How Much Money Would Change Your Life?

Have you ever played with the thought experiment “What if I won the lottery?” Even though we don’t ever buy tickets, we’ve still had this conversation once or twice. It’s a fun What If game that sets you to dreaming and may even lead to some great discussions about priorities and goals. Another version of this game is “What would you do with a million dollars?” and usually involves some version of quitting your job with flair and buying large and unnecessary consumer goods.

I just read a great book called Hand to Mouth: Living in Bootstrap America by Linda Tirado. It’s about being poor in America and the challenges and struggles that go along with it. In the Introduction to the book, she defines the terms she uses throughout:

Poverty: A quarter is a miracle
Poor: A dollar is a miracle
Broke: Five dollars is a miracle
Working class: Being broke, but in a decent location.
Middle class: Living in a nice area with personal furniture, able to purchase other items, and not (constantly) worry about homelessness.
Rich: Anything above the prior.

I really like her definitions (do you?), and they got me thinking. After you are no longer Broke, and five dollars is no longer a miracle… what IS a miracle? What constitutes a life changing amount of money when you are Working Class, Middle Class, or Rich?

Under the Working Class definition above, I’d say about $500 would qualify as a pretty significant windfall. This would establish a small Emergency Fund that could end the cycle of payday loans or other predatory lending stopgaps that people resort to with no other options. It could pay for a nice new suit for that job interview, or new tires on your car to get to a better job further from the bus route.

If you are Middle Class, about $5,000 would be enough to change something. This would establish a significant Emergency Fund, or help to pay off high interest credit card debt. It could help you to begin buying in bulk to save money, or pay your car insurance or property taxes in six month payments instead of monthly (usually a significant savings). It could allow for a class to get a new certification in your field, or just ease the anxiety of living paycheck to paycheck.

If you are Rich, you’ve got all the money you need, and it would take a good chunk of money to cause you to change anything about your life. I am very fortunate to count myself in that category. I wouldn’t change a thing about my life unless I received some sort of windfall of about $500,000 or more. This would put us squarely into the Financial Independent category, meaning we would no longer have to earn income to live on. We could survive off our investments and passive income alone. Meaning, we would be free to quit our jobs and pursue more travel or passion work.

So what about you – how much money would it take to change your life? Where do you see yourself on the continuum from Poverty to Rich? Do you agree with Ms. Tirado’s definitions (and my own additions)?

The Gift of Desperation

I stumbled upon a new idea this week and it really resonated with me. I heard a recovering alcoholic say that his mental disease had brought him so low that he was given the “gift of desperation”. He said that only when he reached this bottom was he able to completely let go of his need to drink and to turn his life around.

Tony Robbins once said, “Change happens when the pain of staying the same is greater than the pain of change.” This is the same idea.

I feel like the gift of desperation is sometimes needed in finances, as well. You have to feel a pinch, some kind of pain before you will do the hard work of changing your behavior. If it just feels great to go deeper and deeper into debt, and you are able to buy whatever you desire with no consequences, everyone would always continue to do so. But sometimes, there is a moment where you look around and feel buried by the mountain of debt. You feel chained with no choices, and you decide to change something about the way you spend your money.

I remember the exact moment I received the gift of desperation. I had a student loan, a car loan, and a credit card balance. I had a mortgage on a fixer-upper, and a job I hated. My car needed new tires and my tooth had a cavity that needed filled. We were making ends meet, but barely. I thought we were fine – it’s like not we had creditors hounding us. We were skating by with minimum payments on everything and no savings. We had just replaced all the windows in the house with a 12-months same-as-cash loan.

And then, I received a statement in the mail from the window company. I began reading the statement and it said that no payment was due – YET. But it also said that if we were not able to pay the full balance – over $7,000 – by the time the 12 months was up, that the bank would retroactively charge us an insane amount of interest, backdated all the way to the day we bought the windows. The kicker? Nine months had already passed and we had made zero payments. I freaked out. It was a “come to Jesus” moment – there were a lot of tears.

You see, I didn’t know the rules of the game I was playing. And in my fear, I couldn’t see any way that we would be able to make all our minimum debt payments and also pay the balance of this purchase in full in the next three months. I broke down. I got desperate. I began searching for a better way. I talked to my husband. I got some books at the library. I pulled out a calculator. I began looking at our spending, trying to find the things that we could cut to make this work. We spent about $100 on a money class that we took together. We started writing down a plan for spending. We argued about what was important. We got serious. We had a garage sale. We cut a lot of other things out. It was really hard, and it was worth it.

