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Why It’s (Sometimes) OK to Have a Small Emergency Fund

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I’ve mentioned that I’m keeping a very slim emergency fund (just under $1,000) from now through the New Years. Instead of beefing it up right now back to a place where I feel comfortable (which, for me, is about $4,000ish), I’m putting it off until the New Year.

Last week Matt posted about how his emergency fund (EF) has also taken a dip down to right at $1,000. A couple readers commented on how dangerous and foolish it is to allow such a low EF, and the importance of having a reasonable EF in general (side note:  read the comments, as there were some really great points and an interesting discussion).

I whole-heartedly agree that an EF is of the utmost importance. When trying to get out of debt the first basic step is to stop accumulating more debt! The best way to do that is to pay for things in cash and have a bit of a safety net for any possible “uh oh” situation that would otherwise cause one to take on debt.

What one considers to be an “acceptable” level differs by person. For me, my preference is to have one full month worth of expenses in the bank (about $4,000 for our family’s minimum expenses). I know many financial gurus suggest 3-6 months worth of expenses or even 6-12 months. But, some of those same gurus admit that these figures are after debt has been paid off. While still in the trenches working to eradicate debt (some of) that money is better spent paying down debt! Dave Ramsey suggests that while in debt repayment mode to only have a $1,000 beginner EF. For me that’s a little too low for comfort (again, I prefer one month worth of expenses). But to each their own.

All that being said, I think it’s okay to have a meager emergency fund sometimes.

Here is my reasoning and logic for why I’m sticking with a very small EF right now:

  1.  It’s for a limited period of time. I would not feel comfortable with my current level of EF (under $1,000) forever. But I’m not suggesting I keep it that low forever. I’m just trying to get through the rest of 2015. I have some pretty big financial goals to achieve and I’m working my butt off to try to hit them (or come as close as possible!) I’m planning to beef back up my EF in January 2016, so we’re really only talking about a month and a half of our super slim EF.
  2.  It’s motivating. If you have a slim EF, you work that much harder because you’re motivated to be able to build it back up quickly. It’s uncomfortable to know that you have a super small financial security net, so you may be more likely to cut back further (to save additional money), find things to sell (to make more money), etc. All around, I find it motivating.
  3.  I have a steady paycheck. This is a big one because for multiple years we had a VERY variable income. During that time I would have never allowed our EF to stay at such a small level. But we also depended on our EF for our basic livelihood rather frequently. The situation is different now. I have a secure job and steady pay. If we were to experience an emergency that completely wiped out our EF, we’d still be okay because we continue having a steady paycheck! It would just mean that any funds originally earmarked to go toward debt would be diverted to pay for the “uh oh” situation. I feel a lot of security in knowing I get paid like clockwork every two weeks.
  4. We rent. One of the points brought up in the comments on Matt’s post was that renting is inherently less risky than owning.  Anyone remember the Great Flood we experienced last year at this time? I can’t even imagine how costly that was for our landlord. If a roof needed replacement, an A/C went out in the heat of summer (or heater went out in winter), or some other major expense came up, it could cost many thousands of dollars for repair/replacement. We aren’t in that situation right now, so we don’t need emergency funds to cover any of those hypothetical home-ownership-related problems.
  5. I have other savings. I really love how easy it is to have separate savings accounts for different goals with Capital One 360 (<refer a friend link! If you join, let me know how you like it!) Some people are “groupers” and some people are “splitters.” I’ve always been a splitter. You should see my desk at work – I have a different pile for each task I’m working on ; )  Anyway, I’d hate to have to do it, but if an emergency arose that we were unable to cover through our small EF or income, my next step would be to raid other existing savings. We have savings in all kinds of categories:  Christmas fund, semi-annual fees, dental/health/vision, vet/pet expenses, etc. etc. etc. If something big came up and we needed liquid cash immediately, I’d dive into these funds in order to cover our butts. Yes, I don’t consider them part of our EF (and I prefer to keep them totally separate). But, let’s be real. It’s cash money sitting in the bank. If we need cash, it’s an easy place to go.
  6.  I have credit cards. I know this is controversial because some people are big proponents of cutting up and throwing away credit cards. If you have had credit card addiction problems, then by all means get rid of them! But I’ve been pretty safe on that front in terms of being able to charge something credit and pay it off right away. I still prefer using debit cards because it’s easier for budgeting purposes. However, I use a Wells Fargo credit card for our monthly preschool tuition because of the reward points it earns, and I use a Target credit card anytime I buy gifts (wedding, baby, etc.) because I save 5% and get free shipping (remember, I live in Arizona but most of our friends/family are in Texas so almost all gifts I purchase have to be shipped back to Texas). In addition to that I have 2 more credit cards I never use (they sit in a safe in our home).  In all, I have probably $15,000 worth of credit available to me. This would be a last resort, but if a big emergency came up and we didn’t have the cash (or income, or additional savings) to cover it, I could put it on a card and pay for it the following month. That allows us an extra month to get the money together without it actually being new debt (and it would be paid off before any interest accrues, etc.)

