Back to Basics: Ready for an Emergency?

Back to Basics: Ready for an Emergency?Note: This week I am concluding my “back to basics” series.

Over the past few weeks I have talked about regaining control of your money by living on a budget, keeping track of your money, and learning to pay yourself first.

Today I am finalizing the series by taking a look at why we need to have an emergency fund.

Ready for the Storm?

Growing up on a tropical island, living through tropical storms and hurricanes was part of my way of life. As a matter of fact I distinctly remember hurricane Eloise rudely intruding on my 8th birthday in 1975.

In Puerto Rico we always knew the drill: Between June 1st and November 30th we just had to be ready for the potential of lots of rain, loss of power, and interruption to the water service.

This meant we had to stock on non-perishable food items, drinking water, batteries for the radio (to keep up with the news) and flashlights and candles. It also meant making sure you had enough gas in the cars.

The drill did not change every year because we knew the possibility was very real that we would be hit with a storm. However, it also never failed that people failed to prepare.

It was always entertaining (and a little sad) to see the news reports on TV about people rushing to the super market to stock on provisions the day before the storm was scheduled to arrive or in some cases on the day the storm was scheduled to hit.

You would see the anger and desperation of the people. I usually thought: Don’t you know where you live? Have you not been watching the news?

Why is this a surprise and why did you wait until now?

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The Application to Your Money: Be Ready for an Emergency

When it comes to your finances, we can become guilty of the same lack of readiness. We know life happens and we will run into some difficulties.

I am not trying to be pessimistic but realistic. Emergency situations will happen to all of us. So the question is: are you ready for an emergency?

A 2011 survey by the National Foundation for Credit Counseling (NFCC) reveals that 64% of Americans don’t have $1,000 in savings to cover an emergency situation.

And in spite of some improvement of the last couple of years, American’s savings rate still lags considerably compared to other nations.

We are saving more than a couple of years ago (around 4.1%), but not nearly enough. So what to do about it?

First let’s define what an “emergency” situation is with regard to your finances. This would be an unexpected expense outside of your monthly budget.

Some examples include:

  • Major Car Repairs
  • Home Repairs
  • Appliance Replacement
  • Uncovered Medical Expense

So how much money do you need in your emergency fund? Here is what I would recommend:

  • Beginner’s emergency fund: $1,000
    • $500 if annual household income is less than $20K.
    • Do this, before you start paying down on your consumer debt.
    • Most typical “emergencies” can be handled with a beginner’s fund.
  • Full emergency fund: 3 to 6 months of monthly expenses (based on your monthly budget).
    • Do this, after you pay off your consumer debt.

Decide today that you will be ready before the storm hits.

So What?

Having an emergency fund, even a beginner’s emergency fund, will help you in a couple of ways.

First, it would keep you from going further into debt. You would not have to borrow money to cover the expense.

Second, it would help you stay within your monthly budget. You would not have to make a decision on which expense to cut this month.

Finally, and as a result of the first two, you would have peace of mind. The Bible says that a man who saves is a wise man (Proverbs 21:20).

So do what you must do today to complete your emergency fund. You might need to work extra, you might need to cut back on some fun items.

But make sure you are ready for an emergency before it happens.

“he who spends more than he earns is sowing the winds of needless self-indulgence from which he is sure to reap the whirlwinds of trouble and humiliation.”
From the “The Richest Man in Babylon” by George S. Clason

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Question: Could you deal with an emergency today without going into debt?

Savings Guidelines

A while back, I posted the budget guidelines to give you a quick reference guide to plan your monthly budget. That was a very simple but very popular post.

Today I want to give you a similar quick reference on the topic of savings.

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Savings Guidelines

The Savings Guidelines

 “He who spends more than he earns is sowing the winds of needless self-indulgence from which he is sure to reap the whirlwinds of trouble and humiliation.”
George S. Clason (“The Richest Man in Babylon”)

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Budget Priorities: If I Had To, What Would I Cut?

Budget Priorities: What Would I Cut?I have started to work on our household budget for February and this question came to mind: if I had to cut back on our spending, what would I cut?

The scenario that usually runs through my mind is this: what if I lost my job tomorrow? I am the primary income earner in our household so we would officially be in the middle of an emergency.

Well first of all, I would have to remember to protect the four walls: food, shelter/utilities, transportation, and basic clothing.

In our situation, we should be able to cover those 4 walls with our emergency fund.

So what would be cut or eliminated? In other words, what in our world would not be an essential expense?

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My Budget Cuts

This is my list. You have to evaluate your own financial situation and the priorities of your household. The key is making sure you know how to decide on needs vs. wants.

