I can't remember where I saw it, but someone recently said they "only" had $1,000 in their Emergency Fund. The first thing I thought when I read that was, GREAT!!! Do you know how many people don't even have a dollar in their emergency funds? Or even know what an e. fund is? A lot. And even scarier is that many of them are living paycheck to paycheck :(

So if you've got it, flaunt it! Oh wait, that's not right. (Get outta my head Tyra!) Let's try that again...

So if you've got $1,000, or even $500, in your emergency fund, be proud! You're consciously working towards a stress-free and financially safe future. That's $1,000 MORE money you can count on in an event of a crazy situation or "emergency!" (whatever that means to you.) It may not be as much as you'd like in there, but you're on it and you're getting closer. One day at a time, my friends.

I can vividly remember hitting $1k myself, and I never thought I'd make it ;) It's like one of those mental blocks to get across, ya know? Multi-millionaires recognize this too - only for them it's always the first MILLION that was the hardest to reach! Haha...hopefully one day I'll be able to verify that myself.

Regardless of that big number you're trying to reach though, just keep on truckin! Personal finance is a myriad of first steps and motivation, and without one or the other you're not going very far. So you take that $1k and you smile and tell yourself next year it'll be $3k or $5k or even $50k! And then you plan for it and make that $hit happen. Why? Because you're a financial rock star, that's why. And if you're not going to do it, no one else will.

Labels: emergency funds

If you didn't get a paycheck one day, would you be able to survive? And what about 2 or 3 paychecks down the line? Scary to think about. I've been fortunate enough to realize this 2 years ago, but if you'd asked me then I probably would have $hit in my pants before I could even give you an answer ;) Okay, well I wasn't that bad, but I certainly wasn't as aware as I am now.

According to a recent Consumerist post, 50% Of Americans Are 2 Paychecks Away From Having Big Financial Problemos! That is a lot. And it really makes me wonder how long we, as in The United States, can keep this up before it screws over everyone in the process. Here's a quote from a place they quoted (MetLife):

"Without a steady paycheck, 50% of Americans say they could not meet their financial obligations for more than a month - and, of that, a disturbing 28% couldn't support themselves for more than two weeks of unemployment."

Everyone has their reasons for not being secure money-wise, but I'd bet saving an extra $50 a month is more than possible in 99% of these situations. Do that for just a year and you've already gotten yourself $600 (not including interest)! That alone is an entire paycheck for some people, and it's really not that hard to get started.

Do you know what I'm gonna advise now? Of course you do cuz it's one of my favorites: Make sure you're building up your Emergency Fund! I don't really need to go into WHY they're important here (you can put 2 and 2 together) but you do have to make sure you're on it. I can't think of a single reason why anyone can't put aside even $20 a month. You don't have to have $3,000 or $10,000 in there right now, just do yourself a favor and be WORKING on it.

That's the moral of the story today - getting into the habit of xfering over little chunks of money to cover your a$$ when times are rough. You certainly don't have to listen to me, but it would be a shame to hear that my lovely readers are part of that 50% who are 2 paychecks away from poop-ville! Don't be a statistic, be a rock star.

Labels: advice, emergency funds, paychecks

A nice wad of cash too - like all rubberbanded and stuff ;) It's all about feeling safe these days, and this helps me to do just that. And we all have our own "right" amounts. Some feel good w/ $100 tucked away, while others have $1,000 locked down somewhere. Sure you won't be earning interest on it, but it's really about feeling comfortable here.

For me, $500 does the trick. All in ones, twenties, tens, and fives too - nice and easy to spend if needed. I used to have them in $100 bills, but you can't really do much with that. I guess the point of it all is to be prepared just in case one of those "what if" scenarios actually occurs, ya know? Just like the Boy Scouts say!