Those are my thoughts on the matter, what are yours?

Have you ever had a small EF for a period of time? If so, how did you handle emergencies when they came up? How much of an EF have you kept while in debt-repayment mode? What’s your minimum threshold? 


My Stomach was in Knots but it is Okay

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Written on Tuesday…

For the first time EVER in my life, I had to meet with someone and tell them I could not take care of my family.  I had to go to the same building that I visited so many times as a foster parent and later adoptive parent full of pride that I was doing something to give back, something good and right, and admit that I was a failure.  I had to look at a woman in the eye and in essence say “I’ve failed to prepare for this situation by not saving and by using my money un-wisely.”  It was the worst feeling EVER.

And what a lesson.  I hate this situation.  I hate that my decisions brought me here.  I cringe at admitting what a failure I am.  But if the last year and then have taught me anything, it’s that I AM going to do better.

In no way shape form or fashion am I making excuses, but the one thing that helped me get through this morning while I was turning in shot records, leases, bank statements to what turned out to a extremely compassionate worker was that this is temporary.  I will get another job.  I will choose more wisely where my career path takes me.  I will make better money choices, even better than the ones I have started to make.  And more importantly, I WILL give back.

I do not deserve the support my community has given me and yet people have reached out offering Thanksgiving meals, help with Christmas and just words of encouragement.  But I do know that when I am back on my feet, the first thing I am going to do is find someone who has entered a dark time and reach out to them as so many have to me.

I will find out in a few days if/what assistance we qualify for, and I’ve been told that I have 10 days after I get my first paycheck to report a change in status.  I continue to seek the next step in this transition.

(And just a side note: I just completed my first of two phone interviews scheduled for today…and the second interview is scheduled for Friday.  I am counting on God to steer me as I step out in faith to follow what He has for me next rather than what I would choose.  Use me, send me…that is my prayer.)


EF Refunding Update

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Hey everyone. I hope you are all having a great day.

On Friday, I gave a short update on where I stand on refunding my EF- I’m currently at $1,300 with my goal being over $2,000. There’s an item on the horizon that have me worried about keeping my EF any lower- I have a state inspection for my car on November 9th. After talking with the mechanic over the summer, he let me know that to pass inspection, I’m going to have to have a bunch of work done. In the range of $500-$1,000 of work. Depending on the cost, I’ll most likely just pull this money from my EF.

In the meantime, I did get a credit card to help me if an emergency arose. Thankfully, at this point, it hasn’t. I’ve owned credit cards in the past (those terrible mall store cards that give you 10-15% off when you sign up. Never used them but the one time. I’ve since cut the cards up, but the accounts are still open) but never a card with a sizable limit. Not only did I read many articles and see the ill effects of poor credit use for myself, but the cards I had in the past only had a limit of $100 and $150- not much in an emergency, hence why I never used them; they just weren’t worth the trouble. Anyway, I had a meeting with my bank a few weeks ago (the same meeting where the person inquired as to who Navient was), and since I could see and feel my EF dropping, I acquired about a card I could use to get me through any tough times while I built my EF back up. They sold me on the fact that the card is tied to my checking and savings accounts, which would make payments instantaneous, and I could pay off the card as soon as I bought something with it. I experimented by buying some gas to see if this were true, and it turns out that it takes a few days for the purchase to post. While it’s great my payments can be transferred from my accounts instantly, it doesn’t matter much when my purchases take a few days to appear. The card has a 1.75% cash back bonus, but I don’t intend on using it now or once my EF is back up.

