Fund times: How to start an emergency fund

The term “emergency fund” isn’t something that sounds, at first glance, all that appealing.

For starters, the word “emergency” doesn’t really do a whole lot of the average person given that they tend not to want to think about something, an event specifically, that elicits panic that courses through their entire body at a moment’s notice.

“Fund” isn’t too bad since it’s pretty close to the word “fun” but really is mostly centered on money, a topic that few want to think about or discuss at any given moment in time.

But thinking or talking about an “emergency fund” is of the utmost important because without one, you’re never going to feel that sense of ease about money in general or the thought of something happening in life and being totally unprepared to pay for it.

Those who have money set aside live by two very golden financial rules: they have at minimum three months of salary in the bank at all times and make it a point to save about, again at minimum, five percent of their monthly earnings. That money, in turn, is automatically put into a savings account or the said emergency fund.

Paying yourself isn’t uncommon when trying to establish an emergency fund, and that practice is one of two that separates having an emergency fund and not. The Catch 22 in this discussion is that most argue they can’t afford to set aside five or 10 percent of their pay each month because they need that money to pay bills.

And in that breath is when the second point resonates all too loudly: budgeting.

The only way you can save money and in essence build an emergency fund through paying yourself on a monthly basis is through budgeting. You have to take into account the idea that if you’re living paycheck to paycheck or if your expenses match or, worse yet, are more than your income that you need to start cutting or at the very least replacing some of your expenses with lesser alternatives.

Cable bills go away in favor streaming, cell phone plans become talk and pay as you go or you complete go without new clothes every season or a few summer vacations just to prove a point that saving trumps all. And as much as those cuts will sting, they’ll be a staunch reminder of just how important saving money is, not to mention that emergency fund taking on a whole new meaning when you actually have one to speak of now.

Hard Target: Why are you making easily avoidable money mistakes?

No one ever argued that saving money was easy. Most of us just make it much harder than it needs to be.

Why is saving money so difficult?

Let’s start first by figuring out the easy part. Money mistakes that are easily avoidable center on not following a spending plan, something you’ve carefully crafted to take into consideration your income and expense and understanding that living below your means in paramount.

If you stick to that simple formula, chances are you won’t have much in the way of money problems. Furthermore, that same formula is going to do something that most of us can’t do well: save money and have an emergency fund.

The Catch 22 of the emergency fund links with running up high balances on credit cards. Something major happens, and you use the credit card or borrow money because you don’t have any saved. The reason you don’t have any saved is because you either don’t have a plan or you have one and don’t follow it.

Saving and managing money is difficult because we make it that way, mostly due to a need to satiate our wants and forget about our needs as being part of that aforementioned plan.

Those “wants,” things we convince ourselves we need and then spend money we don’t have on them translates into elements of money mismanagement that is highly avoidable.

First and foremost, you are taking those wants and turning them into credit card debt, running up balances on high interest cards and thus never truly getting out of debt. The more alarming fact beyond the average of $20,000 owed per household of unsecured (credit card) debt is that most of it can’t be related back to a specific, tangible item but rather things like taking a vacation or worse yet paying bills with credit cards or using an advance to put a down payment on a car.

Money also becomes difficult when you don’t understand the value of what you buy, and when you should spend wisely, underspend and, at times, spend a little more based on quality.

Buying a car that is brand new is overspending when a used one is going to have a lower payment and still plenty of repair free miles on it. You shouldn’t skimp on certain things, but those are few and far between, such as investing in your 401K as much as you can (overspending, in some ways).

Smart money managers also know how not to lose money on things they don’t need, such as overpriced utilities like cable television, warranties on almost all products or spending too much on insurance for your car or losing hundreds of dollars of year on bank fees.

Saving money is never going to be universally considered

Spending Flee: Why saving money starts with skipping extraneous spending

Experts debate back and forth the main reason why the majority of individuals can’t save money and still somehow manage to rack up thousands and thousands of dollars in borrowed money, specifically credit card debt to the tune of $16,000 on average per household.

And plenty of shortcomings come to the forefront, such as the lack of a budget or trying to convince yourself that you don’t make enough money as the reason you’re not able to save.

The last point is one that has quite the ripple affect when you consider that income shouldn’t dictate a lack of savings if you, of course, budget properly and don’t do one thing that continues to plague those who are trying to set aside an emergency fund.

Spending money on things you don’t need.

The “want” versus “need” debate is one that runs roughshod over most people since the black and white discussion that it should be is mired in shades of gray. Not knowing the difference or, for that matter, not paying attention to those same difference is why we simply can’t save money. Buying what we don’t need and doing so in droves is sabotaging our savings accounts, or lack thereof.

