Should I use the emergency fund?

Take money out of the emergency fund or rework the budget? What would you do?

I got a great question from Eileen about using the emergency fund versus trying to cash flow an emergency.

Do you ever find yourself reluctant to let go of the savings you have available because you’d like to see that number grow (maybe as much as you want to see others go down)? For instance….in the months that we have an unexpected expense, I tend to just try to absorb the extra expenses without hitting our emergency fund (or other cash funds) I try to cut back the existing budget and most of the times I know when it makes sense to do that vs pulling out some saving, but other times I end up cutting it close on fixed expenses and then I end up moving money out of the emergency savings anyway. I’m not sure if I’m making sense…but it’s like this fixation of NOT touching an emergency fund (or our “household” acct — for minor but not typical expenses). I’m not sure what is better from a mental standpoint.

I hate touching my emergency fund, too!

We always try to cash flow emergencies out of our budget when we can. The way I see it, if I take the money out of the emergency fund, I will need to make refilling the fund my top priority next month. That means that I will need to cut back on my debt snowball next month to put the money back into savings.

For me, taking money out of  savings is a mental trigger. It causes me to worry a bit to tap into that account. It’s my financial security blanket. I like having that money there just in case. I also worry that if I get in the habit of touching the account, one of these days, I might touch it for something that really isn’t an emergency.

We were forced to use our emergency fund this summer when one of our cats got sick. It was the end of the budget cycle and I just did not have the funds to reallocate to the emergency. It gave me such peace of mind to know it was there so we could deal with the stress of losing one of our cats without having the financial stress as well. The first thing I did in the next budget was replace the funds in savings.

Honestly, there is no right or wrong answer to your question. The thing I love is that you are being intentional with your money. You are evaluating what is and is not an emergency and you are trying to absorb the cost before touching your savings. Eileen, you are doing an awesome job!

What advice would you give Eileen? How do you feel about touching your emergency fund?

Don’t let your lifestyle creep up on your income

When I started my blog a little over six years ago, my husband and I made about $70,000 per year. To many people, that seems like a lot of money. After taxes, the mortgage payment, and our debt payments we were barely getting by. Now, we make more than twice that. You wouldn’t know it looking at us because our lifestyle hasn’t changed much. We haven’t allowed our lifestyle to creep up to our income.

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It is so tempting to increase lifestyle when income rises. When we first started working, we did allow our lifestyle to creep. We bought new cars and nice things. We lived the way we thought we were meant to based on the income we made. If we could afford the payments, we could afford what we wanted.

After I was diagnosed with cancer and beat it, we realized that stuff did not make us happy. Security and weathering future storms made us happy. Having each other makes us happy.

We still live in the same house. My husband still drives one of those new cars we purchased in 2002. We don’t have a car payment. I do the majority of my grocery shopping at Aldi and PriceRite. We didn’t have cable TV for years and the only reason we have it now is because the cable company offered it free for one year. When that year is up, we will go back to our rabbit ears. We don’t buy expensive clothing, although we each have a few pairs of decent shoes. We actually rarely buy clothes at all.

Our monthly expenses are very similar to what they were six years ago, except for items that have increased in cost significantly like food and gasoline. We have actually cut back on a number of things and because of the debt we have paid off, we have fewer required monthly payments than we did six years ago. If our income dropped back to 2008 levels, we would actually be much better off than we were back then.

Even though we have an excellent income, we still live like we are broke. As far as we are concerned, we are still broke. We still have debt. We have a slightly positive net worth, mostly because of our retirement savings and the debt we have paid down. We still have a lot of work to do.

When our debt is paid off, we will increase our lifestyle a bit. My husband would like to eat more steak. We would like to travel. We will save up some money to buy my husband a (slightly) better car. We would also like to save more and give more. We would like to have more time to pursue our dreams.

We have purposely lived well below our means to achieve our goals. We do not feel deprived. We are happy with our progress and happy with our lives. We have everything we need right now and we can see the light at the end of the tunnel.

My #next5 financial goals

When we are slogging our way through paying down debt, we often forget to see the light at the end of the tunnel. We just see debt starring us down and it seems like we will be in this stage of life forever. I’ve been feeling that way for the last few weeks. Today, I am intentionally taking a few minutes to search for that light with a little help from some friends of mine.

