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?

Saying goodbye and the importance of the baby emergency fund

It’s taken me almost two weeks to build up the courage to write this post. On August 25, we said goodbye to one of our cats. Thor was just six years old when we made the decision to put him down. To say we were devastated would be an understatement. He was a bright light in our lives and the energy in our home.

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This picture is pure Thor. He was curious and loved to play. He made an appearance on the blog a number of times because he got into the pictures I was taking. He loved having his picture taken. He was also loving toward us and everyone who came into the house. He loved to sleep on my hip every night. He was the best friend we could have asked for. Even though he was a good sized cat, he loved standing on my husband’s shoulder.

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Saying goodbye to him was one of the most difficult things I have ever done. We had a very difficult week emotionally after he passed. We are so thankful that we did not have to worry about things financially. We had a number of medical bills that we were able to pay because we had our $1,000 emergency fund. We were able to mourn the loss without the financial burden.

It has been a very difficult two weeks but there is a bright spot. While we can never replace Thor and the amazing friend that he has been to us for the past six years, we decided to get another kitten. We adopted him from a shelter, as we did with our other cats. This is Boriek. I call him Bo.

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We named him Boriek because that is the name of the god of chaos in my husband’s fantasy world. He has lived up to the name extremely well. He is a bit shy but really playful. He gets along with the other cats and they seem to like him even if he is a bit crazy. Watching him play reminds me of Thor as a kitten. Rather than thinking about Thor’s death, I am constantly reminded of his life and how wonderful it was.

There are still times I cry because I miss my friend, as I am while writing this post. Now, the tears end with a smile and a pleasant memory of Thor. As I write this, I think of all the times that he jumped on my desk while I was writing to get a bit of love. He loved to bother me when I was trying to get things done but those moments made me take a break out of my hectic day and relax. He always knew when I needed to take a break.

I miss you Thor, but I will always remember how you changed our lives. I promise to take a break when I need to and remember that life is a gift. Goodbye, my friend.

When emergencies happen (because we all know they will!)

Today’s post is a guest post by Janeen Kilgore. She’s had a number of emergencies pop up recently, but she was able to deal with it without accumulating debt. I love her take on this and I hope you will too.

We aren’t completely payment free, but we sure are slowly working our way there, because we have a plan and work our plan.  We still have a house payment and one car payment which is small, and we should have knocked out by fall.  We also have a life, go out to eat, to the movies, go on vacation and paid for my Master’s degree in cash as I went.

We have household emergencies like everyone else.  The biggest difference for us is the plan.  Nearly a year ago, my husband’s job went away unexpectedly, but we had a plan.  We came out of that better than we ever thought we would, especially our relationship.  He was out of work the same months I was off for summer break, as a teacher, so we spent the mornings doing resumes and web searches and the afternoons we spent cuddled up talking about where to go next, unlike any other time in our marriage.  One of his friends was able to point him to the job he’s in now, which he enjoys more than ever before.

So before you think we make big money, I teach, and he’s a mid-level technical specialist.  Not only that but I I don’t even make the “big teacher bucks” of public school teachers, I teach in a small private school, which pays 80% of the going rate at the small local public school.

Our plan – we just tell our money where to go, putting back just a little bit every month for emergencies, because emergencies aren’t the end of the world if you have a plan.  Several years ago we decided that any tax refund we received we would put a sizeable portion back to an emergency fund, and then add to it every month.  So we started by putting $200 back and then an extra $20 a month.

Emergencies happen – In early June, I noticed our home being warm and I thought I heard the air conditioner running all the time.  Yes, we had issues.  We were quoted $150 or so to fix it – not the end of the world, but not the best way to start the summer either.    Here’s what it actually ended up being:

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Then just a week later, I was doing laundry and the washing machine made bad sounds, smelling like burning rubber and stopped.  So we had a few unhappy words, spent a few hours looking on Craig’s list and the newspaper ads for another new-to-us, but used washing machine, to replace the new-to-us used washing machine which had lasted 4 years.  The one we had before quit 5 years after we bought it.  We had no luck with used, so we found one on sale at a local big box store.  Is it a perfect match to my still working dryer?  NO!  Is it where anyone but me can see that it’s not a perfect match?  No!