After a long road on the debt payoff journey, we reached the end. We celebrated – it felt great. And then, we coasted for a bit. We bought a few big ticket items that we had put off – new flooring for the house, a new(er) car, a better computer. We got a bit lazy and didn’t really have any goals besides our regular savings. But then… I began feeling a new type of desperation. I had switched jobs, but this one wasn’t much better. It was still a small cubicle, in which I was held captive all day, and had to report for pointless meetings and fill out meaningless self-assessments. I was feeling hopeless, staring down 30+ more years of working under clueless managers and feeling chained to a life of corporate drudgery. Even the “perks” felt completely arbitrary. A bigger cubicle? A fancier title? A window in my prison? I began searching for a better way.

That’s when I stumbled upon the FIRE movement. I began to see a light at the end of the tunnel, finding a different way forward, outside the regular forty year corporate career path. Giving up the little things that don’t matter for a life of freedom in early retirement became the goal. And that’s the journey we’re on now. We’re totally debt-free and living frugally to squirrel away as much money as possible, to afford an extremely early retirement.

***I do want to include a small caveat that I am not talking about depression. I don’t see any gifts in depression and most times it does not stir you into taking action; in fact it may do just the opposite. Desperation is not depression.

Have you ever been given the gift of desperation?

Personal Finance is Personal

I have a theory about why talking about money is mostly taboo in our society. I feel like it’s kind of like sex, or religion. It’s a very personal issue. How much money we make, and what we spend it on, is highly variable from person to person and sometimes even our self-worth and identity is tied up in it.

Asking the question “What do you do?” helps us to suss out the status of an individual we are just meeting. It would be extremely impolite to ask upon introductions “How much money do you make?” but essentially that is the signal we are searching for.

We also attempt to signal our value by the outward facing purchases we make – the cars we drive, our neighborhood, and our clothes and fashion choices. Most people assume that if you drive a luxury car or carry a Gucci bag, that you are worth a lot of money.

But most of our money choices are hidden. How much we donate to charitable institutions, or how much we save in our retirement funds. These choices make a much larger impact to our bottom line but are completely obscured from the view of bystanders.

There is also a lot of shame tied up in money. People are embarrassed about how much credit card debt they have, or how much they spend feeding bad habits each month. Opening up your income and spending to other people is very vulnerable. And most likely, you do not have the same values and priorities as anyone else. Some people choose professions that are not highly compensated but which they are passionate about. Some people go to McDonald’s everyday. Some people are subscribed to massive multiplayer online role-playing games (like World of Warcraft). Are any of these choices wrong? Of course not. These are just personal priorities.

Personal finance is extremely personal. No one can decide what your spending priorities are but you yourself. I can examine your spending and tell you that you need to cut back, and I can even suggest areas where you can trim. But the decisions are yours to make. If you most highly value travel and I suggest cutting your vacationing expenses, that won’t make sense to you, and you probably wouldn’t stick to that budget anyway. But maybe you are spending a lot more on restaurants than you’d like. If pricey meals aren’t what you value, cut back on restaurant spending and you might not even feel it. This is a cut that will work for you and that you can stick to.

An example: we have a happy, healthy dog. He’s our best buddy. Keeping him happy and healthy is a very high priority for us. However, he’s also extremely fluffy. Keeping him expertly groomed according to his breed was not high on our list, yet out of habit we were spending $80 every six weeks or so to do just that. Now, we couldn’t just let him poof out and eventually get dreadlocks. But one month, instead we shelled out $70 for pet clippers and did it ourselves in the backyard. I’ll be totally honest here. This was a learning experience. The dog looked kind of ridiculous that first time. But each month, we got better and better. We learned to bribe him into holding still with lots of peanut butter. We learned which size to use for his body and which for his ears and little mustache.

This saved a substantial amount of money over the years. And only required the $70 investment in clippers and a bit more time every month or two. (honestly not a lot more time than making appointments, dropping him off and picking him back up from the groomer though)

Now some of you are like “yeah but I don’t have a dog, so that doesn’t apply to me” and I’m here to say THAT’S ENTIRE POINT OF THIS ARTICLE. Personal finance is personal. Maybe you do have a dog or three and they are beautiful purebred show dogs and you would never dream of cutting back on their spa time. Perfectly fine, you do you. Not here to judge. But check your spending – because there is probably something in your budget (or lack thereof) that doesn’t belong there.

What could you give up? What will the budget police have to pry out of your cold dead hands?

The Sacrifice is Worth It

To get out of debt, you have to really want to.