This past week, I manged to seal the windows and doors I wanted to in hopes that this will help make the winter a little more bearable. I used the Duck Tape brand, which was fairly inexpensive.

I have 2 more weeks until I will begin paying down Sallie Mae 01- I can’t wait!


Short Update

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Not much of an update here since I’m currently busy refunding my EF. I’m currently at $1,300, but I’d like to be closer to $2,000 (which will occur the first week of November). I have a looming state inspection for my car scheduled for November 9th and I know that my car will need some work to pass. In the meantime, not much at all has happened.

We’re busy getting our house ready for winter. The past two winters, I didn’t do much. This year, I want to cover our 1st floor windows in insulating plastic and seal the exterior doors we don’t use. Even though most of the windows have been replaced in the last 5 years, we still have some original glass windows that are VERY, VERY drafty. These are what I’m going to focus on. The last 2 winters have been very nearly unbearable, with days reaching an air temper of -20 and a wind temperature of -50. We even had our water pipes freeze last year and I’d like to avoid this as much as possible.

Two weeks ago, I went to the bank and got a credit card with $1,500 limit to help get me through any tough times while refunding my EF. Thankfully, nothing has happened (yet) so I’m really, really hoping to not have to use it and I can store put it into storage once I get my EF to where I want it.

Other than that, is there anything you would like to know for Tuesday’s post? List any and all questions in the comments and I’ll get to them on my next post on Tuesday.

Have a great weekend!


Panic Mode to Inspiration – The Nuts and Bolts (Part 2 of 3)

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So yesterday I woke up with a vengeance, time to look at the reality this job loss puts us in. The first thing I did was get to work.  I completed my tasks for the existing clients and put some work into a new website I am working on, sent out bills and THEN I sent a thank you note/reference request to these clients:

Thank you for the advance notice of your downsizing. I cannot express how sad I am about this for you both and XXXXXX but also for myself as I have been truly gifted by working for and with you both for these last 7 or so years! I certainly would love to be kept in mind for further projects or on-going work if the need should arise again.

In the meantime, would you mind doing me a favor….would you please write a reference for me on LinkedIn as a consultant under my EPOH business and also provide a letter of reference I can include in job applications (or take blurbs from for website presence.) I would greatly appreciate it.

I full intend to continue work as normal through the end of the month, please let me know if there are specific tasks you want me to complete….on my list are: ….

They responded in the affirmative that they would be happy to do this for me.  For that I am truly grateful.

Then I started looking at the money.  THANK GOD for MY EMERGENCY FUND!!!  Based on a cut throat budget and estimated income from all existing clients and projects, I figure we are good through the end of the year, maybe a bit longer depending on what we do with holidays and the twins’ birthday this month.  I can BREATHE!

And then I exhaled for the first time since the call on Monday.  And I started poking around on the internet looking at local jobs…just a tiny bit.  And then I started making lists.  I made a list of:

  1. Things I could sell
  2. What are my passions in rank order
  3. What are my priority in rank order
  4. What are needs I see around me that my skill set could meet
  5. What other resources can I reach out to for temporary assistance

And I decided to give myself a small break from panic mode.  I need to process and decide what the next step is without rushing into a wrong decision.  Not that I am going to sit back and twiddle my thumbs.

 


Weekly Update #26- Oops!

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Hey everyone, and Happy Tuesday!

To jump right into this post- last week I made an error. Not necessarily a bad error, but I feel like now, more than ever, I’m skating on thin ice. Every Wednesday (my pay day), I have my checking account withdrawn to pay off my student loans. I put make the payment request sometime before the payday (normally a week in advance) so that on payday, the money is gone and I don’t have it sitting in my bank account. Lucky for me- this month happens to be a 5 paycheck month and last Wednesday’s was the paycheck where I had nothing due, so I could put nearly the whole thing on my loans. I must have realized this earlier in the month because I somehow ended up making 2 payment requests of $705.00 to be withdrawn on the same day. I didn’t realize I did this until my account balances looked awfully low. I looked at my bank account, and sure enough, 2 payments were made. I say this isn’t necessarily a bad error because it isn’t like I went out an bought something unnecessary, but I had to move money from my EF to my checking to make up the difference. I’m down to $1000.00 in my EF, which has never been lower, hence why I feel I have a very shaky feeling about it. My plan right now is to finish paying off Sallie Mae 04 in 3 weeks and then build my EF back up before hitting the last two loans. If you look at the balances below, the $1,200 shouldn’t take too long to pay down.