When our friends come to visit, they don’t come and check to see if we have a matching washer and dryer.  They just want to be welcomed.    

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Having a plan when bad household things happen because they do happen takes the sting out of them.  So while working toward living payment free, plan for the unexpected, so you don’t have an unexpected long term payment.

 

Janeen3Janeen is a 5th grade teacher, who loves to bike ride in Missouri.  She and her husband grew up with different money situations in their families, which caused relationship issues.  They saw the mistakes of their friends and family and wanted to live differently.   They are working toward being completely debt free as soon as possible, because they want to enjoy our life, without any payments. You can find out more about Janeen on her blog, Mrs. Kilgore’s Classes.

Please don’t say I’m lucky

“Oh my God, you are so lucky!”

I’ve heard it my entire life. Maybe you have, too. It drives me crazy.

Luck assumes that things just fall in my lap, like a leprechaun just appeared with his pot of gold and a few wishes. Luck assumes that the process was easy. Luck assumes that I had no part to play in the outcome other than the fact that I somehow had good luck.

When I got my first job in accounting, I was told I was lucky. I’m sure it had nothing to do with my GPA or the fact that I sent out resumes to every accounting firm within driving distance of my house, praying that one of them would give me an internship.

When I had the opportunity to talk to one of the big four accounting firms, I was told I was lucky. I’m sure it had nothing to do with the fact that I joined a networking group and one of the women in the networking group was a partner for that firm.

When I started teaching, I was told I was lucky. The job did not appear in my lap. I sent dozens of resumes to every college within driving distance of my house, many of them a stretch. My resume happened to be in someone’s email box when the college needed someone less than two weeks before the start of the semester.

When we went to Italy a few years ago, I was told I was lucky. I’m sure it had nothing to do with the fact that we worked very hard to pay off $70,000 in credit card debt and saved to pay cash for the trip.

My entire life, I have put myself in places that created opportunity. I networked, sent resumes and made connections. I also worked hard. There has never been a leprechaun at the end of the rainbow.

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There have been a lot of long days, working weekends, and sleepless nights. There were tears, frustration and cancer. We’ve had failures and successes. We still have a long way to go.

The next time you are tempted to say that someone is lucky, think of the work that person put in to get where he/she is today. Rather than assuming it is blind luck, inquire about how he/she got there. You might learn something.

If you are one of those “lucky” people, just remember one of my favorite quotes from Jon Acuff’s Start:

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Do people ever tell you that you are lucky? How does it make you feel?

 

Should you save for retirement while getting out of debt?

To contribute or not to contribute?

That is the question when trying to pay off debt. This is a question we battled with when I started working again. The financial experts are all over the place with this question. Some folks are adamant that you should not contribute while you are trying to get out of debt. Others say you should. So what should you do? Let me take you through my thought process.

Most people think about time. How much time can I afford to not make retirement contributions? For me, it wasn’t so much about time, since I knew how long it would take to pay off our debt as long as we stayed intense. For me, it was about other benefits and our ability to keep traction on our plan.

Do you have time?

Can you pay your bills? 

You should never invest if you can’t pay your bills. It doesn’t make sense to borrow money to pay your monthly bills so you can put money into your retirement plan. Too often I see people do this, just to end up taking money out later to pay off debt. If you take money out of a retirement plan, you will pay a 10% penalty plus your tax rate. Now you are further in the hole than you were before!

Does your company match 100%?

If you work for a company that matches your contributions, you are missing out on part of your compensation package by not contributing to your retirement plan. When a company determines how much to pay you, the company factors in the maximum cost of benefits (health insurance, retirement, life insurance, etc). Any benefits you do not take advantage of are savings to the company. I hate leaving that money on the table.

