Challenge: Save for your Emergency Fund

What do you do if you have an Emergency?

DUDE, My car just died
Honey, I need a root canal
The pipes burst, and water is dripping form the ceiling
I just got laid off

Lets face it an emergency can happen to anyone. Unexpected expenses can be a financial disaster waiting to happen.  Usually when an emergency happens you are stressed out enough with out having to add the financial stress of “How am I going to pay for this?”

So why put yourself in that situation?

As you have learned finances are in your control you have the power to cut out the fluff to make room for what really matters.  Do you want to have to deal with financial stress when your already stressing about some other emergency? NO!  Great! So lets get started.

Building your Emergency Fund Safety Net

Now I know there are lots of financial levels out there from the paycheck to paycheck to the savvy investor. This is for the beginners.

Level 1

This is for the paycheck to paycheck people. We have got to get out of this routine. Living paycheck to paycheck means you have no room or money to absorb any sort of financial emergency. This is a dangerous game to play. However, the good news is you probably have money to save it just keeps getting sucked up by you fun pile. So your challenge is save $1000, every month find a way to scrape together $100. Sure this might seem hard but its doable. You know that fun pile I mentioned it probably includes shoes, restaurant meals, clothes, lunches out, new gadgets, excessive driving. Lets say you go out every day for lunch at work and spend about $10. $10 x 5(days a week)x 4 (weeks)=$200. Take lunch to work 2 days a week and you’ll save $80.  Skip out on one dinner date out and instead prepare something new at home that is probably another $30. See $100 not so hard.  Now that you have it build it to $1000.  Remember this is not for a new TV.

Level 2

So you already save money, you pocket about $150 a month into your saving account. The problem is you don’t really have a safety fund because you keep using it to go on awesome vacations or buy new gadgets. Chances are you could probably handle a small emergency couple hundred dollars or so but you’d still be a fish out of water if you had a major expense or lost your job. Lets fix that. Your challenge is to save enough to cover 1 month of expenses. Your rent, Utility bills, insurance, car loan payment and so forth. Some expenses in your month are probably flexible like food, and entertainment. So you can adjust your spending in case of an emergency. For example cut down on meat  and eat more beans and rice and vegetables. But either way lets get you to an actual safety net. Your challenge is to figure out your necessary monthly expenses and save that amount. Put it somewhere and don’t touch it. IT’S FOR AN EMERGENCY. Then you can go back and start saving for that next trip you want to take. For now.

Level 3

This is the level we all really want to get to but it might be really daunting to those of us who live paycheck to paycheck. In this level you have cut your spending so much so that you automatically have about 25% of your earning free to save. Since you have breathing room in your budget you can absorb an emergency with out even needed to withdraw on your emergency account funds. Plus since you have extra room your emergency fund has grown steadily and is able to handle 3-6 months of your expenses and if you keep it up well its just going to keep on growing. However, in this stage you run the risk of sacrificing your opportunity cost. So figure out how much you need for 3 months and start investing the rest. You can always sell shares if your 3 month emergency blanket isn’t enough.( but that’s a different upcoming post.)

Finally

Finally I am currently checking out online banking. Some of you are probably veterans and well aware of that system so this is for the newbies. I know how comforting it can be to have your money in a brick and mortar bank, Like Chase or Bank of America but WAKE UP! those banks aren’t even paying peanuts for all the money you are going to start saving. Online banks at least offer a much higher rate. So do some research and test them out. (Post on that also up and coming). This will make sure you earn the highest interest you can on your safety funds.

Don’t wait for that horrible surprise emergency. You’re in charge of your finances so start today get the ball rolling.

What level are you in? How will you meet your challenge goal?

 

Life is a strict teacher

I’ll be honest I also started this blog because sometimes I felt  like it was hard to relate to the pack leader Mr.Money Mustache himself. This guys is the alpha dog in early retirement ( plainly seen by all his followers) ….but as I was saying sometimes its hard to relate to this guy. He’s already retired, he only has 1 kid and he didn’t have to try to juggle raising that kid with work. He doesn’t have to juggle living now with living later. He’s already retired and free to do as he pleases. It’s an inspiration but sometimes hard to relate.

So I said, HEY.. I have to juggle work and kids, I have to budget for a 5 person household, I still have debt. I still work in the rat race and am learning about investing. I can be that middle link! I can help people relate and spread the message, So that they too can get their financial house in order, climb out of debt, learn about family and work and balancing it all. Then still be able to enjoy money building new experiences(travel). I’m not so untouchable that people can’t relate. I’m not so extreme.

UGH! but then…then I read some articles or hear complaints from friends and I have to bite my tongue and cross my arms to keep myself from shaking some sense into them.

