have your eye on a 4K TV, saving up to cover as much as possible is a smart financial move. For example, if you can put down at least 20 percent on a home, you can avoid PMI. This can be an expensive type of insurance that is mandatory on most mortgages if you don’t have at least 20 percent equity after the purchase.
Similarly, larger car payments can lower your monthly payments and help you avoid additional interest charges. If you can buy your car with cash, that’s even better. It actually becomes an asset instead of a financial liability.
Not putting an expensive item like a television on a credit card is also better financially. Also, you avoid paying interest, which is always wise. However, it can also help you keep your credit utilization ratio low, which can help you maintain a high credit score.
Extreme Measures May Require More Savings
Finally, if you can save more, taking the idea of saving to the extreme and deferring as far as possible is a good choice. Once your financial house is ready, you can explore more profitable savings opportunities (like investing) and, give your money a chance to grow and make it easier to become financially independent.
Are you extremely frugal? Have you thought about using extreme savings methods to achieve your financial goals? Share your thoughts in the comments below.
Read more:
- 30 Day Money Saving Challenge: Save $100 in one month in quarters
- The Pros and Cons of Saving Money ‘Under the Mattress’
- Are You Saving Right For Your Retirement?
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