We haven’t discussed an emergency fund in awhile, but I thought I would bring it up again since I heard some discussion of it on the radio this weekend. Remember, an emergency fund is money–between, hopefully, three to six months of take home pay–kept in an easily accessed account (like a money market account with check writing and an automatic teller machine card). Yes, it won’t earn much there, but that’s not what it’s for; it’s for emergencies, like if your job is lost or someone hits your car without any insurance.
Part of my emergency fund that really isn’t a fund is having four weeks of vacation time at a minimum at my job. While it’s not quite the same thing as cash, in the event of an emergency that requires I travel or otherwise be unavailable for work, it’s a great thing to know I have enough paid time off to take that time.
Right now, my total off time is about 280 hours, so I’m not really worried about taking time off. But I would like to build up my emergency fund a little more too.
Welcome to your Link Payday for April 20, 2009–we missed a payday edition! It’s been incredibly busy here at the intergalactic home of Uncommon Cents and the new Athletic Diabetic, so let’s get right into it and see some of the best personal finance posts from the blogosphere over the last few weeks:
The Frugal Duchess reveals Coupon Secrets from Founder of Couponmom.com. It’s a great way to cut costs, and we know extreme coupon cutters can spend huge amounts less than the rest of us.
Trent over at The Simple Dollar gives us the kind of blog post that many find ideal, telling us how to quickly accomplish something meaningful. This time it’s Nine Ways to Save Money at Your Desk in the Next Hour. That’s exactly the kind of thing many people want to know!
A guest post on All Financial Matters talks about Lessons Learned: Saving on Your Child’s School Lunch hits home with me; I recently had a Twitter discussion with a Kindergarten teacher who let us in on their difficult situations with families that owe money for their children’s school lunches and the difficult decisions that have to be made, many of which end with the teachers paying for the lunches.
My Canadian buddy Squawkfox tells us 14 Things to do Before and After a Car Accident. Unfortunately, she tells us from personal experience but fortunately she’s fine and so is her better half. The car, however, was not so lucky.
Finally, Ron over at The Wisdom Journal gives sound advice when he tells us to Get Your Emergency Fund in Place Now. You never know when something will happen…
And that’s your April 20, 2009 Link Payday!
My mention of Instructables the other day seemed to get lots of attention. While my focus on Instructables is on creative projects (in particular some electronic projects), they also have other do it yourself and fix it yourself type projects, and there are Web sites that are similar such as eHow.com which can teach you how to change your oil or repair a toilet or any of dozens of other things, and of course, the Internet is the repair manual for everything.
Are people trying to learn how to do things on their own more because of trying to spend less money? It certainly could be. I’m hoping that people learn how to do more things themselves not just so that they can spend less but they can be more self reliant and learn to do more things themselves. Spending less is just part of the bargain.
Interestingly, one of the side (and also frugal!) benefits of doing things yourself is that it occupies you so you’re less apt to do a money spending activity (like shopping, online or in person). Keeping busy, whether with repairing old items or creating new ones is a great and productive way to avoid spending.
I realize I am in a better position than many in this economy. I have two jobs where I am high up the seniority ladder–one ten years, the other fourteen. I’ve just about completed the mortgage refinance which drops the interest rate from 5.875 to 4.25 percent. I’ve gotten (small) salary increases in the last year. The income from this blog is a bit down but it’s such a small percentage of my income that it’s really not significant–so my income has been steady. And prices in many cases are down–especially in energy. I’ve even found places to cut back due to the dip in my emergency fund for significant but small (hopefully) one time fiascos.
So for someone like me, the recession is largely psychological. Yes, I’ve watched my investment accounts dip to levels I’ve not seen in years, and it doesn’t thrill me, but those accounts were ahead (as much as a couple of years) of where I was hoping they’d be in 2007 and they had been doing very well for quite some time. Yes, I’ve had family affected by the economy–my sister is still unemployed a year after Aloha Airlines closed down. And yes, I’ve had my truck damaged and my bike stolen, which might be due to people’s desperation. But still, any significant spending slowdown–and I’m not sure I can actually call $30 a week that I’m stuffing into my emergency fund a significant slowdown–that’s coming from me and that I attribute to “the economy” is just about my worrying, and not because I’m actually hurting worse financially than I was a couple years ago.
Are other people cutting back on spending for psychological reasons rather than real financial problems? I would not be surprised.
I spent the day mentally going through my expenses and trying to figure out what I can cut down on and cut back on to make up the shortfall I’ve had in recent months; first the truck, now the bike. It’s been an ugly financial few months and while I realize I am still in much better shape than the vast majority of people, I’m certainly worse off than I was six months ago. My emergency fund is largely depleted although I remain without consumer debt.
So I took out our old friend, the spending log, to find areas to cut, with a goal of cutting $30 out of my budget every week.
What I’ve found so far:
$7 on ground coffee (plan is to cut this to $3.50);
$16 on lunch on the weekends (plan is to cut this to $8);
$8 on Diet Pepsi (plan is to cut this to $4);
$6 on snacks on the way home (plan is to cut this to $0);
So far, that’s about $20 I’ve found, but I need to find $10 more. I’ll take a closer look soon, but this is going to be squeezing even more for awhile until the savings is back where it needs to be.