Your best option to avoid impulse buying of products or services is to truly think long and hard about what you’re actually buying and determine if you really need it. And while you argue that you already do that, you might want to revisit that subject.

The 24 hour rule is the most proven method: you consider the purchase, and decide at the moment not to buy then determine after that time span if you still want or need it after you’ve given yourself time to think it over. Most of the time, you end up not going back to claim what would eventually be described as something you truly don’t need.

Questioning the purchase is paramount.

And of course having a budget is key, but have you ever considered writing down how much you spend. One of the drawbacks of the convenience that are credit cards is that they don’t really allow you to see at the moment what you’re spending. Sure, the receipt can do that, too, but in the span of a week, write down everything you spend money on, the old fashioned way with pen and paper and tally up the total. That figure might be enough to deter you or at least give the buy a second thought.

Saving money starts with planning and part of that is making sure you’re not spending frivolously and without thought of the much bigger financial picture.

Alarm Clocked: How to get out of debt and being yet another statistic

The statistics regarding debt range anywhere from shocking to sad and everything else in between.

Then again, do we have anyone else to blame but ourselves for the mess we’re in?

Sure, you can argue that the cost of living hasn’t improved, food costs are high and everything else we spend money on has inflated and yet salaries have been stagnant, at best.

While all of that is true, you still should be alarmed about $15,000 (the average amount of debt per person), and $50,000 (the average amount of school debt per household). Those two numbers alone suggest that you are about $65,000 in debt on unsecured items, things that aren’t cars or homes that you can’t trace back to at a moment’s notice.

But despite the numbers being less than enviable, you don’t have to become another statistics, as cliche as that sounds. The truth is getting out of debt is more about changing your perception on how you look at money, learning to budget properly, live without for a little while and simply pay closer attention to income versus expenses.

The irony about those numbers is that while they’re discouraging, they don’t have to define how you are with money. They can be there, but yet still be accounted for and subsequently handed just by your day to day decision making.

For example, if you have $15,000 in debt, your game plan should be two things: patience and persistency. You should start with debt that has the highest interest rate and then pay it off more so than the others. You also can consider consolidation but only in order to shorten the time you pay on the loan or lower the interest rate by combining higher ones per line of credit.

Debt is something you just don’t pay and then forget about, but rather you should be constantly thinking about, pondering or wondering how you can be better at it, starting with stopping the use of credit cards altogether. Whether your rip them up, shred them or freeze them, you have to remind yourself that you days of charging are done.

And the argument that income isn’t keeping up with cost of living, well that is partially true. While the cost of goods rises each year, and your income might not keep pace, that simply means the onus falls on you to change how you budget. The truth is your income might not be keeping up with your wants more than anything else but admitting that can be tough.

Debt is what it is: you owe someone else money. But paying off your debt can be viewed as business as usual and as a means to an end. Those who see it as crushing numbers and all hope lost won’t have much luck whatsoever in paying it off completely.

Savings Can: How saving starts with below means mentality

Do you know how much the average person has in their savings account?

The statistics look bad. No, let’s just say they’re terrible.

The answer to that question is startling and stunning: about 40 percent have no savings account whatsoever. About 80 percent have about a thousand dollars or less.

So that begs the question: where is all of our money?
Look around your house, your driveway and you might get your answer. Living beyond what your means or even just at your means tends to lead to the biggest reason why we don’t save money.

We’re simply too busy spending it to think of that.

And then, you have the kind of success stories that you marvel at, the ones that are written in big bold headlines that leave you thinking “why can’t that be me?” when you hear about a couple that buys a $150,000 house with cash or a 25 year old that has managed to work a modestly paying job and save a half a million dollars and set to retire by the time he reaches 35, at the latest.

How exactly are all of these things possible?
There really is no magic theory in regard to what makes money tick for these people and why they’re so far removed from the aforementioned statistic about money saved, or lack thereof.

They simply live below their means.

Just because you make $70,000 per year doesn’t mean you should spend $80,000 on your expenses or even butt up against that 70K mark. The truth is those who have money saved and don’t worry about money are able to save it because they’ll take a $70,000 year paying job and live off $30,000 of it quite comfortably because they make decisions that allow them to work, have a car, house and other amenities but focusing primarily on having money leftover as the most important piece to that puzzle.

How do they do it?

Simple. They don’t buy used or pay full price. They’ll take a $15,000 vehicle instead of buying a new one for $40,000. They are approved for a home at $250,000 and instead buy one for a third of that price and have a mortgage that allows them to do two things: have money leftover and add to the home through renovations with money that comes out of their own pocket versus expensive loans.

For most, we equate spending to happiness and that just isn’t the case. Those types of purchases, services or items that you don’t need don’t create the kind of smile you’d have it you went without those and instead had the peace of mind that your money is exactly where you want it to be: saved.