I took some time and conjured up a few of those situations, in order of importance:

• The house is burning down - Naturally, we get the H outta there asap. But say we have 30 seconds to grab a few things? Well, you better believe i'll swing that safe open and grab the stash along w/ our passports, birth/marriage certificates, and anything else in there that would fit in our pockets.
• We run out of money in all bank accounts - Scary! I would never wish this on anyone, but it's still a possibility. It would be nice knowing there's $500 as a super duper emergency fund.
• All electricity goes out nationwide - no atms, no internets, no way of getting your cash. Of course, i suppose even having the cash in hand would be pointless since the places you'd be giving it too would be down too.....but it would still make me feel better :)
• You don't have change for the pizza man/plumber - this may sound silly, but i've had to borrow from this a number of times! That's another reason why breaking down the denominations like that are good - no one can use a $100 bill!
• An emergency splurge is due - This could happen if you convince me that $500 in a safe is pointless. In this case, i can go on a spending binge! haha.. i keed, i keeed.
• Any other crazy situation you can't predict - I'd write what they were, but naturally i can't predict them ;)

So yeah, some of these are pretty farfetched (and i PRAY they never happen), but better to be safe than sorry i say. And if a few dollars stashed away helps you sleep better at night? Then more power to you brothers and sisters!

Labels: emergency funds, money management

Even when an emergency comes up?! Hopefully none of us have to go through anything TOO crazy, but in life there's always some issue we're dealing with - and it usually involves money.

So when these issues arise, are you/were you prepared to pull from your Emergency Fund and put the crisis out?

That's the gist of an email i got from a reader here at Budgets are Sexy. I ofcourse have my own opinion on the matter, but I thought i'd share her email w/ the community so she can get a variety of thoughts on it. I mean, that's why i have you guys, right? :)

Here's what she sent:

J. Money
I've been reading your blog for a few months now. Thank you for publishing such great content!

My problem isn't as severe as most people out there. For all intents and purposes, I've done everything "right." I've got an emergency fund with about 6 months of expenses. I invest in my 401k. I own my home and am able to make the payments. I don't have any credit card debt and I save every month.

My water heater just broke, which stands to cost me about $1500 for damages and to replace it. When I complained to my coworker about the hassle I had when I discovered it was leaking, she said, "good thing you have credit cards." And at that point, I was so thankful that I have an emergency fund.

My problem is, however, that I feel guilty for using my emergency fund. I don't want to take the money out of my e. fund because then I have to focus on building my fund back up and the money won't be there if I were to have a greater emergency next week.

Please talk me out of my craziness and re-affirm that this is, indeed, what emergency funds are for. Or am I wrong?

Thanks.

First off, thx for the nice comments - and you've got some MAD financial skills! 6 months of expenses in an Emergency Fund, no debt, avid 401k investor - talk about a savvy saver :) So okay, she has a great head on her shoulders, but what do we do about the guilt?

That's a tough one for sure. The thought of taking a huge chunk from my own E. Fund would certainly give me the shivers. I mean, we spend mooooooooooooonths building that bad boy up ya know? And in most cases, we (as in the general public) rarely meet our goals before having to dip back into it.

YES you're gonna feel guilty about it, and YES you're gonna have to dip into your Emergency Fund. It's what it's there for :)

The odds that something even MORE serious hits next week is extremely doubtful. And if it does? Whelp, back to the E. Fund again :( It'll suck for sure, but unfortunately it's just one of those things we have to deal with as homeowners. Now, there ARE other options as you hinted about, but they wouldn't be my first:

• You could throw it on a credit card. You've already told us you're against it, and rightfully so - no point in paying all that interest when you have the money stashed. If you'll have to make installment payments anyways, might as well "pay" it back into our Emergency Fund. On the other hand, you COULD use it to delay your pain for a good 30 days and then pay it all off in full.
• You could pick up a Home Warranty. Again, not the BEST option as it's probably too late here, but you never know...i've known a few people to pull it off. You'd basically have to take it right away, and then wait for the 4-6 window to close so you can file your first claim. Be sure to ask about "pre-existing" issues and all too, as that may be an issue. It's DEFINITELY something to consider in the future though! You can never predict this kinda stuff :( Home Warranties can usually be picked up from your Mortgage company, and it'll cost around $400-$600 per year with a $100-$200 deductible - all depending on coverage.)

