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?

Early morning rambles: Dirty Dishes, Debt Progress, Space Heaters, and why I love Amazon

With all my goal planning for 2015, I’m trying to get myself on a more regular schedule. This is difficult because as a college instructor my schedule is different each day. Still, I know I can do better. Today is the first day of doing better.

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Today, I woke up at 5:30 because this is the time I need to get up on my early days. This is often difficult on Wednesdays because I usually teach until almost 10pm on Tuesdays. Yup, Tuesday is my early day and my late day. Oh joy! But today, I did it. Now I wasn’t very productive for my first half hour. Actually, I wasn’t productive at all but that first half hour allowed me to get my bearings and do a bit of planning for the day.

The first think I noticed was a pile mountain of dishes. The reason we have so many dishes is because we have been eating at home a lot (frugal win!) and have been very busy working on projects to bring in extra money (yay money!). That leaves little time or concern for dishes until they are about to leap off the counter and attack you!2014-12-10 06.12.07 That was a very scary thing to see at 5:30 in the morning. First thing on my list: dishes. I started the dishes at 6:00. It didn’t take long and the after shot is much better.

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I also started some iced tea. Making iced tea saves us a tremendous amount of money. I always fill up my water bottle before leaving the house. My husband drinks black tea and I drink green tea. You can purchase large tea bags at Wal-Mart so you aren’t dealing with a ton of little bags. By 6:30, the dishes were done, tea was steeping, and I had coffee in my hand.

My next order of business was to get our finances updated. My husband gets paid biweekly on Wednesdays and today is pay day. I typically update our check register and budget on the days he gets paid. I entered all the transaction since the last time I updated the check register and added Jeff’s paycheck to the balance. I then added any bills that would come out of the account over the next two weeks.

Since most of our bills are due at the beginning of the month, I made a $2,000 debt payment on our debt snowball. This brought the balance on the home equity line to $19,460.02. I was doing a happy dance to see that balance drop below $20,000. In July, the balance was almost $47,000. I still have another $2,700 to pay toward the snowball before Christmas but that will happen next week when I get paid.

By 7:00, I was done with the personal finances. I took a few minutes to chat with an old friend who was also up and running fairly early. By 7:30, I was out of the shower and dressed for the morning portion of the day (A.K.A. jeans and a hoodie). I went back down to my office to get my company’s books updated since I deposited some checks yesterday. Instead of turning up the heat in the entire house, I used my space heater.

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I didn’t notice all that dust before I took the picture. It’s interesting what you see when you use a flash! I dusted it after I took the shot, but I wanted you to see how things really are around here. I am probably the world’s worst housekeeper. Oh well. The space heater saves me a ton of my gas bill and keeps my office nice and toasty. I just love it, dust and all.

We are still on budget for Christmas. I hate shopping so I’ve been doing most of mine on Amazon. I have picked up some great lightning deals and since I have been shopping early, I am also building up media credits. Amazon has an interesting offer for Prime members. If you are a Prime member, you get free two-day shipping. However, Amazon will give you a $1 media credit if you opt for slightly slower shipping. These credits can be used for books, music or movie rentals. I have built up a bunch of these credits and I’m still getting my packages in 2-3 days. Win-win!

It’s now 9:30. I feel like I have accomplished a lot this morning. I don’t need to leave for school until noon and my chores are already done. I’ll probably end up writing some more content for my other website, Accounting In Focus and work on my goals a bit more.

Do you feel more productive when you get things accomplished early in the day? What frugal things are you doing to stay on budget this month?

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?

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.

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.

 

 

Take control of your spending!

There appears to be a stigma about budgets. It has become a dirty word to many.

People tell me budgets are restrictive. They can’t do what they want if they have a budget. A budget is limiting. It is controlling. 

Who would make your budget? Your mom? The mailman? The guy next door?

YOU make your budget!

Since you make your budget, you can put whatever you want into it.

Yarn habit? Yup!

Action figure collection? Sure!

Want to go on vacation? You can budget for that too!

The only limitation on your budget is your income. Now for some people that might be a problem. For the vast majority of people I council, they make enough money to pay all their bills and there is money left over.

It’s time to take control of your spending!

Where did all my money go last month?

Have you ever asked yourself that question? Those of us on a budget never need to ask that question because we made a spending plan before the money went out the door and tracked our spending during the month to ensure we stayed within budget.

A budget

Can you budget for fun things? Absolutely, just make sure your budget aligns with your goals.

If you read the blog, you know our goal is to get out of debt. But that is really just part of a bigger goal. My husband would like to transition out of his full-time job at 55 and focus on his passion. In order to do this, we need to pay off our debt so we can ramp up our retirement savings. We have chosen to make this a priority so we made the decision to cut back on other things.

Do we still budget for some fun stuff? Of course, but that budget is very small compared to our total income. We each get $50 per month for blow money (some people call it mad money). We can spend this on whatever we want. We also budget $100 per month for entertainment. This two items combined represent about 2.5% of our total budget. Typically, we don’t even spend it all, but it gives us breathing room to have a bit of fun while we are on this journey to become debt free. It also doesn’t stop us from achieving our goal. Currently about 50% of our take home pay goes toward our debt snowball.

What are your goals? Does your spending reflect those goals? If not, a budget could help you get there.

You can read more about how to construct a budget here.

Just remember that a budget is just a spending plan. You design it. You control where your money goes.

Using percentages to help stay motivated

If you haven’t yet figured it out, I’m a bit of a numbers geek. I am a Certified Public Accountant and my specialization is tax. Yes, I know. Most people would rather gouge their eyes out with a rusty spoon than do taxes and this is my chosen profession… but I digress. I am also the person in the household who does the monthly budget and maintains the snowball and the payoff schedules that go with it.

Yesterday, I made the first extra payment on one my husband’s student loan. It wasn’t a huge payment compared to the money we were throwing at the car and I got a bit discouraged. Then I realized that the payment I made was a pretty decent chunk of the balance. In fact, it was 8.2% of the balance (yes, I actually calculated it).

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The regular monthly payment is not even a fraction of a percent of the balance. I like 8.2%. Next month, when we make a full snowball payment, we are going to pay off about 50% of the remaining balance on that loan. I like 50% a lot better but I can live with 8.2% today.

The reason I can live with 8.2% is because we have made amazing progress. We paid off the car a few weeks ago. In the same budget month (remember we use the 28 day budget), I was also able to make a decent extra payment on one of husband’s student loans. Not a bad month and I’ve still got two weeks to scrape some extra money out of the budget. I’m hoping to get that 8.2% up to 10%. We’ll see how that goes.

Now for those of you who are following our debt snowball and are wondering how on earth I am going to pay off 50% of a $21,000 loan, husband’s total loan balance is actually two loans that we pay in one payment. The smaller loan has a balance of about $8,900, or at least it did before I made my snowball payment this month. My stretch goal is to knock that one out by April 15. It is a huge stretch but it’s tax season so it is mathematically possible. I’ll keep you posted.

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.