Trend Unsettling: How to save money when so much is centered on spending

The numbers are in, and the winner is: your job.

So, maybe that is an oversimplification of the overall topic at hand, and that is how much you have to spend just to be able to save. And the “save” portion in this discussion means working.

The average person spends almost $4,000 per year in order to work, when you factor in things like lunch at a restaurant, clothing allowances and the cost of transportation (such as gas or tolls, etc.).

That adds up to just under $200,000 in your lifetime, which might not sound like a whole lot but the more glaring is the $4,000 number mentioned that we’ll spend from one year to the next.

So when so much is about saving money, how can be justify spending that much just to work? Even more important of a question is how to we actually get that $4,000 number lowered so that work doesn’t seem like we’re just punching in and punching out just to barely get by?

Well, almost half of that total number focuses on eating, specifically spending money eating out at restaurants for lunch. The easy fix on that is to actually take the time to plan meals, make lunch the night before and stop spending between $10 and $15 on just one meal a few times per week. A good plan would be to make dinner at home, and then leave just a little bit aside for the next day, so that lunch isn’t about making a sandwich or another meal per say but rather over preparing and cooking and then having leftovers. If you must eat lunch out, such as a working lunch or food that is bought and centers around a meeting where food isn’t provided, go light.

Transportation is another higher end cost, even though the cost of gas is down somewhat versus a year or two ago. Some have found that carpooling works well, while others have started to think more efficiently when it comes to vehicle purchases and gas mileage. More progressive employers allow you to work from home a few days per week, and if they don’t, it certainly wouldn’t hurt to ask if you have that sort of job that includes office days for paperwork, the same work that can easily be done at home.

The average worker might also want to consider small expenses throughout the course of the day, such as bottled water or snacks.

No one is going to suggest that a work stoppage is in order as far as saving money goes, but you still can implement certain techniques to keep your yearly expenses in check.

Card Sharks: How to avoid credit card missteps

Credit cards, for those who have them and struggle mightily with them, can be summed up in one very simple word.

Evil.

The other end of the financial spectrum views credit cards for what they are: emergency funds or a line of credit that can be manipulated and used to get a higher credit score, when you know exactly how to navigate one.

That means opening a card, using it, and paying off the balance in full (or close to it) as soon as the bill comes. The other side of the coin is filled with a bevy on mistakes that, when made, are not only going to kill your credit score and ability to borrow money but make saving that much more difficult since you’ll be saddled with more bills to pay, some of which can cost in upward of a minimum payment.

The biggest mistake most make when it comes to credit cards is using them too often for the wrong reasons. Credit cards can be used to order something online when you don’t want to give your debit card out or if, again, you’re trying to build credit.

These cards were never designed to be used to charge vacations, for down payments on a vehicle, pay bills or buy groceries. If you can’t afford to hit the beach, you don’t go. If you can’t pay your bills or buy food with your money, then your budget needs reworked and thought through a few more times.

You also can’t be credit card happy and lapsing in the same breath. Opening too many credit cards or lines of credit at once only is going to serve to destroy your score and the overall picture painted by creditors of you when you apply for loans that matter, such as a home or car. The lapse part comes with your propensity for making payments past the due date. If there is one simple, commonly agreed upon principle of credit and credit cards that would be to always pay on time, even if it is just the minimum.

At the very least, the minimum payment shows that consistency and responsibility creditors absolutely need to see when they even consider you for a loan, and your credit score will reflect just how good or bad you are at being able to make payments on time.

Credit cards don’t always have to have such a bad wrap. They can be useful when the person behind the plastic card knows exactly the pitfalls and how to avoid them.

Game On: How to play catch up with your savings

Have you ever felt like, money wise, that with every passing day and dollar not saved that you’re constantly playing a game of catch up with your savings account?

What makes matters even worse is the constant barrage of expertise and opinion that states you should be converting income into savings at a rate of 5 to 10 percent with each paycheck, making sure that “nest egg” stays nice and warm (and untouched) heading toward retirement or, specifically, if something happens that you need cash up front to fix (i.e. medical expenses, home repair, etc.)

But if you aren’t saving, there must be a reason why.

And your job is to find it, correct it and start saving now, rather than later. Don’t get bogged down in the fact that you aren’t where you need to be but instead about where you want to end up when it’s all said and done and your golden years are upon you.

Playing catch up sounds daunting but it doesn’t have to be if you exercise a few budgeting maneuvers and adjust your income in the process. Income adjustment means simply that you look for ways to increase your stream of money coming into the household. Some do this with a convenient part time job or perhaps starting to sell items that you no longer need.