Meh! maybe I am not as chill as I thought. Even at my much lower level of badassity compared to MMM and the mustachians some of my suggestions might still come off as extreme compared to my target audience.

So I’ve become slightly concerned with how to deliver my content. I want it to be useful, attainable. Then I realized that this is my house and my journey and being genuine is key.

The Roamer has jumped lots of hurdles since the MMM sun cleared the clouds and if the Roamer is better off well, that’s just the truth.  That’s the reality. So this is a heads up. The Roamer will say things that are critical of your spending. Especially if it sounds like this stuff

Oh I’m so broke that I can’t pay the gas on my lifted truck
or
Oh I just bought the newest gaming system, yeah playing is the only way for me to relieve all this stress from this mountain of student debt.
or
Can you lend me $100 I’m low on cash and my payday loans ran out

Critical is GOOD. You only fix something when you realize that it is broken. So lets identify the problems, then we can work on the solutions together. After all life is a strict teacher.

-The Roamer

Happy New Year Debt!

Narrator Note:  So I've been pondering how best to make this post. I know it's an important one and highly needed to set the baseline of what I, The Roamer, am working with in regard to debt and to better highlight any accomplishments. So, I decided to take the plunge and just keep it short and to the point. 

The Start of 2014 greeted the Roamer clan with the following debt numbers, savings, and retirement contributions.

Student loan debt $9046.44 with 6%

Toyota loan $8902.75 with 2.99%

Honda loan $17,479.69 with 1.99%

That’s a grand total of $35,428.88

With a joint saving account with ~ $11,000.00

Actively contributing to a 401k 15% of one earners income so less than 15% of our total earnings.

But more significantly was the mindset we were actively only concerned with quickly paying off Student loan debt and had even just financed a new car in September. Effectively increasing our debt.

So there you have it the baseline for 2014

First Understand, Then Escape Plan

I.

So, since the last post, there was lots of time to accept the challenge and calculate your financial health by figuring out your net worth. Lots of articles these days claim Americans are in a sorry state financially so maybe(and very likely) the numbers you saw didn’t leave you feeling warm and fuzzy. Nope they most likely  made you feel upset and maybe even angry.  The uncomfortable truth for many is plain and easy to see. Maybe the idea of ignorance is bliss jumps to your head, but before you go dig your head in the sand realize the awesome power of knowledge.

I know a little ditty that goes ” If you can’t see , you don’t know,  and if you don’t know you can’t control”

The great news is now we see it, now we know and now we can control it.

No longer will you be just a lowly passenger on your financial journey. No it’s time to grab your traveling wallet and sit in the drivers seat. The time for action is now.

II.  The Escape Plan

Now it’s my understanding that any negative net worth is due in large part to a lack of savings, but even more likely to a big PILE OF DEBT! Now who here is in any sort of debt? ( I am) And who thinks their debt constitutes an emergency?  Sorry to tell you but Debt is an emergency! You need to acknowledge it!

So now what? Well I can tell you what I did. If this sounds good follow along and implement the plan.

1. STOP ADDING DEBT

Your goal is to get out of this mountain of debt.  Don’t add more , Don’t take any detours. No more buying on credit if you can’t pay off the balance in full before you get charged interest.

2. Track your spending, get in the know

I did this for 3 months when I was starting out. Figure out how much you are spending in all the categories: rent, food, restaurants, utilities. After seeing how much I was spending I could move to step 3.

3. Make a Savvy spending chart

In other words budget. Now is the time to tackle your spending. Identify the areas you can cut down on and do it! Like I said debt is an emergency which means, you can’t afford to go to those $15 a pop movies,( If I need the big movie screen experience I wait till they come out in 2nd tier theaters only $2 a pop) just wait for the Redbox. You need to brush up on the haggling skills and get better deals on insurance and phone plans. Possibilities to cut down are endless.

4. Build your safety cushion

Shoot for $1000 . The point of this money is that if you have an emergency you will be able to cover it without going into debt. (it’s not for a vacation or new big screen t.v.)

5.Pay down that Debt.

Once you have that small safety cushion its time to put the pedal to the metal. Figure out the debt with the highest interest rate.  For me it was my student loans, start to roll the money in! I designate big money to student debt. Go heavy, debt isn’t going to destroy itself. I have been actively contributing 15-25% of my paycheck since 2011. More then 3 times higher then the minimum payments, more then some people contribute to retirement. Like I said debt is no joke, and I can see the light at the end of the dark tunnel.

III.

Now you can bask in the awesome feeling of power.

Calculate your new arrival date. No longer is the future shrouded in the smog of uncertainty.  You have a plan and if you stick to it you know when you’ll arrive.

