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?

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?

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.

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.

Make sure you budget for EVERYTHING

The problem with most budgets I’ve ever seen is that they don’t take into account everything. Those little things you pay annually, like car registration and your AAA renewal are generally forgotten. Putting a little money aside for home repairs and maintenance is generally missed. This is why I like Dave Ramsey so much. His budgets include everything. I’m very thankful for that today.

I’ve said before that we have a very tight budget, as we are trying to pay down as much debt as possible this year. Even with the tightness in the budget, I still have $46 a month budgeted for home repairs and maintenance. I know it’s not a lot of money but if we have an emergency, I’ve got $1,000 in the emergency fund. The $46 a month is for those little things that need to be fixed or replaced around the house.

He hates expired coupons!

Well, we had one of those little things happen yesterday. My youngest cat, Thor, got closed into my craft room Thursday night. I didn’t even see him run in there. Friday morning, I didn’t see him. He usually runs up to me when I wake up so I started looking for him. I heard him crying in the room and let him out. He was whining and not acting like Thor. A few minutes later, he jumped onto my side of the bed and peed. Luckily, he did not pee on any of the top blankets and it didn’t do through to the mattress. He did pee through the sheet, the mattress pad and the electric blanket which was under the mattress pad. My husband now wants to replace these items since he is worried about the cat pee. With my $46 budget, I can definitely replace the mattress pad. I’ll have to wait to see if I can get another electric blanket on clearance. I paid $25 for the last one on clearance a few years ago (it was marked down from $89). If I didn’t have the repairs and maintenance account, I would have to take the money from somewhere else in my budget. Hopefully, I’ll have some money left over to get some caulk to recaulk my shower. That was my project this month.

Are there items missing in your budget?

EDIT:  We washed the mattress cover and I think we got everything out of it. Yay! Don’t need to replace it. Also added a picture of Thor helping me clean out my expired coupons. He looks calm in the picture but he was going crazy on those expired coupons. He’s lucky he’s so cute.

Financial Peace University: Week 1 reaction

Jeff and I started Dave Ramsey’s  FPU yesterday at our church. Financial Peace University is a 91-day (13 week) program to help get you back on track financially. I have already read Financial Peace Revisited and The Total Money Makeover. We’ve been using Dave’s strategies for over a year and paid off about $13,000 in debt last year. In the last 30 days we’ve paid off one credit card and one student loan. We decided to do the program to help jump start our budget and really get things moving. Our goal is to get everything, except the house paid off in the next two years before we start a family.

The sessions work like this: each Sunday, we meet for two hours. For the first hour, we all meet together and watch the video for that lesson. Then we meet in small groups to discuss the lesson and our own personal situation. Everyone agrees that whatever is said in the small groups is confidential. Doing that really helps people to open up and share. We have a large number of people taking it at our church. Over 60 people signed up. There are people in all age groups. There are people in all different situations. For me, I think it’s great to have the small group discussions so you can get feedback and support from other people. It keeps me motivated to keep going.

The first week is about saving and the introduction of the baby steps. The first baby step is to save $1,000 in an emergency savings account. We have already done this, since we’ve been following the plan. He wants you to do this in the first month of the program. If you household income is less than $20,000, he suggests you put $500 away. He then jumps to step 3 to discuss having three to six months of expenses in savings. While we are on savings, we should discuss savings, right? The part that bothered me was that there was no discussion of how to get there. I thought maybe it would come in the discussions. It didn’t. I thought maybe it would come in the reading from the book (as part of the homework, you were supposed to read a couple of chapters from Financial Peace Revisited), which I reread last night. It wasn’t in those chapters either.  I went through the CD’s and the online resources. Still no suggestions. I haven’t checked out the message boards yet. I’m sure there are probably suggestions and discussions there.

The one message I did really like from this week: Look at your emergency savings as insurance, not an investment. This is your insurance plan in case your furnace stops working or your car breaks down. The one change we are going to make is to open an Electric Orange Checking account so that if we do have an emergency, I can write  a check from that account to pay the bill. That way, I don’t have to put the emergency on a credit card while waiting for the Orange savings account to transfer the funds to my regular checking account. It would be too easy to carry a balance and use that transferred money for something else.

My fear is that some people will look at the first baby step and think that this just can’t be done. If you had to save $1,000 in 30 days, how would you do it? Where would you cut back or how would you increase your income?