Saturday, February 23, 2013

Emergency Fund Step One: Sacrifice

The establishment and maintaining of our emergency fund is what put us on the path to building wealth and staying out of credit card debt.

We started our marriage without an emergency fund. Although we did get some nice cash gifts, including $1000 from my parents. That is where our emergency fund began. We had already bought and paid for enough furniture to fit in our apartment. We were happy with what we had, so we decided to save it.

I suppose that decision right there comes from somewhere, but we did consciously make that decision to hold on to that money. I'm not sure we even called it an emergency fund then. I didn't know about Suze Orman, Mary Hunt, or Dave Ramsey, all who would have encouraged the emergency fund.

I know many people who do not have an emergency fund and they all struggle in some way financially. For many it means debt in every form, for others it is relying on others for help, and most of them don't even save much, if any, for retirement.

Establishing an emergency fund is the one thing you must start. And it often means sacrifice to do so. In our case, we didn't sacrifice much with the first $1K, but in later years, we went without many things to make sure we had established and maintained a rainy day fund.

I will tell you that every sacrifice you make to establish your emergency fund is worth it. It is worth it to forgo cable, even if the big game is on. It is worth it, to eat simple meals at home. It is worth it to keep your tax refund in your savings account than buying a new big screen television. It is worth doing your own nails, or coloring your own hair. Many here on Saving Advice would agree.

Yes, you will have to give up some things, if you are living paycheck to paycheck. The exercise in sacrifice for this one goal will teach you more than you can know. You will find you can live without many things and still be happy.

Emergencies happen. People get sick, or in accidents. People lose their jobs. The water heater or garage door breaks. Your pet is injured. Many many things come up in life that can not be planned. An emergency fund catches you when those unplanned events come up.

Sacrificing as much as you can for a short time to establish an emergency fund is so worth it. If it sounds like I'm talking to you, I am. You don't need a new car now. The vacation CAN wait. You can watch the big game for free at your friends house or a bar. You can do your own nails and hair coloring. You don't need to buy that new thing, yet. You can wait. You will live. That new thing might be cheaper on Ebay in six months. You need to establish your emergency fund now. You NEED to, no excuses. It has to come first.

Yes, you might have debt and you could pay it off with your tax refund. If your refund covers all your debts then yes, pay it off. And then start on your savings. However, if it will take you many many months to pay off your debt, turn your tax refund into your starter emergency fund. Five hundred to $1000 is a great beginning. Let it sit there in an account. Look at it, but don't touch. It's for emergencies.

No more excuses. It's time to start your emergency fund. Tell me how you started your emergency fund. Any advice to readers on ways to save? Where to save? Join in the discussion, now!

Saturday, February 16, 2013

Smart Things To Do With Your Tax Refund

You are getting a tax refund! I bet you are excited. You have a list of things you are going to do with that money, too. Maybe some clothes shopping, a concert, a new flat screen TV, or even a spring break vacation. That all sounds nice. How much of an impact will those items make on your future? You do want a secure future right? I know I do.

There are some very smart things you can do with that tax refund. If you only get a small refund, you can pick one, if you are getting thousands back, you might pick a couple.

Get current with your creditors. Some people get behind in making timely payments to various creditors. Utilities are common, as are rent and mortgage payments. Food, electricity and shelter are are always the first priorities of any family. If you are behind on these types of payments, use your refund to get current with your creditor. Make sure to get a receipt showing you are current for your records. You will feel so much better knowing you have a secure place to call home, and the lights will be on when you return home.

Pay off or pay down debt. You high interest debt is squashing your future. Every time you make a payment to your loan or credit card, you pay interest. A little portion of those hard earned dollars are owed to someone else. Don't you want to keep your money? The quicker you pay down the debt, the sooner those payments are yours to keep. There is a calculator at that can help you figure out how long it will take you to pay off your debt.

Save for an emergency.  A somewhat large percentage of the population does not have any money set aside for an emergency. That means living paycheck to paycheck. You have heard of that right? Another set of the population sets money aside on a regular basis for emergencies. When an emergency happens, the money is there to be put to use. No credit cards or loans from friends are needed. If you don't have an emergency fund at all, start with your tax refund. Add $10 a week or more and don't spend it, unless it is an emergency. Many financial advisers suggest a minimum of 3 months worth of expenses in an emergency fund. I highly suggest it be in a separate bank account than your spending money.

Invest for retirement.  I know way too many young people you don't think about saving for retirement. The power of compound interest is on your side if you start investing when you are young. The money will have so many more years to grow if you invest at age 20, than if you wait until even 30 to start saving. A minimum of 10% of your income is suggest, but if you can only start with 1% then do that! Many mutual fund companies have minimums for investing, which makes large tax refunds a great place to get an account opened. You don't have to add more to it right away, if you can't, but I suggest you do!

Invest for college. This could be your own college fund, or one for your kids or grand kids. The more cash you have for college, the less student loan debt you will have to take out. Investigate different types of college accounts and get started.

Invest in you. You might have some awesome skill that could bring you side income or full time income, but you lack the requirements. This could be equipment, instruction or professional advice. It's time to take your large refund and invest in your abilities.

We are using our refund of $442 to pay down the balance on our truck loan. We are almost to the end, so it feels good to put every last dollar we can find towards that loan. What will you do with your tax refund?