All in all I think you're on the right track :) And for what it's worth, "it's only money" ya know? it's gotta be used at some point. GOOD LUCK, and keep us updated! (readers - how would you cope with this? Anyone totally against the E. Fund?)

Labels: advice, emergency funds, reader mail

Have you ever heard this before? I seriously couldn't believe i was hearing 2 "adults" talk about this during this morning's commute. I haven't been around this earth nearly as long as they have, but I can tell you flat out that it's a stupid idea - i won't even sugar coat it.

What i find funniest though, is that i was literally reading the pros and cons about taking out a 401k loan in this month's Money Mag while these 2 boneheads were discussing it! haha...If i had bigger balls, and weren't in the quiet car, i SO would have slapped them upside their heads and forced them to read the article. but i didn't. and now here i am typing my thoughts away in hopes it will find it's way towards them one day!

Now, before i continue, there ARE times when someone might need to access these 401k funds, but (a HUGE but), it's generally not a good idea. Obviously if you were in a serious jam and needed money no matter where it came from, then Yes it is an option, but I'd pretend it's not there unless absolutely necessary.

Everyone has their own idea of an Emergency Fund, but in theory it's a holding place for liquid funds that can be accessed ASAP in case anything you deem as an emergency comes up.

So the concept of using your 401k here is already shot down considering it would take at least 2 weeks to get your hands on the money anyway...unless it was a SUPER big emergency that you were planning for ahead of time, which really makes no sense. unless you're a fortune teller, in which case bravo ;)

So why am i, and many others, so against it? Well, to start you get taxed BIG TIME whenever you cash out: You get the privilege of paying the regular income tax, PLUS a 10% penalty on top of it if you're under 59 1/2. Then, of course, the money is out of your retirement account and will be much harder to build back up as time goes on. Add on that today's economy and the fact that you'd be pulling the money at the absolute worst time (bear market), and you've got yourself a sticky little situation my friend.

Now, the other option it to take a loan out from your 401k. In this case, you'd pay it back on a scheduled timeframe, and all the interest (usually prime + 1%) would go back to yourself too as you're essentially borrowing from yourself here. A much better option than the above, but still not the best in my opinion. Sure you'd be paying yourself back, and losing possibly only a little over time all depending on the amount you take out and the market of course, but it's pretty damn risky. The main reason? If you terminate your job (or get terminated), you usually have to pay back the entire amount borrowed within 60-90 days!!! OUCH that would hurt.

So yes, as you can tell i'm not a fan of taking out your 401k money at any point. But again, that's just me talking about living a financially perfect life :) We all know $hit happens, and sometimes you're forced to do things to remain afloat. All i ask is that if you find yourself in one of these sticky situations, make sure you do some good research first and come up with a solid game plan.

And for the love of money, PLEASE set up a side account for your Emergency Fund so contemplating it won't ever occur! I swear you'll sleep happier at night.

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Here are some good links if you'd like to read more:
- CNN Money: Money101 Lesson23: 401(k)s
- BankRate: Don't be dumb -- don't cash out your 401(k)
- BudgetsAreSexy: Some of my other 401k posts :)

Labels: 401k, cockamamy indeed, emergency funds

Every now and then a friend or two will ask me for my best financial advice, and while I wished I could refer them to a single post of mine, unfortunately I never could....until today!

This post encapsulates my all-time favorite "words of wisdom", jotted down in one simple place.

