Emergency Vacation Home Maintenance Car Replacement Budget

Life is not simple. Things go wrong and at the wrong time. This year replaced a car, paid for vacations, paid for 2018 trip to Alaska, replaced powder room vanity, and now have to have a crown plus a wisdom tooth extracted. 3 out of 5 were unexpected, and a 4^th was not planned for this year. Did not have to sweat how going to pay for these. Paid cash. Covered by several years’ savings.

~59% of Americans do not have $500-$1,000 to cover an emergency (Bankrate). They would have to put on a credit card or borrow from family/friends. Very uncomfortable position. Been there. How did I get free from those worries?

Any savings is better than none. Start small. Can you spend $5 - $20 less per week? What are you paying for you don’t need? What can you sell you don’t need anymore? Use the freed up income to start.

Spending less than you earn reduces your stress. Stash the cash separate from your spending money so not tempted to spend it. Windfalls go here too. The act of having to transfer the money discourages blowing it.

Put the surplus in a separate account once you have enough. Have a credit union savings account in addition to bank checking & savings accounts. This is where my fund goes separate from monthly expenses. If you are just starting out recommend you get a credit union checking and savings accounts. Put basic expenses plus entertainment spending in checking. Then deposit surplus into savings.

I use one account for Vacations, Christmas Shopping, Emergencies, Home Maintenance and Car Replacement. Not a strict budget. This year creating a HSA account for medical, but the same savings account covers any excess bills.

My budget is rule of thumb based. When my car payment was over, the same amount transferred into savings. Covers car replacement and repairs on older car. If was still paying for car, use to budget $100 per month. Clothes wear out or have to be replaced. Use my monthly average for last year’s spending. Gifts are number you buy for times people buying for. (Not an extravagant giver) Home ownership requires maintenance, so my parents budgeted an extra mortgage payment to cover improvements & repairs. This is my minimum goal for year divided by # paychecks. Simple, but works.

Most of us get a raise every year. My raises get split between increasing 401k contributions, increasing savings, charity donations, and covering increasing costs. If you move it before you see it, you won’t miss spending it.

Took me years to get ahead. Don’t be afraid to start today. Peace of mind is worth it.

Transitions at Work

Today 3 people retired and 5 people were laid off. Sorry to see everyone leave. Wish we all had work. Instead the few left will pick up more work.

The retirees are in good shape. They saved money, paid off debt, planned for collecting social security, and have interests to keep them busy. Very happy everyone was ready for the opportunity.

My laid off coworkers are in pretty good shape, with savings and little debt. A lesson aerospace workers learn early in our careers. Was told a joke when I starting out, “There are two types of aerospace workers - those who have been laid off, and those who will.”

Anytime you are not working, life gets hard fast. Unemployment does not cover rent, bills and food. Your savings has to cover what spending you can’t cut while you are job hunting. Everyone needs a minimum of 6 months savings to cover bills. I prefer over a year of savings on hand for emergencies.

How do you start building your emergency fund?

Put ~10% on your first or current job into your 401K. At least put enough to get the employers matching funds.

Then put money aside for emergencies, vacations, car repairs and hard times. Start with ~10% after taxes. Automatically deposit this to your savings account. You won’t see it, so you are less likely to spend it. Live on the 90% or less after taxes deposited to your checking.

When extra spending is necessary, you can transfer funds to your checking account to cover it. Most people may need to do this once or twice a year.

Secrets to financial independence:

1) Spend less than you make. Credit card debt not paid off every month ruins more people’s finances than any other mistake.

2) Every time you get overtime, a bonus, or a tax return: Put 10% in checking to spend on a treat. And put 90% in savings.

3) Every raise increase the percentage saved in the 401K and savings. 10% becomes 12%, then 14% and more. You aren’t use to spending the raise, so you don’t miss it.

Properly invested savings earn compounded interest and grow faster than you believe possible. When medical expenses occur, you can pay off the credit card. 6 months of job hunting becomes manageable. Eventually you can afford the down payment on a condo or house.

Good habits make you rich. Poor habits stress and shorten your life.

Salary Bump vs. Experiences

Someone questioned which are you more interested in, a professional experience or a salary bump? Which would you like now?

Having been unemployed and entrepreneur know about being flat broke. There are times in your career where a salary and a bump can really make a difference in your life. Having enough to pay for the basics and save is absolutely essential. Life without enough is absolutely stress filled.