I know that sounds really simple, but its SO true. No one ever just wakes up one morning and is like “Oops – I’m debt free! How did that happen?”

You have to be intentional, and focused, and really, really want to. It’s very simple to pay off all your debt, but it’s not EASY. I’ll say that again – its simple – you just pay it all off and don’t get any more. But its difficult – if it were easy, everyone would be debt-free and it wouldn’t require any sacrifice. (see Part 1 here)

We cut out a lot of spending to achieve our debt-free goal. Sometimes I’ll refer to these cuts as “sacrifices” although I know it is such a first world thing to say that I “sacrificed” getting a manicure. Let me assure you that I know that going down from 100 channels to 10 channels is not a sacrifice. But subjectively, these things all definitely impact your life and everything is relative.

Things we Gave Up:

Credit Cards (use debit cards)
Cable TV (got Netflix)
Movie Rentals (haha, remember when this was a thing)
Expensive salon cuts/highlights
Almost daily restaurant/coffee outings
Organic expensive grocery stores
Trips to the Mall or Target for entertainment purposes
Movie theatres (oh, but we still see movies!)
Home Warranty
Newspaper subscription (for the coupons!)
Magazine subscription (I loved the magazine Real Simple and this one hurt)
Verizon Wireless (switched to Republic Wireless)
Gym Membership
Expensive Internet (switched to super cheap plan with a different provider)
Super Expensive Car Insurance (shopped around online and found Progressive)
Giving expensive Christmas gifts and fancy custom photo cards to every person we knew (DIY for the win)
Dog grooming (DIY baby)
Oil changes (DIY again)
Privacy (getting roommates)
Saturdays (listing things on eBay or holding a yard sale)
Expensive Date Nights

Remember – personal finance is personal. Your Mileage May Vary and these are just the things WE cut. If you want to keep your cable TV because you are addicted to HGTV and genuinely love to watch it every night – be my guest. No judgement. Don’t give up your favorite things. Just figure out what you most value (and you can’t say you most value EVERYTHING you are spending your money on!).

I can honestly say that I do not miss a single thing on the list of things we got rid of. I do not feel like we truly sacrificed anything. I have literally every single material object that I need. And I’m even more happy and grateful for what I have now than I was when I was spending a LOT more money.

Isn’t that the strangest conundrum? We’re spending MUCH less than we were, but appreciating what we have more. We go out to eat much less often, but when we do, it’s special, it’s fun, we enjoy it more. Humans get used to nice new things really quickly.

What could you give up? What are you spending money on that isn’t adding joy to your life?

You Really Have to Want It

To get out of debt, you have to really want to.

I know that sounds really simple, but its SO true. No one ever just wakes up one morning and is like “Oops – I’m debt free! How did that happen?” It’s really easy to get into debt but you have to create a plan if you want to get out of it.

You have to be intentional, and focused, and really, really want to. It’s very simple to pay off all your debt, but it’s not EASY. I’ll say that again – its simple – you just take money and you pay it all off and then you don’t get any more. But its difficult – if it were easy, everyone would be debt-free and it wouldn’t require any sacrifice.

Probably one of the most drastic “sacrifices” we made, that actually impacted our quality of life, was to take on roommates in our home. Not impacted negatively – just moderately changed our lives. Over the years we have rented our guest room out to three different people (at different times). These people were all friends or at least acquaintances, and we were relatively sure each of them would not murder us in our sleep. And we ARE alive today to tell about it, so I’d say it worked out well for everyone. But our house is pretty small, so we had to share the one bathroom, kitchen, laundry, and living room.

Friend 1 – A friend I met at work wanted to move out of her parents home. She was also actively seeking employment out of state and so we figured she wouldn’t stay around too long. This was an experiment and it was great. We loved getting rent money in exchange for our guest room and we decided always wearing pants was something we were willing to do. She did move out of state and we parted ways on great terms.

Friend 2 – This was a guy with whom my husband went to high school. Bizarrely, we found him through an ad on Craigslist but when he showed up, it turned out they knew each other, so we felt like it was meant to be. Besides a few late night, rowdy World of Warcraft sessions (lol), he was a great roommate. He got engaged after about 8 months and moved in with his fiancee.

Friend 3 – A good friend, who was living out of state and needed a place to rent to transition back to our neck of the woods. She already had a job and this was perfect for us. She stayed about a year, probably the longest of any of our renters. After she moved out, we wanted to take a roommate break, and go back to wearing no pants around the house.