When you’re friend who makes less than you all of a sudden tells you that he or she paid for new furniture just on odds and ends from the basement, your ears should perk up immediately.

In addition to addressing your income, you also want to budget by taking two “wants” off the list. Incidentally, a want is something you don’t need to live, such as a $300 per month personal trainer tab or trips to and from the salon to get the works (nails, massage, pedicure, facial, etc.).

Yes, no one is going to argue that these things are fun and, at times, necessarily when stress hits an all time high, but you have to limit them to the point where you’re not spending hundreds of dollars per month in lieu of saving that cash.

That doesn’t mean you can’t ever have a massage or treat yourself to something but instead those buying impulses should be tempered for special occasions or extremely sporadic. Some have eliminated them all together and watched as saving $200 or $300 per month on “wants” turns into about $5,000 at the end of a calendar year.

Imagine how you’d feel if you had that kind of money waiting for you after 12 months of playing catch up. Not only would you have that savings account well on its way to being built but also you’ll be in the process of learning how to save, and that is more valuable than any purchase.

Worry Warned: How to finally stop being concerned with money

So don’t let the headline fool you. You should always concern yourself with money, but not in the way you might think.

When you talk about paying attention to money, that means having a budget, making sure you know what your expenses are and always try to lessen them any chance you get, so that you can save money for unexpected expenses and retirement.

That overview is what you should be “concerned” with, not so much the constant worrying you have when it comes to the almighty dollar.

Worrying about money isn’t new to the general public. You have plenty of individuals doing anything from paying bills without a budget to living beyond your means and not really understanding what the problem is.

How exactly do you stop concerning yourself with money in a way where your spending and saving is almost on auto pilot?

Well, the real trick is making sure that your budget isn’t just there, but also is updated to reflect changes in income, an added expenses or change in a line item, either more money needed or less. The ever evolving budget is something that only the really good money managers know and then do, rather than just writing on a piece of paper what they spend on the larger items or simply refuse to update and tweak as needed or is warranted.

This shows not only the ability to adapt but understanding exactly what your money situation is, and how to fix it. The real problem we find for those who can’t manage money is they don’t truly understand that a problem exists. You wouldn’t necessarily call it sticking your head in the sand, but you’d be hard pressed to see accountability when it comes to money, and that centers on worrying about having the latest and greatest products or keeping up with the rest of the world, when in actuality you can’t afford it.

And if you’re struggling debt wise, you have to address it, get it under control by any means necessary. That can start with consulting a financial planner, consolidating debt or finding some way to lower interest rates (even if it’s balance transfers that you know can be paid off during the special rate time period).

Saying or suggesting you’ll never worry about money is silly. That simply isn’t going to happen, but your concern should be that of how to continue to improve your standing, rather than wondering how you’re going to get from one money gaffe to another.

Pertinent Planning: Why smart decision can quell money concerns

If you’re not concerned about money, you should be.

In fact, the majority of people have more than just worries about money and their financial future: it is the kind of angst that keeps them up at night.

Granted, if you’re struggling financially and have a plethora of debt and can’t seem to get ahead, you’ll indeed worry on a consistent basis.

Those trepidations about money are just, since chances are your financial situation is a bit of a mess for a variety of reasons: budgeting, living beyond your means and not having everyone in the household on board with exactly how the plan should work to save money.

But quelling your issues when it comes to money centers on being able to get out in front of those concerns with the type of foresight that some of the better financial experts have and use to their advantage.

They don’t worry about money: they plan accordingly just in case it ever goes away.

And if you poll the average individual about what keeps them up at night money wise, they’ll tell you things such as losing their job or having some sort of major expense that they know they won’t be able to pay for or take care of on their own.

Other concerns include things like consumer fraud or having your identity compromised, but those aren’t things that are necessarily predicated on money decisions you make. If you have your identity stolen, and you’re totally safe on a secured web site, then sometimes bad luck follows.

This is more about those major medical bills, car repairs or home improvements that must be done, along with retirement and other money related decisions that you’re making all wrong and thus worrying about something (money) that you can regain control of on your own terms and at a moment’s notice.

For starters, budgeting is paramount in order to really start to be able to save. And budgeting isn’t defined with being able to know the amount of your car payment or mortgage and the due dates, but rather it goes far beyond that. Budgeting is about knowing all of your expenses, the ins and outs of what you’re buying, spending on and what should essentially be leftover.

Without those numbers on paper or a spreadsheet, you’re just guessing and hoping, both of which won’t get you very far financially.

No one can tell you that you won’t be worried about money: even the best at it are.

But you can mitigate some of those nightmarish financial thoughts by starting with the basics of budgeting and building out from there to rest soundly knowing you’re on the right path.