Ramoney

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“Finances?  Hey wait a minute?  I thought this was a Self-Improvement blog, be the best that you can be and all that stuff?”

Let me explain.  Try as we might, money is a factor in the equation of life.  And to improve oneself, you need to take a look at your financial aspect also.

In this regard every Monday Ramoney will explore ideas to improve ones financial outlook.  Here is the first:

Saving For A Rainy Day - Not Just a Precaution for Water Damage.

 Photo by kool skatkat

Also known as the emergency fund.  Do you have one? 

There are many uncertainties in life - and for many people, finances is one of them.  Most of us live paycheck to paycheck and it’s a balancing act to keep things running smoothly.  Sometimes life throws you a curve ball - car breaks down and needs to be repaired.  A deductible for a medical bill needs to be paid.  Airfare to make a trip cross country at the last second.  Unemployment.  Etc..  Don’t have money set aside for these emergencies?  So what does one do?  Some take out a loan.  Others use credit cards.  Others take money out of their retirement accounts.  All are quick fixes.  And all must be avoided.  So what can you do?

Enter the emergency fund.  A stash of cash specifically made to handle these situations to avoid financial pitfalls one can get themselves into.  If you don’t have one you need to set one up, and soon.

What is a good starting amount?  Since everyones situation is unique, your number will vary.  However many agree that at least a few months of expenses is a good idea.  Add up the money that you spend a month on the necessities (No - lattes, pedicures, and massages don’t count), I’m talking rent/mortgage, food, utilities, insurance - the biggies.  Have a rough estimate?  For example, if you spend $1500 a month on necessities - you need $4500 for 3 months, $9000 for 6 months, and so on.  Good?  Now start saving for it.

Where?  Liquidity is the most important aspect of the emergency fund.  You need to be able to access it at anytime quickly, but not too quickly.  So keeping it under the mattress is out.  You can open a savings account at another bank so you won’t come across it while planning daily expenditures.   And if you don’t come across it, you won’t be tempted to spend it.  Plus you’ll earn interest.

How?  You can do it manually by withdrawing cash from your checking account and depositing it to the savings account in the other bank.  Even better, you can set automatic transfers from your checking to savings accounts.  Doesn’t have to be a large amount, if you can only afford $20 a week that’s fine.  As long as you’re consistent that $20 adds up.  Since there’s 52 weeks in a year were talking $1040 a year here.  $1040 doesn’t seem much?  When you have a $750 car repair bill, you’ll be glad that $1040 was around.

Want to save money faster?  You can do a financial fast.  You do this by cutting back on non-essential expenses for a month and saving it.  Does it add up?  A hypothetical example:

• Daily Starbucks: That $4.50 latte a day adds up to $135 in 30 days.
• Eating out: Eat out for 2 twice a week?  At $35 a person that’s 35 x 2 people x 2 times a week x 4 weeks a month = $560 a month.
• Going to the movies: At $10 a ticket, that’s $20 for 2.  Add the high cost of drinks/snacks in the movie theater (A soda, popcorn, and hot dog can cost as much as $15, $30 for 2 people).  That’s $50 a week.  Which is another $200 a month.
• Eat breakfast at home: If you go to work 5 days a week and get breakfast on the way say at $4 each time, that’s $80 a month.  Also you can:
• Bring your lunch to work:  If you spend an average of $5 for lunch, that’s another $100 a month you can save.

Add it up: 135 + 560 + 200 + 80 + 100 = 1075. 

$1075 in a month?  So does it add up?  In the words of my friend Amy, “You bet your bottom dollar.”  Do this a few times a year and you’ll have a fully funded E. fund in no time.  And once you have it established you’ll have peace of mind knowing that you have another resource in dealing with life’s little curve balls.  

Thanks for reading.