I have been very fortunate to work in an industry with incredible retirement matches. Over the last few years, if I put in $1, the organization puts in $1.60 or $1.80, up to 5% of my pay. That’s some serious money to leave on the table. I’m making 160% to 180% on my money instantly.

Are you making good progress paying off your debt?

If you are having trouble getting traction on your debt payment plan, would stopping your retirement contributions help you make some traction?

If you are putting $100 a month in your retirement plan, you would probably have an additional $85-$90 per month after taxes to put toward your debt. That may be the extra boost you need to start getting some traction, especially if you have a lot of smaller debts.

Making the decision to stop your retirement contributions means you need to get a fire under your ass. Generate some extra income and slash your expenses so you can get some breathing room and get that debt paid down. This should not be a 10 year plan. This should be a 2-3 year plan, depending on how much debt you have. You need to get the mess cleaned up so you can start saving for your retirement and living your dreams. No cable. No vacations. If you are willing to sacrifice your future, you need to sacrifice right now.

We have slashed our expenses and both do side work to generate extra income. Each month, 50% – 60% of our take home pay goes to debt repayment. The contributions that I make to my retirement plan (after taxes) is 1% of our take home pay. By making that retirement contribution, I decrease our debt payoff by $116 per month. That also means that I have $455 per month going into my retirement plan (including the match). The $116 is not going to move our debt free date but the $455 will move up my retirement date.

Is there a correct answer for everyone?

That’s the easiest question of all because the answer is no. Everyone’s situation is different. You need to look at your situation and determine what is right for you. If you need help making this decision, leave a comment or send me an email at kristin@paymentfreelife.com.

Are you contributing to retirement while getting out of debt? Does your employer match your contributions? 

 

Why you need an emergency fund

Thor today

A recent picture of Jeff and Thor.

This is Thor. He’s sick. 

Today, I am grateful for our beginner emergency fund. If it wasn’t for that fund, I couldn’t have brought him to the Vet today. I wouldn’t have the money for the overnight stay and the tests that are being run.

That $1,000 emergency fund gives us peace of mind. For now, we just worry about Thor. We don’t know what’s wrong yet. Hopefully, we will know more in the morning.

I know that $1,000 in a savings account doesn’t seem like a lot but right now it’s so important.

UPDATE: Thor came home Thursday at noon. He is still not 100% but we did get him to eat and drink on his own and he had a lot more energy than he did when we brought him to the vet on Tuesday. We are so thankful that we had the $1,000 in the emergency fund and that we have the ability to refill the account next time we get paid. We are very happy to have Thor home.

It doesn’t seem like a lot of money but it is nice to have a small cushion between you and life while you are getting out of debt. It was enough to get us through this emergency and to make sure our cat got the care that he needed.

How to get your spouse onboard

“How do I get my spouse onboard to budget/pay off debt/save more money?”

I hear this question a lot. Typically, one spouse is ready to get cranking and the other doesn’t understand why there is a need for radical change. The spouse that is onboard starts talking about cutting lifestyle, no vacations, and no restaurants. That is a great way to make your spouse run for the hills!

Essentially, when you say those things to your spouse, you make it sound like you are cutting out everything fun for the rest of eternity. Is that something you would willingly sign up for? I didn’t think so. So why are you onboard? You see the goal, the dream. You see what life could be like without payments. I’m with you. I can see it, too. Can your spouse see it? Maybe not.

Don’t just share the how. Share the why. Dream together. Set goals together.

Frugal Friday: Save 5% at Target Everyday – Not a credit card!

Every time I walk into Target, the cashier asks me if I could like to apply for a credit card. I always say no. I don’t want another credit card. I don’t need another credit card. I just paid them all off! A few days when I went to check out, the cashier saw my debit card and asked if I wanted to apply for the Target DEBIT card. I was about to give the “I don’t want another credit card” speech, instead I asked “What is the Target debit card?”