  • New Clothing: Meaning, we would not need to buy new clothing. We could easily make do with what we already have. Laundry/dry cleaning expenses would most likely be cut or reduced as well.
  • Restaurants: Well, with little or no income, we would have no business eating out so we would definitely cut this area almost completely.
  • Landscaping: We use a service to take care of our yard. We could eliminate this expense. It just means I would be spending a little more time outside :-).
  • Cable: We have a very nice TV package. We would look to eliminate or reduce the expense to just have the very basic channels. Just have to remember that there is not that much on TV that’s very good.
  • Internet Service: My wife and I both rely heavily on access to the Internet. The key here would be to identify the least expensive, most basic level of service.
  • Cell Phone Service: Initially I got a cell phone for emergencies. Now, it is really an useful tool and it also offers a degree of entertainment. Similar to the internet and cable service, I would need to look for the most basic service.
  • Entertainment: This covers items like going to the movies, sporting events, etc. Again in the middle of an emergency, this would be an area that we could really reduce in our our expenses.

There is one area which I did not address on my list but it would merit some consideration. That’s the area of giving. I have written before on how our generosity is not to be limited by the size of our bank account.

However, giving is very personal. You would have to evaluate very carefully and prayerfully what do in terms of giving if you are facing loss of income for an extended period of time.

In our case, I believe we would find a way to continue giving as part of monthly financial plan. I have faith that God would provide for our needs as He has to this point.

Question: If you had to do it, how would you adjust your budget?

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Redeem the Time: Make 2013 Your Best Financial Year Ever

Sand Glass (Redeem the Time)Subscribe to future posts from Figueroa Financial by e-mail

Can you believe half of 2013 is gone already? Last week at work I had my midyear assessment, and it was a good time to review how my team and I had performed against our objectives for this year. In summary, we are doing well but we can do better.

In addition to my work objectives, I had set personal goals, and goals for Figueroa Financial for 2013.

This past weekend I had the blessing of a long break thanks to the 4th of July Holiday, so I took the opportunity to evaluate how I am doing against those goals. In some cases, I met or exceeded my goals, and in some cases I came up short.

But the important thing is that I took time to stop, do the review, and see how things are going. I know where I am and I know what I need to do for the rest of this year.

You can follow the same process with your money. Did you set some goals back in January for your finances? How are you doing?

I don’t want you to get discouraged if you are not doing as well as you wanted. You still have half of 2013 in front of you. You can still redeem the time and make 2013 the best year for your finances. It’s time to review, reflect, and reset the plan for your money.

Review

What goals have you achieved this year? How are you doing with your monthly budget? Have you completed your beginner’s emergency fund? Did you finish paying some of the debts on your debt snowball?

As you review your results, take a moment to celebrate. Every step you take in the direction of financial wellness is a step in the right direction.

Every victory counts in your battle to get control of your money, so don’t forget to celebrate when you win!

Reflect

As you review your results, there is the danger that you might get discouraged if you are not careful. To avoid that, I want you to do 2 things.

First, I want you to first think about how far you have come since you began. If you have made changes to the way you handle money, you are making progress.  Don’t forget that you are not where you used to be.

Second, try to focus on why you are working hard to get control of your money. Maybe you were tired of living paycheck to paycheck. Maybe you got sick and tired of carrying the debt burden. Perhaps you wanted to change the legacy for your family and leave a great inheritance to your children and their children.

Remembering the “why” will empower you and keep you going even when things get difficult.

Reset

As you look at your results, you might need to reset your strategy. Think about what worked well for you and think about what could have gone better.

Be honest and remember that this is a process, and that implies that it takes time to get it under control

Are there any categories where you can reduce your spending? For example:

  • If you had trouble with certain categories like groceries or restaurants, you might want to start using a cash envelope.
  • Could you get a better cell phone or internet service deal?
  • How about exploring options for reducing your insurance expenses?
  • Or could you reduce your recreation/entertainment expenses by choosing cheaper alternatives?

And what could you do to increase your income? For instance:

  • Is it time to pick up more hours at work?
  • Could you pick up a part time job or do some freelance work?

Your goal is to improve your cash flow by reducing your expenses and increasing your income. Every little improvement can help you to balance your budget and give you great traction.

“All we have to decide is what to do with the time that is given to us.”
J. R. R. Tolkien (The Fellowship of the Ring)

Please leave me a comment and let me know about your financial plans for the last 6 months of 2013.

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Financial Literacy Month: The Savings Series

FLM: Savings Series

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As you know, in honor of Financial Literacy Month (FLM), I am sharing some of our previous posts on what I consider the four key categories for financial management: budget, savings, debt elimination, and giving.

I believe if a household can learn how to deal with these 4 areas of money management, it will get on a path to financial wellness.

Last week we began with the budget series and this week we turn our attention to the topic of savings. The skill of saving money can bring a great deal of blessings to your financial situation but you have to make it a priority. You can have peace of mind knowing you are ready for emergencies and that you are preparing for the future.

The Savings Series

 

Additional Information

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