My Cannondale road bike, one of the most important things that I use on a regular basis, was stolen out of my truck on Saturday. This bike is rather old and is set up to use friction shifting with bar end shifting (yes, I am a bit of a retrocyclist) so I’m surprised anyone stole it (and it’s quite possible that whomever did steal it and try to ride it injured themselves doing so if they couldn’t figure out how to ride it, but there’s certain natural consequences that might occur when you make such choices). Unfortunately, not only does this leave me feeling violated (again; see the truck break in awhile ago), it leaves me without my favorite form of exercise for the foreseeable future.
While I scour the Internet (including Nashbar, eBay, and Craigslist) for a suitable replacement (and kick myself over the theft), I’m using all of the techniques I’ve talked about before, and unless one of a few eBay things I’m inquiring about (shipping to Hawai’i, anyone?), I am considering whether this incident warrants yet another trip to my emergency fund, something I’ve talked about (and done recently).
The answer in the end, after a lot of internal debate, is no. While I would really love to be able to tap into those funds for this, as close to my heart as cycling is, the answer is no. It’s not my truck which I need for work; it’s my bike which I need for exercise, and I can run and lift weights for that for awhile while I figure out how to pay for a new ride. It’s not a true emergency, so dollars stay in that fund (while it gets replenished from my previous real emergencies) and build up a little interest as I go bicycle shopping.
As you can tell from my blogging over the past few months, I’ve had numerous expenses I wasn’t planning for. Beginning with the truck break in and most recently with a leaking toilet, there have been hundreds of dollars that I didn’t account for. As I’ve mentioned previously, I do have an emergency fund (that’s hundreds of dollars smaller right now!) that has helped, but it needs replenishing. How am I making do otherwise?
All I have to say is I’m very thankful for snowflaking. The various bits of money that I’ve gotten the last few weeks from recycling, this blog, a thank you gift for working on someone’s computer, and a rebate check due any second now are helping to keep my savings from dipping too low. I even got my first ever Google AdSense check in the mail yesterday! Once everything shows up–I expect some blog income tomorrow, I’ll do one more recycling run tomorrow, and the rebate was supposedly sent yesterday–we’re talking about $320 that I would not otherwise have.
That’s a large portion of the money I’ve had to take out of the emergency fund the last couple of months; hopefully, if things keep rolling like this, I’ll be able to replenish the fund to the point it was before summer. The power of small amounts again saves my bacon!
I was recently listening to a financial radio program when the point was made that in these difficult times, it’s necessary for the government to spend money (probably way more than they ought to) because they don’t have much of a choice, but when financial times are better, they really need to be more responsible by paying down debt and building up funds.
In many ways, the same is true for individuals. I have an emergency fund, which is not as well funded as I’d like (I actually use my vacation time as a sort of emergency fund by keeping a month’s worth of off time available at all times). I had to dip into it a few days ago to pay the deductible for the truck repair that I’ve blogged about before. That cuts my fund down sizably, by about 25%.
That money is not going to replenish itself (well, with interest it could, but it would take many years)! It needs to have dollars funneled back into it when times are better, so starting next paycheck I’m putting $50 per paycheck into it (in addition to the rather modest $25 a paycheck I was putting in to try to build it) until I’ve repaid the $500. That way when there’s another emergency–I wish I could use if, but it’s when–I’ll actually have a fund that’s back at its previous strength.
In working on my finances and trying to get more done the last few weeks, I’ve tried (with a lot of success) two different tactics which I call “matching” and “conditional.”
By matching, I’m concentrating on my financial situation. When I consider purchasing something, I tend to rate it on a continuum from want to need. If something’s more a need (like when my running shoes needed replacement), that’s not a candidate for matching; however, when something’s more a want (like the AirPort Extreme router I got last month even though my old routers were working fine), that’s when I force myself to do matching. By matching I force myself to put, dollar for dollar, an equal amount of money that I spent on the item into my emergency fund, which doubles the effective price of the item. If I consider that and still go ahead and decide to buy it, I’ve got an instant bump in my emergency fund. If I choose not to, then I’ve prevented myself from spending some money unnecessarily.
For productivity, I’m trying a technique I call conditional. When I’m working on something (say this blog post) and I have an urge to stop and do something else (say a bike ride), I make a deal with myself: I can go ahead and take the bike ride under the condition I finish the post first. That seems to be resulting in less partially completed tasks and a bit more focus. I’m in particular using a lot while reading (I am a notoriously slow reader): I can start up the computer once I’m finished with this chapter, for example.
These techniques might help you in being more frugal, building an emergency fund, and finishing tasks that were previously half done. In any case, I’m going to try them awhile more and see how they do for me.
I keep going back to the issues I had with my truck (not fully resolved yet, even though it is operational). Fortunately, I was insured, although I had a deductible of $500, which I needed to tap into my emergency fund to pay.
I had additional expenses as well. Because I was without a vehicle–which I need to make it on time to my two jobs–I rented a car for about a week. That was an additional $224, which I also thought was justified to come out of the emergency fund. How about gas? No. I’d have been paying for gas anyway.
While having an emergency fund is great, it can be a temptation if you’re in need of cash. Defining what a true emergency is and having the discipline to stay away from the fund in non-emergent matters is key. A vehicle repair is an emergency here; but what about a computer crash? Hard to say. In my case, since I use my notebooks for work and for this blog, I would say that qualifies, but maybe not for others. A wireless router dying? I would say no.
Just as importantly, an emergency fund needs to be replenished after it’s tapped into, which is one of the things I’m going to be working on doing over the next few month–so frugality is still key even with the emergency fund when crisis truly does strike.