Sometimes fate kicks me in the butt when I really need it. Today, my friend Camilla at No More Hamster Wheel wrote a post about looking ahead five years.  She asked “If Nothing Changed in the Next 5 Years Would You Be OK with That?” It got me thinking about what I want my next five years to look like financially. It also inspired me to rewatch Kevin Buchanan’s video about your #next5 years.

So what do my next five years look like financially?

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1. Pay off our non-mortgage debt in 18 months.

When I look at it that way, the road doesn’t seem that much longer. We’ve been at this for a long time and seeing that we are 18 months away from that goal is huge for my motivation!

2. Build up a nice, beefy emergency fund.

After we finish paying off the debt, I can’t wait to have more cash in the bank. This will allow us to weather most storms that come our way.

3. Pay cash for a nice trip for our 15th wedding anniversary.

Our 15th anniversary is May 18, 2016. We should be able to pay off the rest of our debt, build an emergency fund and save up for our trip. I’m not sure if we are going to go back to Las Vegas, where we got married, or go back to Italy. Either way, it’ll be awesome and paid for with cash.

4. Move to a lower cost of living location.

Connecticut is a very expensive place to live and with that high cost of living comes restrictions on what we can do with our dreams. Moving to a lower cost of living location would allow both of us to spend more time, if not full-time on our dreams.

5. Be completely debt free.

I currently have a five year plan to be completely debt free if we were to stay in Connecticut. If we do end up moving, we will do so in a way that I can still be completely debt free by 40. Hitting this goal would give us an incredible amount of freedom going forward. I can’t wait to have a payment free life!

Of course, we have a lot of other financial goals, like saving more for retirement and purchasing a newer car for my husband, but these are the five that keep me going. These are the five that get me through those months when I’m tired of living on such a tight budget.

What are your #next5 financial goals? How can I help you get there?

Because sometimes you just need a coffee

This morning I woke up later than usual. I was up late last night reading, doing laundry and dishes. I wanted to write a blog post and do a few things for my other site but housework was tugging at me. I packed up my Chromebook and am currently writing this post at Starbucks.

I have three hours to be creative before I must go to work. I could have stayed home and been distracted by counters that need to be wiped down, laundry that needs to be done and odd job phone calls that need to be made. Instead, I am enjoying my skinny soy caramel macchiato and writing this post.

Why you need blow money in your budget

This is why everyone needs a little blow money.

Whatever you want to call it (blow money, mad money, fun money), every budget needs a bit of it. This isn’t lunch money if you eat out everyday. This isn’t entertainment money. This is “I want an occasional coffee while I’m writing” money. This is “I want to meet a friend for lunch” money.

Jeff and I each get $50 per month to spend on whatever we wish. I usually spend mine on coffee, Costco frozen yogurt (wow that stuff is good), the occasional lunch, and books. Fifty dollars might not sounds like a lot but most months, we don’t even spend it all. That $50 saves my sanity, too.

Before we allowed ourselves some blow money in the budget, we would have a few good months and then fall off the budgeting bandwagon. A DVD would turn into other purchases and snowball out of control. We felt like we were deprived because there was no room to purchase a pack of gum. That deprivation led to rebellion and later regret. We would retighten our belts only to fall again.

Blow money made all the difference. We each had a little bit of money to play with, to do whatever we wanted with. Since we started allocating blow money, we have not fallen off the wagon. That doesn’t mean we haven’t had months with emergencies, but we haven’t broken our budget with wants. We no longer feel deprived.

If you are having trouble staying on budget, try adding some blow money to your budget. It just might bring you peace and get you back on track.

Do you work blow money into your budget? How has it helped you stay on budget?

What if you didn’t have a mortgage or rent payment this month?

My husband and I have been using the 28 day budget since November of last year. It has made cash flow planning so much easier since we get paid every two weeks. No worrying about what to do when we get three paychecks in a month. No more worrying about how to budget for groceries if there is an extra few days in the month. I really like the plan, but I love it now.

Our September budget runs from September 3 to September 30. Our mortgage is due on the 1st of the month. That means that in the September budget, there is no mortgage payment due. Over the past ten months, we’ve seen other expenses fall out of the budget range. It was nice the month that our utilities dropped off the budget since those are a fairly large expense.