On a separate note and a follow up from last week’s post, our anniversary weekend was amazing. Thanks to all those that shared your stories with me. Our trip to the ski resort was fantastic and it was a nice little day trip where we walked around their downtown (not the golf course, like I originally wanted) and got some appetizers at a local bar. When we got back home, GF made an amazing dinner and we exchanged little gifts. My gift for GF was, again, of the homemade variety. A couple of weeks ago, I was doing some research on homemade anniversary gifts and stumbled upon a Pinterest account that described homemade bath bombs/fizzies. Here’s the finished product below:

Bath Fizzies

It piqued my interest and I found a simple recipe on Martha Stewart Living (the recipes are easily google-able- I clicked on the first link). Since I don’t have any hobby/crafting supplies at home, I had to buy everything I needed to put together what I was envisioning in my head, including the acrylic paint and paintbrush for the front little “card” I made, the ribbon, tissue paper and dye for the fizzies. As for the fizzies, of the 4 ingredients needed (corn starch, baking soda, citric acid and essential oil for scent- I chose peppermint) I didn’t have any of them at home, and the citric acid ended up being a specialty item I had to buy on Amazon. The total came to around $60 for eveything. It would have cost a whole lot less if I did crafting and/or baking on a more frequent basis and had the items already on hand. To put the whole thing together took about 4 hours, 3 hours was for the prep and set time of the fizzies. Needless to say though, GF LOVED them. I don’t think I’ve ever been so proud of a gift I’ve given someone. It was truly a wonderful weekend.

As for my balances, here they are:

Loan NameInterest RateOriginal Balance- May '09Current BalanceTotal Paid OffPaid Since Last Week
Sallie Mae 015.25$27,837.24$23,662.64$4,174.60$0.00
Sallie Mae 024.75$22,197.02$18,556.32$3,640.70$0.00
Sallie Mae 037.75$20,692.10$0.00
$20,692.10$0.00
Sallie Mae 045.75$10,350.18$1,221.75$9,128.43$1,409.92
Sallie Mae 055.25$6,096.03$0.00$6,096.03$0.00
Sallie Mae 06 and 074.75$6,415.09$0.00$6,415.09$0.00
Sallie Mae- DOE 015.25$5,000.00$0.00$5,000.00$0.00
Sallie Mae- DOE 025.25$3,000.00$0.00$3,000.00$0.00
AES6.8$9,000.00$0.00$9,000.00$0.00
TOTALS$110,587.66$43,440.71$67,146.95$1,409.92

I hope everyone has a great week!


And We’ve Got a Plan

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As I mentioned in the last two weeks, my mind has been spinning with what my next plan of attack should be.  And I’ve finally decided that I what I need to do is sit still and wait.

The debt cloud continues to hang over my head like a dark cloud which I’m certainly anxious to tackle.

But I think even more pressing to me is what will happen in April when I am determined to leave our tiny space.

So I’ve decided that for the next 4 months (September thru December,) I will make only the minimum payments and store up a little nest egg of debt payments.  By my calculations, allowing for a little bit of extra for the twins’ birthday in October, property taxes in December and Christmas in December, that will bring me to right over my 1/2 way goal for moving to a purchased house.

In January, I think I will have a better idea of what my plan is for April.  And at that point I will either 1) payoff the smaller of my loans (ex-husband’s car which is interest free until January) and continue to save toward the move or 2) make the move/purchase the priority and continue with minimum payments to put me in a good place to move.

At this point I am definitely leaning toward choice 1, but I want to be smart and really feel I need the time to be sure.

One caveat to this…I am going to continue to look for more work.  In the Spring when I picked up new work, I just socked the money away and it came in very useful for some extras and summer fun.  With this plan, the extra would pay for additional debt payments.  And if I work hard and am able to get some decent work, I could get to January with my smallest debt already paid off or close too and a nice little nest egg towards the move. Now that would be ideal!