The median savings account balance across all households in the U.S. is only $4,830. A shocking 40 percent of all American adults don’t have enough in savings to handle a $400 emergency. Many people want to have more stashed away for a rainy day. Becoming an extreme saver could be a way to do it.
What Is Extreme Saving?
Most financial experts recommend saving somewhere between 10 and 20 percent of your income. However, extreme savers commonly go far beyond that number. They aim to save 50 to 70 percent or more of the income instead.
Now, the money they save doesn’t necessarily all go into a traditional savings account. Some could be in retirement or investment accounts, for example. This means that all of the money isn’t always highly liquid. Instead, it could be in a place that preserves or potentially increases its value and is connected to a genuine financial product or service, not in other options like real estate or antiques.
Most who would consider themselves to be 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 techniques over a shorter term or for a specific goal. Here are some instances where an extreme saving approach could make sense for anyone.
Your Savings Account is Empty
If you don’t have an emergency fund, adopting an extreme saving mindset could help you improve your budget and stash some cash away for a rainy day. Most financial experts recommend having at least $1,000 in a savings account, ensuring you can access the money should a disaster strike.
However, having a few months of living expenses saved is usually a better choice. It can protect you against unanticipated periods of unemployment or make significant surprise expenses, like medical bills or home repairs, more manageable at the moment.
You’re Buried in High-Interest Debt
High-interest debt can be a significant burden on a household. While it may seem odd to focus on saving if you have large debts hanging over your head, getting a basic emergency fund in place could help you avoid more debt in the future. Essentially, you’ll be building a financial cushion, giving you a source of money to handle the unexpected that doesn’t involve pulling out a credit card.
However, once you have an emergency fund, you can then use the same mindset to tackle your high-interest debts. Instead of sending the money to your savings account, make extra payments on your debts. This can help you bring the totals down quickly. It also helps to free up space in your budget and provide financial peace of mind.
You Want to Buy Something Expensive
Whether you have a dream of owning a home, want to buy a new car, or have your eye on a 4K television, saving the money to cover as much of it as possible is a smart financial move. For example, if you can put down at least 20 percent on a house, you can avoid PMI. This can be a costly form of insurance that is mandatory on many mortgages if you don’t have at least 20 percent in equity after the purchase.
Similarly, large car down payments can reduce your monthly payments and help you avoid some interest charges. If you can buy your car in cash, that’s even better. It essentially becomes an asset instead of a financial liability.
Not putting a high-dollar item like a television on a credit card is also better financially. Again, you avoid having to pay interest, which is always wise. However, it can also help you keep your credit utilization ratio low, which can help you maintain higher credit scores.
Extreme Measures Might Require Extreme Saving
Ultimately, if you can save more, adopting an extreme saver mindset and socking away as much as possible is generally a great choice. Once your financial house is mostly in order, you can explore more lucrative savings opportunities (like investing) too, giving your money a chance to grow and making it easier to become financially independent.
Are you an extreme saver? Have you ever thought about using extreme saving techniques to accomplish your financial goals? Share your thoughts in the comments below.
- 30 Day Money Saving Challenge: Save $100 in One Month with Quarters
- The Pros and Cons of Saving Money ‘Under the Mattress’
- Are You Saving the Right Amount for Your Retirement?
If you enjoy reading our blog posts and would like to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.