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.