There's a bazillian of things I'd love to share with everyone, but there are 4 main biggies I repeat over and over again - whether on this blog, or when talking to friends, family, or strangers. They aren't new, but they sure do work! And I follow each and every one of them personally, even if I do slip at times ;)

I truly believe that these will improve anyone's finances, regardless of age, occupation, or net worth. Your wallet will thank you, your peace of mind will thank you, and you'll find yourself feeling sexier than ever! So here they are - my all-time favorite pieces of advice:

1. Pump up your 401(k)

If your company offers it, jump in as hard and as fast as you can! Contribute AT LEAST as much as your employer matches. if they match 100% of 6% invested, invest 6%. If they match 25% of 3%, invest 3%. Whatever the case may be, their portion is FREE money baby! Aka 100% guaranteed profit before it even gets invested! And if you have the means to put even more in? Then you, my friend, qualify for the Bad A$$ of the year award ;)

Not only that, but Uncle Sam will hate you for it... at least for now (that's a good thing). The more you invest, the fewer taxes you pay out that year. Say your annual gross income is $50k. Well, if you don't put anything in at all, you pay taxes on that $50k. BUT, say you contribute $10k towards your 401(k) in that year, well now you're only taxed on $40k! (you pay the taxes later) So yeah it may suck initially "being out" of a little money each paycheck, but over time you'll get used to it and maybe even forget since it's all automated. Either way, those amounts pile up BIG time over the years, and you'll be thankful you jumped on this money train when you did!
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*if your company doesn't offer a 401(k), OR they don't match, consider picking up a Roth or Traditional IRA instead (or in addition to). There's a pretty cool breakdown of the differences and benefits here

2. Track your spending for 3 months

This is the one thing you can do to learn EXACTLY where your hard-earned money goes to. Think of it as an E-True Hollywood Story based on Your Financial Life - you think you know, but you have noooo idea! haha...okay, well maybe it's not that drastic, but you'd be amazed at the things you'd find if you actually sat down and sorted through it all. Even if you do it just one time, and one time only, it'll give you a better over all picture of your finances.

Once you know EXACTLY how much you spend, you can then figure out how to move forward - whether it's to remain on the same route you're currently taking, or move to a newer one. I went back through 3 months of checking and credit card statements to figure out my habits, and boy was i surprised! It wasn't so much in seeing the items purchased, as I remembered them all, but it was the grand total of the expenditures that hit me. I had a guestimated a budget of $500 for my credit card each month, but in reality i was spending between $800-$1200! Woops. I then created a more realistic budget ;)

3. Create an Emergency Fund

Simply for a great peace of mind! There's something to be said in having a pile of cash in your account for whatever it is you'll need it for. I really don't know what constitutes an emergency, exactly, but for me it's more of a stash to keep myself out of trouble ;) As for how much to put in there, I personally shoot for 3 months, but it really depends on what you're comfortable with. It can be 2, 3, even 6 months, whatever you feel would make you sleep better at night. Once you reach that point, you're all set! You can then go about using your money as you wish, knowing you have that safety net.

4. Pay off all Bad Debt

Get rid of it! Whether it's credit cards, outstanding loans to friends or family, or whatever - it's not great to have. This is much easier said than done, of course, but my goodness if it's not true. It effects everything from credit scores, mortgage rates, car loans, and even worst - your overall happiness :( What would you do if you had $0.00 in debt?! How insanely awesome would you feel! It's not gonna happen overnight, and it certainly won't be easy, but it's definitely imperative to work it all out. Whatever you need to get rid of it, just start.

And that's it! Those are my Top 4 all-time favorite pieces of advice I give out. Some are easier to follow than others, but they all work magic on your financial health!

Labels: 401k, advice, budgets, debt, emergency funds

It seems like every time I get close to reaching my goal of 5k, something happens and I get thrown back a bit. This time around my emergency fund got frozen* inside my Home equity line of credit, basically leaving me with zero now. Since it was used to pay part of the 2nd mortgage (the heloc), it's not like i really "lost" the money, but I still can't tap it in case of an emergency. In reality, an emergency wiped out my emergency fund!

There IS a lesson to be learned here: Emergency Funds should be totally liquid, and accessible 24/7!