One concern is the lack of savings and retirement savings. Too many do not have emergency funds and tap retirement funds at great penalty. This will cost your future, and delay your ability to retire.

Too many do not put anywhere near enough into 401Ks, and there is no 100% secure way to turn savings into income. The post pension generation will have issues that the Traditional generation will not feel with their pensions.

For your career experiences (even at a low pay) do pay off in the long run. You need to have experience to move up. Classes alone do not match experience.

For a contrasting thought, Jeffrey J. Fox wrote “Always take the higher money. The more you are paid, the more responsibility and opportunities will be given to you.” In addition he points out all raises are based on percentage of your salary, so a higher starting salary benefits you over your career. See “How to Become CEO”.

We need to manage both our careers and budgets with long term planning. The reasons I live well within my means is to have flexibility to explore options when they arise.

Savings and Emergency Funds

Your future is hard to imagine. Mine did not unfold the way I thought. Imagined growing up in my hometown and working for one company during my career. After college my hometown was in a local recession and few jobs to be had. Wound up working my first job 300 miles away.  Currently working across the country in my 7^th state.

Man plans, God laughs.

You do not know how well your industry or your company will do over the next 50 years. Layoffs, horrible bosses, and business closings are real possibilities.

No one can predict their health, accidents, children, nor which natural disasters you will face. So what can you do?

Save

Saving is a cornerstone of wealth. If you don’t have money to invest, you can’t earn more except by working more hours or jobs.

Savings give you options if something happens. You can choose investments, education, nicer vacations, good homes, and better schools for your children. If conditions are going down or crime is rising where you live, you can choose to move to a safer place. You can donate to charities doing good work. Savings are a form of freedom.

Started my current job after being out of work for most of one and a half years. My savings were not very much after being self-employed for six years. Had about $15,000 in savings, an old $3,000 car and no debt.

Five years later have $60,000 in the bank, $85,000 grand in my 401k, and own a house with $100,000 in equity. How did we do it? We did not win the lottery.

Pay Yourself First

Save at least the matching 401k funds your company offers from the start. Do not give up free money and with the tax deduction this will only take a small amount from your take home pay. To get to the maximum am now putting in the 401k I increased my contribution with every raise. You don’t miss the extra money if you don’t see.

Set up a separate credit union savings account for my emergency fund. That $3,000 car could break any time and will not run forever. Put more than a car payment every paycheck in this fund to create an emergency fund. The good news is have over one year's expenses and will pay cash for my next car.

Live Within Your Means

Know how much my monthly expenses are and pay them. Pay my credit card bill in full every month.

The rent was not late nor is the mortgage. Actually refinanced a 30-year mortgage to a 15-year mortgage at a lower rate and pay extra principle every month.

We keep monthly expenses low, don’t eat out every weekend and pick affordable restaurants we like. Don’t have all the movie channels, nor the fastest Internet. (Okay added the sports channels because can afford them)

We plan our big purchases and don’t impulse spend. My wife is a tremendous negotiator and will walk away if the price is not right. My last cell phone physically wore out being 7-8 years old. The smart phone has the lowest monthly payments and was paid for by overtime.

Choose Where You Spend

Got prequalified for a mortgage and was surprised how much could borrow. Did I look for a house in that range? No, my wife and I do not need a big house for two. Looked at neighborhoods that fit my commuting, good schools and safe/low crime rates. Aimed for the median price range 40% below what could borrow. (No one says you have to be in debt your whole life) Looked at almost 100 houses before buying a short sale, waiting 6 months to close. Have the smallest house in a very nice neighborhood, cleaned up the dirtiest house and painted. Now just paying off the mortgage.

Yes still driving the $3,000 car. My wife has a good car and mine goes to work to sit outside all day. How nice of a car do I need for 8 miles? It is mechanically sound, maintained and the interior is falling apart. Including repairs have spent ~$1,200 per year.

Realism

Have a good paying career, but am in a boom and bust industry. Median price houses sell faster than the expensive houses. Not having debt lets me go where the work is.

My investments are diversified, low cost and fairly conservative. When someone promises high returns they are likely taking high risks or lying. (See Bernie Madoff)

Have good health, auto, homeowners, and long term care insurance. In addition funding a small annuity to afford retirement with Social Security. Will not have to touch the savings for many years.

Summary

Being responsible you may not be the wild friend with the fancy home, latest gadgets and crazy expenses. You will not be the homeless person either by learning how to save and invest. Being able to help others is a blessing you won’t forget either. Life is good.