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Making a budget without a mortgage payment did two things for us.

First, that gave us a LOT of extra money to throw at the debt snowball. That $1,900 is going to make a huge dent in the HELOC we are currently paying off. POW!

More importantly, it made me see what our budget could look like when we are finally 100% debt free, when we no longer have a mortgage payment. Seeing that budget gave me renewed drive to keep pressing on and get our debt paid off.

If I wasn’t sure about the 28 day budget before, I am now a true believer.

What would you do if you didn’t have a mortgage or rent payment one month each year? 

What happens when you get too excited about paying off debt

I’m starting to get excited. Really excited.

We are getting close to paying off another debt, my husband’s last student loan. I can visualize the zero balance. I’m getting super intense.

Too intense.

Last week, I started looking at the budget. We had money left in some of the categories: pets, medical, cleaning supplies, toiletries. I thought about the declining loan balance and got intense. I transferred those extra dollars to the line item for the debt an made a large payment which included that extra money. I had a bit of blow money left over and sent that as well. It wasn’t a tremendous amount of money but all the extra money added together was a nice extra bonus on the debt snowball.

And I forgot to look at the grocery budget. We had $19 left in the grocery budget and it had to last a week. Did I mention I was planning to make my husband’s birthday dinner this week? And we were out of bread. And milk. Oh yeah and Splenda (which we use to make iced tea which we drink every day). And coffee creamer. This was shaping up to be a bad week, especially if I couldn’t have coffee!

I could transfer a few dollars from somewhere to get us through the week. Oh wait. I just sent all that extra money to the student loan servicer. Yup. Bad week.

I was so excited to pay down the loan that I forgot that we might need food. Food is kinda important, right? Nah, it’ll be good for the diet. Yeah, not so much.

Don’t worry. We are not going to starve. I made some bread because we did have flour, yeast and dry milk. I also made some Italian bread. Both recipes were from the The Cook’s Illustrated Cookbook (which is my go to cookbook for just about everything). We had some chicken so I made grilled chicken and pasta.

My husband requested lasagna for his birthday dinner. My pantry is pretty low at the moment so the only thing I had on hand was jarred spaghetti sauce. No ground beef in the freezer. No lasagna noodles. I didn’t even have any mozzarella cheese (we almost always have mozzarella cheese in the house). I didn’t even have milk to make bechamel.

I went to Wal-Mart with my $19 to see if I could pull this together. The priority was coffee creamer, Splenda and lasagna ingredients. Of course, I walk through the door and see the most beautiful bananas that I’ve seen in months. I grab some hoping that there is some way on God’s green Earth that these will fit into my budget. I was fairly certain I was going to put them back. The grocery gods were with me on that trip. I got the last small bag of generic Splenda, which was the same unit price as the large bag but I didn’t have to spend almost half my budget. I also got the last marked down package of ground beef in the store.

With my bananas, the total was $18.68. I got everything on my list and got to take home my bananas. The lasagna was amazing. Husband was very happy about his birthday dinner. We had enough lasagna left over to make a second meal with it which we will probably eat on Tuesday (his actual birthday). I have some cheese left over so I’ll probably make chicken parmesan. We’ll also have breakfast for dinner and probably hot dogs. We certainly aren’t going to starve.

Seeing my grocery budget that low was a bit, no very unnerving. Before sending money to the debt snowball, I really need to slow down and make sure we’ve got enough money in the budget for everything we need. In the future, I’m going to make sure to wait until the last day of the budget before sending extra payments. Well, I’ll try my best.

Have you ever cut your budget so tight you were worried you wouldn’t make it? 

They aren’t a surprise: budget for special events

Yesterday was our 13th anniversary. We knew our anniversary was coming. It is every May 18th (although my husband also likes to take note of May 17th since that is the day we flew out to Vegas for our wedding but that is a whole different story). Special events don’t just sneak up on us. You have advance warning. Make sure you budget for them.

budget for special events

If you are attending a special event or have a birthday or anniversary coming up, don’t forget to put that in your budget. When I created our budget for this month, I looked to see what was coming up. This budget encompasses two special events: our anniversary and my husband’s birthday. In the past, we would take a trip for our anniversary but since we are getting out of debt, we decided we would just budget for a nice dinner. For my husband’s birthday, I typically make him a very nice dinner. He’s not big on birthdays so this won’t cost a lot.

