I'm new so I'm sorry if this question has already been answered but I tried searching and couldn't find anything that did.
If I stick to my June budget, I will have a whole month's salary as a buffer for July which I think is a good start. That buffer will easily cover my regular monthly expenses with some left over for rainy day saving. As I see it there are several different categories of rainy day funds that you need:
1. saving for large annual bills with known due dates e.g. car insurance.
2. saving for large bills that you know will come but don't know when e.g. car repair bills.
3. saving for emergency funds to cope with serious disasters e.g. unemployment.
4. saving for short term large financial goals e.g. replacing your car.
5. saving for your long term future e.g. retirement.
I'm struggling to decide how I should allocate the available funds across these categories. They all seem important but I don't have enough income to do justice to them all.
#1 is how I got into a financial mess. The familiar story of building up large amounts of credit card debt because I didn't save for these expenses. Most of my annual bills are due within 1 and 9 months so right now I must save quite large amounts but over time, the amount I need to save will drop to 1/12 of the total freeing up more money for the other rainy day categories.
#2 is also essential if I am to successfully weather the normal financial storms of life. I've made what I think is a realistic estimate of my annual spend in this area and plan to simply put 1/12 of that away each month and hope that I don't get hit by anything massive in the short term. Is that sensible do you think?
So, rainy day categories #1 and #2 seem to me to be the essential steps I must take to avoid getting into a financial mess again. It seems to me that everything else is secondary. Is that the right way to think about it?
Assuming that I am thinking correctly, things get much more tricky for me after that.
#3 is essential because I have no savings like this at all so I feel quite vulnerable. I have one important #4 type event one year from now that I must save for. I have not been doing anything for #5 for quite a while. I know it is also essential but I've been so focussed on getting rid of credit card debt that I've put it on the back burner. I still use credit cards but have no residual balances and pay them off in full each month. I did however consolidate the original debt into a lower interest loan that will be paid off in 18 months time. This will give me back about 16% of my monthly income to save.
What I'm thinking of doing is to put the required amount away for my #4 project. Anything left into emergency fund building and deferring retirement savings until the loans are paid off.
Do you think this is a good idea or should I adopt a different strategy?