Lucky for me i'm a pretty positive guy, so as frustrating as it is, at least i am learning something :) There's also something to be said from starting with a clean slate. Before this happened, I had accumulated $4,800, but slowly kept chipping away at it until it reached around $3,000. Then I had my "aha!" moment and started adding back to it. At this point, however, I kept thinking i was down 2k and couldn't feel content until i was back at 5k. Thus, every time i added $ into it I couldn't feel at all happy about it as I was just making up for it.

This time around, however, I will leave it alone 100% and watch it grow. So each time I add a little into it, I'll be proud every time knowing that i'm that much closer to reaching my goal. Now I'll be saving up, instead of catching up.

• This year's goal: To reach $5,250 (yahoo!) I'm fairly confident i can make this happen.
  
• My ultimate goal: To reach $10,500, which is what i'd need to survive for 3 months. (scary huh? I am working on lowering this, believe me.)

You can track my progress on the status bars to the right which i update monthly. Let's hope i keep pumping it up and reach my goal! Lord knows it won't be easy...

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*To read more on our heloc freezing up, read my operation heloc: the bad :( posting.
*To read more on why helocs freeze up to begin with, as well as some awesome commentary from users and how it affected them, read this article from The North County Times.

Labels: advice, emergency funds, goals, helocs

I salute you, Government, and take back all those dirty little words I've said about you. And as soon as this bad boy clears, it's off to the race tracks i go! haha...j/k. you know very well i am MUCH too frugal/nerdy to do something as exhilarating as that.

It'll be partying with the other greenbacks in my Emergency Fund.

Labels: emergency funds, safeway, stimulus check, tax rebates, taxes

Ever since I was a teen I can remember having a USAA account for car insurance. I never really cared all too much back then, (i wasn't even paying the bills!) but NOW's a whole different story. I am completely proud to use USAA today, and thankful beyond words to my parents for hooking me up.

Why do I heart them so much? Well, they have mad offerings from almost every account imaginable! AND they're a credit union, so their rates are always up in the top.

Do you wanna guess how many accounts I have w/ them now? 12 15!

Here's all that I have through them:

1. Auto Insurance
2. Personal Property Insurance
3. Life Insurance (me)
4. Life Insurance (Mrs. BudgetsAreSexy)
5. Home Owners Insurance *new!
6. Personal Checking account
7. Personal Savings account
8. House Checking account
9. House Savings account
10. Credit card #1 (for personal stuff)
11. Credit card #2 (for house stuff)
12. Roth IRA (me)
13. Roth IRA (Mrs. BudgetsAreSexy)
14. Home Equity Line of Credit (heloc)
15. Money Market account! Newest one as of Monday, to be used as my Emergency Fund.

At this rate, i might as well WORK for them :) The best thing about it all, is that I can log into my online account and see all accounts on one page! This may not sound like a big thing, but i gotta tell you it has helped me tackle my budget a lot easier.

Then we have my favorite aspect, their Customer Service. I've been, and worked, around the block a few times to know when the service is a plus, or a big fat disgrace. USAA's service is A+, and they have plenty of awards to prove it. You rarely have to wait long to get a real live person on the phone (what a concept!), and once you do they are super friendly and actually ON YOUR SIDE. I can't tell you the number of times i've called w/ questions or for general advice, and they've been nothing but professional and competent.

I recently rang them up to check on a pending transaction, and not only did they give me clear and concise answers, but they looked at my accounts and hooked me up w/ a little financial advice that i cold actually use! Remember how i'm trying to get my Emergency Fund back up and running? Well...I have been putting the $ into my savings account and was planning on hosting it there, but USAA recommended using a Money Market account for my Emergency Fund. They have a "Financial Advice" dept. which advised me of the easy online deposits, unlimited withdrawals (unlike savings), and currently the 3.35% yield (also unlike savings). How awesome is that?

They very well could have answered my original question and quickly got me off the phone like any other place...cough cough COMCAST..cough cough...DMV...haha... but they didn't. Their service reps are knowledgeable and intuitive when "selling" their other services. But more importantly, they make my life easier.

USAA, will you marry me?

Labels: banking, emergency funds, money markets, USAA