Maybe its just me but I get a happy feeling knowing that I have control of my life. I’ll be honest even married with finances always being a group discussion I have been the one to put the challenges on the table. Cutting  down on eating out at restaurants didn’t faze me, but my spouse wasn’t happy about it. So yes even with the awesome power of control you might experience some discomfort. But I’ll ask you this… Isn’t the destination, that light at the end of the tunnel, ridding yourself of debt worth some discomfort.

Or in a true travel analogy.  That discomfort is like being on a plane. Most don’t like the hassle of waiting, boarding, fighting for over head cargo space and being cramped in your seat. But we deal with the discomfort because the destination is worth it. In the end we’ll be somewhere new and exciting, and we will get to stretch out and breath some fresh air. Don’t remain trapped because of the chance of discomfort.

The destination is worth it. Start the journey.

First things First

Now The best place to start is at the beginning.

Before we can dream about staying home with our kids and supporting them as they develop into amazing human beings. Or dreaming about telling our bosses they can shove it because we have a steady stream of passive income. Or even before we plan that 3 day weekend to Las Vegas we really need to understand where is our money going.

REALLY UNDERSTAND.

How long have you been working? What do you have to show for all that time? What are you worth? You know financially.

Have you thought of it before? If not its a good time to start. I personally have been reading financial blogs and articles for a while now. I devour the information hungrily and even though there are benefits to reading about methods for getting out of debt, how to create a budget and smart shopping techniques the biggest eye opener was when I finally sat down to figure out my net worth.

This is where I think you should start. So I CHALLENGE you to figure out your net worth!

How do you figure that out? Now I’ll be honest I am about to over simplify things here. The correct and most accurate way to figure out your net worth is by apparently adding up all the things of value you own (and could potentially sell, for example that big screen t.v., the xbox, the 5 pairs of manolo blahnik in your closet, even the car) but I think that’s a bit too much work to start off so here is my more general formula.

Figure out the Positive value : Add up all the money you have saved up.

Formula

Lets also include an example we have 2 people one named Jane and the other Joe.  Jane and Joe both use the following formula

401k Balance + Bank account Balances+ Secret personal stash(cash)+ Safety net savings+ home equity = (positive)$$$(YAY!)

Figure out the negative: Add up all the money that you owe (your debt).

Car loan balances+ Student loans+ credit card debt+ (anything else bought on credit for example furniture your still making payments on)+ mortgage = (negative)$$$( ugh! boo!)

Now add them together (positive)$$$+ (negative ) $$$= ???

Joe: 401K (10,000)+Bank(5,000)+ Cash(2,000)+Equity(26,000)= $43,000

Car loan(11,300)+ Student loan(46,000)+Credit card(3,000)+Mortgage(214,000)= $274,300

Total= $43,000 + (-$274,300)=$231,300 That is a negative net worth

Jane hasn’t bought a house : 401k( 7,500)+ Bank(7,200)+ Cash(3,000)= $17,700

Car loan( 18,300)+Student Loan(13,000)+Credit card(5,800)= $37,100

Total=$17,700+(-$37,100)=$19,300

What did you get? Are you in the green! or in the red!

When you look at only what you have in your account you might be pretty happy with what you see Joe and Jane both have around 17 K in the bank but it’s not as pretty a picture after you consider your debts.

Now when I did this calculation I was pretty disappointed. I had been aggressively paying down my student debt and saving for retirement and I made good money, how was I still in the red?  The good news, now that my number was right there in my face I could clearly see it and I made a plan.  The amazing part was that once I had made the plan the finish line kept getting closer and closer. If you had the same thing happen to you, well now you know and can also make a plan.

If you find that you are in the green Congratulations! that’s great!

– The Roamer

Did this help? feel free to leave some comments and share your wisdom and tips.

*** I don’t own a house so I don’t include equity or mortgage balance if you think this is causing confusion see what your number is without including these 2 items.

Break the Mold (Family, World and Riches)

Thanks for visiting me at traveling wallet.

This Blog is about money  and its relationship(role) to Parenthood, Travel and Early Retirement. (See tag line 😉 )

I’m here to talk about my journey in working to optimize these 3 areas. Currently we (spouse and I ) are working parents. My current goals in life are to spend more time with my family( i.e. kids) and still save enough money to Travel and reach Early Retirement. But  the first thing is  to get rid of all my/our debt.

The GOALS

– Destroy Debt!

– Actually raise our children

-Travel (1-2 trips a year any combination of  in state, out of state, and international)

-Early Retirement (as in 50 or younger shooting for 45)

So lets talk about why savvy spending and savvy saving are the best way to see the world while working toward other goals. I mean I  don’t know what can be more fulfilling than becoming financially independent (early retiree) while also having a chance to taste life with all its cultures,customs, people and dishes and have the people you love most along for the ride. I also want to help you get there, whatever your goals maybe. Life and trips are always better with friends so I hope to see you again.

– The Roamer