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Saving for a Nest Egg


It is believed that the term nest egg, which has come to mean a sum of money saved for the future, originally derived from poultry farmers’ tactic of placing eggs—both real and fake—in hens’ nests to induce them to lay more eggs, creating more income for these farmers. Often referred to as an emergency or rainy day fund, it may seem impossible to save for one, especially if you are paying off debt. There are, however, methods to working towards debt-free living and acquiring some proverbial eggs in your bank account.

Why do I need a nest egg?
You have unexpected bills or a sudden loss of income, an Emergency Fund allows you to handle your bills without having to put expenses on a credit card or take out a loan. You borrow from yourself so you do not have to pay interest, which can easily be as high as 18–25 cents for every dollar that you borrow. High interest rates can make it very hard to pay off your debt. Common emergencies and costly unexpected negative events include such things as large medical bills from a serious illness; extended loss of income as the result of an accident or injury; a large car repair bill; household expenses such as a new furnace or roof or major appliance; loss of a job or extended unemployment.

How much of a nest egg do I need?
The advice from experts can vary from three months to one year of income, depending on your situation. Here are some things to think about in order to decide what makes sense for you:

• Do you basically live paycheck-to-paycheck and have some savings?
• Do you own a car and how old is it? If you had to be without a car for a while could you get to work on public transportation or with a coworker?
• Do you own a home, how old is it, what kind of shape are the house and the necessary major appliances in?
• Do you have a spouse, partner, or children that are depending on you to bring in income?
• How secure is your job?
• How long might it take you to find another job if you lost your current one?

Determine how much of a nest egg you need and then begin saving as much as you can per month (or per pay period) until you reach the amount of money you need for your nest egg. It can be helpful to find out how much major car repair bills are likely to be and how much a new furnace, roof or major appliance will cost. To estimate how long it would take you to find a new job plan on one month for every $10,000 of annual salary. So, if you earn $30,000 that would be three months, and if you earn $80,000 then plan on eight months. Also, consider what the job market is like and how easy or difficult it might be to find a new job depending on the type of work that you do.

How do I find the money to save for a nest egg?

In one word: budget. There are many ways to do a budget but you must find a method that works for you. It can be as simple as pencil and paper combined with putting cash and/or receipts in envelopes or jars for each budget category. More tech-savvy budgeters should consider Mint or GoodBudget (available online or by downloading smartphone applications).

Start budgeting in three easy steps:

Step 1 Look at what you are currently spending your money on each month.
Step 2 Categorize your spending into three categories:

• Needs (food/shelter/warmth)
• Nice-to -haves (dining out)
• Wants (trip to Bermuda).

Step 3 Decide on changes you are ready and willing to make and the dollar amount you will set aside each month in savings. This is your nest egg.

A common reason for this typical predicament is high interest rates on credit cards; especially department store cards. If you are only making the minimum payment on your credit card bills then you are most likely just paying interest, and you will never pay off the balance. How do you get out of this situation?

Step 1 Find out what the interest rate is on each credit card or loan that you have.
Step 2 Use your budget to find money to pay more than the minimum on the highest interest rate debt so the amount you owe starts to decrease. Meanwhile, continue paying at least the minimum payments on all your other debt.
Step 3 Consider transferring balances on a high interest rate card to a lower interest rate card, but before doing so, get details about possible fees and how long the low rate will last.
Step 4 When you finish paying off the highest rate debt, use that payment amount to pay down the next highest rate debt. Keep doing this until you pay off all your debt.

You may start out slowly but after a while you will pick up speed. Just keep your eye on the goal: lower your debt so you can build a nest egg. The key to making progress is to have a realistic budget that works for you, and stick to it! This is the foundation and first step of any money management plan. Then you can start paying down debt. Once your debt is paid off, saving will be easy.



Pam Dudoff, MA, CFDS has a Master’s Degree in Applied Psychology and she worked 15+ years as a Corporate OD/HR Consultant, Conflict Mediator, Trainer and Executive Coach.  Pam currently has her Series 7 license (Financial Investments) and she is a Certified Financial Divorce Specialist.  Pam specializes in providing coaching and education to increase people’s ability to manage their finances and achieve their financial goals.  

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