Since we didn’t want to go crazy and really get our budget out of whack, we decided to increase our entertainment budget slightly. We would have a nice dinner for our anniversary and cut out entertainment for the rest of the month.

We still found a deal

You know me. I have a hard time eating out without some kind of deal. Well, I even found a deal for our special dinner. I was scouring the internet for Groupons and Restaurant.com deals, but nothings really fit. Our anniversary fell on a Sunday so I started looking at some of the nicer restaurants in the area to see if there were any specials. I found one! When we originally discussed getting married locally, we were looking at the Mill on the River. It is a beautifully romantic restaurant and they just happen to have a dinner deal on Sunday and Monday nights. Jackpot!

We had a wonderful dinner. They even brought us champagne with our dessert and wrote “Happy Anniversary” on the dessert plates. I should have taken a picture but we were so caught up in the moment that we completely forgot. A deal and wonderful service. I couldn’t have been more thrilled.

It’s okay to spend when it’s in the budget

We spent a fair amount on dinner (we also had a bottle of wine), but we didn’t worry about it because we budgeted for it. We actually spent almost the exact amount I budgeted. I didn’t fret over it because the money was allocated for that dinner. I wasn’t using gas money or grocery money. I was using anniversary money.

It’s okay to go out a few times a year for special occasions as long as you put it in your budget. Our anniversary is really the only expensive dinner we have each year. Our birthdays are pretty low key, spending wise (although Kristinmas is a major holiday celebrated every December 27).

If you can pay your bills and you budget for the event, don’t feel bad about spending a little money for a special event. Just make sure every day isn’t a special event!

 

How do you handle special events in your life? What are your favorite things to do for an anniversary or birthday when you are living on a budget?

The road to debt freedom is full of potholes

The road to debt freedom is full of potholes

Photo courtesy of Christian Schnettelker

I have a very specific debt plan. Each month we pay off at least $3,416.59 on my husband’s student loan. This is the minimum we put in the budget in order to reach the goal. We have been able to stay on track or beat that amount every month since we started this journey in August.

Until this month.

Since we are on a 28-day budget, our budget started last Wednesday. As I pulled together the final budget, I realized that we were going to fall short of the $3,416.59 goal. We had hit a pothole.

Actually, we had hit a few potholes.

  • The first was our sick cat, which drained a huge portion of our baby emergency fund. This month I had to replenish that fund before doing anything else.
  • Our quarterly water bill was due this month and has jumped dramatically. That also had to be paid.
  • Our gas bill was higher than last April because it’s been cold in Connecticut. Luckily it is finally starting to warm up.

These three items threw my budget off by $939.43.

I started to panic! The goal would not be met this month! Doom and disaster had hit our budget! I started cutting back on other things to make up the difference. Surely, I could pull $939.43 out of somewhere. My husband thinks I can make money just magically appear but not $939.43.

I needed to take a step back and take a breath. Perfectionist Kristin needed to chill out a bit.

It was time to remember some very important facts:

  • We could still pay all of our bills.
  • We were able to replenish the emergency fund.
  • Even with the extra bills, we were still scheduled to pay $3,004.25 on the student loan.
  • When we first put the snowball on the wall in November, we were scheduled to pay everything off by November 2016. We are now scheduled to pay everything off in July 2016. In six months, we’ve cut our debt free date by FOUR MONTHS.
  • Did I mention I am teaching a summer class to make extra money?
  • Did I mention I will be getting an extra check from work in September?
  • Did I mention I’m completely insane when it comes to paying off the debt? (Just wanted to make sure you were still paying attention)

Once I remembered all the progress we had made, I realized how silly I was being over $400. It was not the end of the world. We hit a few potholes.

Don’t let a pothole keep you off the road. Keep driving. Keep on track. We’ll get there.

 

 

5 tips to stay focused for the long haul

stay focused

It’s hard to stay focused on a goal, especially when it is a long term goal. We get tired. We get discouraged. It’s easier to give up than keep pushing along. No matter what your goal is, whether financial, personal, relational or spiritual, we all need help staying focused.

Here are some tips I use to stay focused on my goals: