Plan for the Future

The Importance of Having an Emergency Fund

In praise of emergency funds! I can’t say enough about having an emergency fund to use in times of an emergency, as well as having the protection of insurance. We had a big life emergency this time, and it could have been much worse.

While Dave and I were out of the house for about an hour and a half, an emergency struck our house. A feeder line for the toilet broke and we came back to a small geyser. Not only was the bathroom flooded, the water flowed into the master bedroom and then down into the basement. Ugh! You can imagine the damage this has caused. But it could have been much worse.

So this is how our afternoon went:

* Shut off the water – we had individual shutoffs installed all over the house
* Next the clean-up began – towels, wet vacuums and more
* Contacted the insurance company to file a claim. This is the first homeowners claim we ever filed.
* Started the removal of the damaged stuff, and this was hard without Dave being able to move things.
* The insurance company sent out Service Master to remediate the damage. They moved the heavy furniture, installed the industrial fans and dehumidifiers to lessen the damage
* Next day we had to replace the modem, as we lost phone and internet service. It’s difficult to make multiple calls with only a cell phone.
* The drying out stage lasted for days. It included the carpets, hardwood floors, ceramic tiles, sheet rock, furniture and that’s only the big stuff!

Now we are at the rebuilding stage, with the contractors giving us estimates for replacing floors, hard wood and tile, sheet rocking the portion of the walls that were cut away with water damage, painting of rooms, replacing furniture and items that were damaged and more.

Living in a disorganized home as two rooms of furniture and personal items had to be moved out of the rooms and the basement, made our home somewhat of an obstacle course for quite a few weeks. Hopefully by the holidays, we can be back to our organized house.

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Relationships & Finances

Finances don’t have to be difficult, but there are things you need to think about when you get into a relationship. You have a way of handling your finances and it’s worked great for you and you like the system.Your partner has a way of handling their finances and it works for them. Seems simple enough. Then you find out that you do things totally opposite. Now what?

You have to come to a compromise that both of you are comfortable with. First, start by really listening to your partner and putting yourself in their shoes. It’s hard to do, but it’s really important. Listen to their reasoning and why they do what they do. Then have the same conversation with the roles reversed. Now come up with a negotiated and agreed upon game plan.

This will take multiple conversations and time. If you both agree to the plan, you have conquered the first hurdle. Here are some of the questions you need to come to an agreement on:

$ What are our goals / what do we want to achieve?
$ How do we get there?
$ Who is going to be responsible for what? Think bill paying, savings, spending, bank reconciliation, credit, debt, investments, retirement, and more.

I have seen this work in many different ways. Here are a few examples:

They keep everything separate. Each person keeps their own income in their own bank accounts.They have agreed to who pays for what bills. Each handles their own investments and goals.

One person handles the big/long term items of the finances and the other handles the day to day finances. So long term is for the future – investments, retirement, savings, college, home buying, etc. and short term are more of the daily finances – bill paying, household purchases, routine items that are in the day to day budget.

The do everything together philosophy. All happens with a meeting of the minds and each person is involved in all aspects of the family finances.

No matter what you choose and how you choose to handle your finances, it all starts with communication and a game plan. All people should know what is going on, where to find the information and how to access it. After my mother died, my father had a hard time figuring out the finances, as he wasn’t involved with them.

Make your joint choices and know that you have the option of trying and changing until you find what is right for the both of you.

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Financial Independence Part 3

We’ve all heard the saying “Don’t keep up with the Jones”. What does it really mean? You are fine with your sofa and all is well with your family. Then your friends gets this really nice brand new sofa that is gorgeous. Then you start to think, my sofa is older, starting to look its age, maybe had a stain in the corner, you start to rationalize that you need a new sofa too.

Just because someone else gets something new, you don’t necessarily need that too. That’s keeping up with the Jones’. All of these steps are hard to do. You have friends and family showing you their new things, marketing showing you the bright shiny items that you love to own, but do you need it?

Needs and wants are a hard subject to learn. You have to come to some balance of what you want and what you can afford. So in my example above, you can do some thinking – there are choices in etween the current sofa and the new sofa:

Current sofa
Clean the sofa
Buy a slip cover
Reupholster the sofa
Buy a second hand sofa
Buy a new sofa

See how many choices that I just wrote out between the current sofa and the cost of a new sofa. Some of these in between steps may work better with your budget. You don’t always need to have the latest, greatest new item.

If financial independence is something that you aspire to, then you need to work on all three of these steps, to get your finances in order once and for all.

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Financial Independence Part 2

This is part 2 of 3 of obtaining financial independence.

Spending less than you earn, sounds easy – but is it? The basic principle is if you earn $100 then you need to spend less than $100. That’s the general rule. But there are times in our lives that this isn’t possible. When you are just out of school and your rent, utilities and student loans are almost your whole paycheck, you may experience times when you are not working – in between jobs, can’t work for medical issues etc., these make spending less than you earn a challenge.

If you have been reading this newsletter, you know that my husband had been home from work after shoulder surgery and is not getting paid while he is recovering. So what is our household supposed to do to spend less than we earn? The answer for us is to reduce our expenses and to fund the shortfall with our savings. Luckily this was a planned surgery, so we had time to plan ahead to save. But this may not be possible for everyone. First, you have to have a savings to fall back on to get through whatever life throws at you.

Spending less than you earn is critical to financial independence, as you have to save on a regular basis, putting a regular amount from each and every paycheck into savings first – pay yourself first.

Here’s how to start:

Take a calendar out and mark your paydays.
Determine the amount that you want to save. It’s okay to start small ($10 a week) and then increase often.
Set up automatic system. There are two ways to do this – with direct deposit have your paycheck split by your employers so that the amount you want to save is directly taken from paycheck and deposited to your saving.The other way is to set it up with online banking and have a transfer from your checking to your savings.

There are some suggestions to making this work. Make sure not to link your savings account to your ATM card. You may want to have this savings account in another bank or credit union – not where your checking is located. You want to have access if you need the money but not have easy access to use if when you just want something. It’s too easy to transfer money without thinking.

So for that $100 you earn, you will want to save money first – pay yourself first, then live off the rest. The rest is what you pay your bills with, shop for your necessities and the money to have fun with. Yes, that’s a lot, but I know you can make it work. You want to be conscious of what and where you spend your money, so that you can make choices. Do you want to purchase that now or have that money saved for later? The choice is yours.

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Financial Independence Part 1

In honor of Independent Day/Fourth of July, I want to talk about many people’s ultimate goal of financial independence. According to Wikipedia, financial independence is described as “generally used to describe the state of having sufficient personal wealth to live, without having to work actively for basic necessities. For financially independent people, their assets generate income that is greater than their expenses”.

Yes, we all probably want this and therein lies the problem. How do we attain this?

There are some generally agreed upon principles that are good practices that we all should attain to:

Avoid consumer debt
Spend less than you earn/Pay yourself first (save)
Don’t keep up with the Jones’

These are all great suggestions and work really well, but what if you need to work on some of these steps. In my opinion it all goes back to budgeting. Budgeting is the road map of your finances. You can see where your money is going and then make the necessary steps to eliminate consumer debt, reduce your spending, save by paying yourself first and break your habit of keeping up with the Jones’. It may sound simple but it isn’t. So with this issue and the next three I will tackle these issues.

Today, let’s look at avoiding consumer debt. This can be difficult to attain. But on the other hand, this is so important – too important not to strive for.

There have been times in my life that I have had more debt than I would like to admit. Yes, this happens to me too. In my opinion, there are two steps to start on the path to being debt free. First, you have to stop creating debt. Yes, you heard me. You need to do whatever it takes to avoid adding more to the debt. With that said, you can’t put every extra penny towards your debt and not have an emergency fund. Otherwise, the next time an emergency happens and you don’t have a fund to fall back on, you will create more debt.

In May and June, my husband had surgery and was home from work for a month without pay. We only had about 6 weeks’ notice to plan for this. We got through this period with the help of the emergency fund and savings to cover the shortfall. This was the key to us being able to live and pay the bills. Without the savings to fall back on, we would have had to use credit cards and create debt. So you can see how having an emergency savings plays a big part in getting rid of debt.

Back to the debt. Second, there are many ways to tackle this. Start by taking an honest look at your all your debt. Make a list including how much you owe, the minimum payment, interest rate, etc. I understand this is hard, but it’s necessary.

Now make the plan. You can payoff the smallest debt first to eliminate one debt (gives you momentum). You can payoff the debt with the highest interest rate (saves you money). You can plan to get more money (bringing in more income) with many options to add to your payment. Take some time to brainstorm what will work best for you and then put that plan into action.

You’ll need to stop creating additional debt and to create or increase your emergency fund. Next issue, I will discuss spending less than you earn/pay yourself first.

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Saving For Retirement

We all want to save for retirement, but there never seems to be enough money left over to save. Does this sound familiar?

The first rule of saving for retirement is, if you are offered free money take it. If your employer sponsored retirement plan offers you matching funds, take it. Contributing to a retirement plan through your paycheck is a great way to get started on the path of regular automatic saving. The earlier you start this habit the better off you will become. On the other side if you haven’t done this, it’s never too late to start now. In this case, free money is a good thing

Next you want to manage your debt. Debt is the enemy to your budget, so you want to avoid it at all cost. I am not saying don’t borrow or use credit, what I am saying is to use it wisely. Don’t become a slave to your debt and that you live paycheck to paycheck trying to keep up with your debt payments.

Charge wisely and only amounts that you can pay off easily. If you find yourself with an emergency and you have to borrow money, evaluate your options and make the choice that is best for you and your budget. Pay back the debt as quickly as possible to avoid as much of the finance / interest charges as possible.

Lastly, gratification – are you someone who needs instant gratification? Do you buy without a payback plan? Look at the food cost (groceries, dining out, take out etc.), shopping, memberships, entertainment etc. These are the expenses, that where the instant gratification that can harm your budget. These are the first defense against the leaks in your budget. Plug those holes to have more money for your retirement.

Think about your finances then make a plan to implement these strategies one by one. Once you master one, start the next. Remember that your finances will not change overnight, be patient and remember it takes time.

Your Emergency Savings Account

What’s your emergency savings account look like? Suze Orman suggests that you have eight months of income in your emergency savings. Dave Ramsey and Jean Chatzky both say 3 to 6 months. Hello Wallet suggest that you think of emergency saving in three ways – minor emergencies, major emergencies and job loss. Bottom line, you need an emergency savings account.

As with any goal, start with a plan – then automate it. When we started our emergency savings, our goal was to save $1,000. That would get us through the unexpected small expense. We started by saving $20 per week to reach that $1,000 goal in one year.

Once you accomplish your goal, I would like you to about your next savings goal. Sometimes unexpected emergencies cost more than you expect, especially if you are a homeowner. I have always thought that the major repair emergency fund should be in the $5,000 range. So then we started on this goal. $100 a week gets you to $5,000 in a year. We divided this between both our paychecks. My husband gets paid weekly so he contributes $50 each week. I get paid every other week, so I put in $100. We then have achieved this goal of $5,000 in a year.

Remember, this is not a save for one year and done type of thing. You may need to use this money, so you need to replace what you use. You can never have too much money saved for the what if’s of life.

Different Types of Refinancing

We’ve all heard the word “refinance”, but what typically comes to mind is mortgages. Yes, you are correct. It also can apply to other areas of your finances such as car loans, student loans and credit cards.

As with any borrowing, you want to pay off the debt as quickly as possible. But sometime you cannot afford to purchase a car with cash, so you take a car loan. You may want to look into refinancing your car loan if you can get better terms – lower interest rate.

For student loans lower interest rate is probably not the answer. You may have several loans and several payments. It might be easier for you to keep track of and have only one payment per month, if you consolidate. Check out your options to determine if this is right for you.

Credit cards are a good example. You may be payoff debt and it may seem like it takes forever. It could if you have high interest rates. Refinancing a credit card balance to a lower or zero percent interest rate will help you pay back what you owe quicker and pay less in finance charges.

As with any financial transaction, do your research and compare all terms and conditions to see if this is the right move for you and your finances at this point in your life.

How to plan for a dog before buying a puppy

I am passionate about travel, but it doesn’t compare to how I feel about my dogs. Brownie has been a member of the family for seven years now. We rescued her at about 8 weeks when she was only 12 pounds, a far cry for her 70 pounds now. We love her just as much as any of our other dogs.

But owning a pet can be a budget breaker. Pets are expensive. You need to consider their day to day costs – food, supplements and services – which can range in price from affordable to “how am I supposed to pay for that?”

The Initial Costs

According to peteducation.com, the first year can cost between $500-$6,600 depending on how much you’re willing to spend.

You have the simple comforts and necessities: bed, leash, collar, food bowls, toys – these aren’t too expensive individually, but can add up when you’re buying them all at once.

Then there are your legal requirements, like puppy shots, license and tags.

You may also want to consider having your puppy neutered and micro-chipped. Thank goodness where we rescue the cost of puppy neutering is included, so it’s not an extra cost for us. If you rescue, ask to see if you can save too.

Finally, depending on the dog’s personality or medical issues, you may have other expenses. Brownie went through the teething stage, as puppies do, but she wasn’t interested in inexpensive items like shoes or pillows. She chewed the molding around the door so that we needed a carpenter to make the repairs. That was expensive.

The Costs Going Forward

According to the Pet Education, the annual costs can be anywhere between $300-$2,500.

Brownie’s annual vet check-up and shots cost about as much as a car payment and are due every summer along with her license. That’s not including any extra trips to the vet for illness, injuries, etc. All these need to be planned for.

Your homeowners / renter insurance can increase depending on your dog’s breed.

Lastly there is caring after your dog’s emotional and physical well-being. Do you need to have a dog walker while you’re at work or to board your dogs when you’re traveling? More costs.

Lots to think about. Besides just selecting the right pet for your family, make sure to plan the financial part, too.

What will your retirement income be?

Remember these?

You used to receive one in the mail around your birthday. If you are younger than 50, you probably threw it directly into the trash. (It’s much more interesting the closer you get to retirement.)

Now you can just go online

To see your Social Security statement, go to www.SSA.gov (If you have trouble remembering it, just think “ass backwards” then “gov”). You’ll need to set up an account with the typical personal details plus security questions to verify your identity. If you want added security, you can take it a step further and use information from a prior year’s W-2.

Why do you want to see it?

To verify your earnings. It’s a lot easier to correct errors when they are new.

To help you plan how and where you will live at retirement. You can see how much you will earn when it’s your time to collect. Is it enough to cover your mortgage payment? Is it enough to continue with your hobbies or cover basic expenses?

To help you decide when to retire. You will be able to determine your Full Retirement Age (based on year of birth). Currently, you can take your social security benefits early at age 62 with a lower monthly payout or wait as late as 70 to receive a greater payout.

Protecting your account

You can add extra security by having them text you a unique code every time you want to sign in online. In a surprise twist, setting this up initially involves them sending you a letter in the mail. It’s a process that takes 5-10 business days, but once it’s done, you can rest a little easier. I recommend taking this extra step, since everyone’s had their information compromised at least once or twice in the last few years.

I would suggest that you check your Social Security statement annually – either a month or so after you file your income tax or around your birthday. The important thing to do is to check it.

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