One thing I will say – having roommates allowed us a huge leap forward in our debt/mortgage payoff goal. $500/month is $6,000 a year that came out of nowhere – for little to no cost on our part. It was the best “side hustle” because it took no time. The only expense was maybe buying a bit more toilet paper and laundry soap. And with the girls, it was nice for me to have a built-in hang out buddy around (extroverts holla!).

I will tell a funny story though – just for you slightly crazy people like me. One day I got home from work and my roommate’s car and my husband’s car were both in the driveway. So I thought – cool, everyone’s home. So I walk in the door and the dog greets me, but no one else is around. I go “Hello, I’m home” and I get no reply. And mind you, this is not a large house. So I look in the living room and bathroom – no one. I go down the hall – my roommate’s door is open and she is not in there. I keep walking down the hall – my bedroom door is closed. That’s weird. And as I’m walking up to the door, my brain tells me – They are in there together. They are having sex in your bed. You’re going to have to commit murder today. How long do people go to jail for homicide? And I hesitate at the door, holding my breath and trying to bask in the time before I knew my husband was sleeping with my best friend.

And I slowly open the door, and the room is dark. My husband is asleep. Alone. He had a migraine. And our roommate? She wasn’t even home, her friend had picked her up to go out.

As I sidle up to my much maligned husband in bed, I whisper “I thought Liz* was in here.” And he mumbles “thoughtless?,” and I let him go back to sleep.

So anyway. If you can swing it, get a roommate. You (probably) won’t regret it.

*Names have been changed to protect the innocent.

Have you ever done anything extreme to save money? Would you consider getting a roommate or taking in a lodger?

Debt Freedom is Peace of Mind

I wandered through life for quite a while, with no savings in the bank, no plan for future purchases, and no real goals (besides vague wishes). I put things on credit in the hopes for some magical future with more cash than I had today. I woke up one day with lots (and LOTS) of debt and no way to pay it off. I wasn’t doing anything out of the ordinary, I was just doing what everyone else was – being an American consumer. I had student loans (like everyone else), I had a car loan. I had less credit card debt than the average person. We had gotten a modest mortgage, and I had a little bill at the dentist office I hadn’t been able to pay off right away. We were doing ok. It’s not like creditors were banging down the door.

But we had no plan, no dreams. My car (that was not really mine, but more the bank’s) needed new tires, and I had no way to pay for them. So they went on the credit card. Next month, and that $400 statement came in the mail. Shit, now what? The house really needed new windows… well that’s $7,000. Ooooh they have an interest free loan? For 12 months no payments!

Life just kept happening to me, and without a plan, I drifted through, getting further and further behind. I lacked intentionality. I spent money on things that were not important to me. Little luxuries that I thought I deserved or that helped me to feel like I fit in.

But eventually, it caught up to me. With no savings, every little thing was a disaster. After a mini-breakdown, I started looking for ways out and began talking with my partner about how we could change what we were doing.

So. We made a plan. We wrote out a monthly spending plan and began paying down our debt. And we did it, we’re debt free now. And it was all worth it. Being debt-free feels REALLY good. Owing nothing to anyone is priceless. It’s peace of mind that you can literally buy.

Here’s what we did. Just a warning, this is pretty simple. I did not say it was EASY, but it is simple. It’s difficult, but it’s worth it.

First, we created a spending plan with a little money factored in for debt payments. At first, we were making the minimum payments on everything, with just a little bit extra to throw at the smallest balance.

We followed the “Debt Snowball” method of repayment, which I highly recommend. It’s simple to figure out and remember. You just pull out all your statements, and make a list of your debts (all of them, credit cards, loans, etc.) and you list the balances in order from smallest to largest. You pay all the minimums on all the debts, but any extra money goes toward paying down the smallest debt. After you pay it off, all the extra money goes towards the next smallest. It’s called a snowball because all the minimum payments keep getting rolled together bigger and bigger until when you are paying off the larger debts, you’ve got a huge monthly amount going toward it. It feels amazing.

So for me, I had a $200 bill at the dentist, I had just put $400 on a credit card for car tires that I couldn’t pay cash for, we had a same-as-cash loan for new windows, two car loans, a big whopper of a student loan, and then the mortgage. That was the list, and it seemed insurmountable.

But you know what? It wasn’t. We did a bunch of crazy things to pay off the debt, and it worked. We didn’t have to go to extreme lengths, but I’m glad we did. We had a garage sale, we curbed our out-of-control restaurant habit, and I stopped going to the mall for entertainment (god Sephora can fuck right out of here). Stayed tuned tomorrow for some of our other nontraditional choices.

The bottom line is being debt-free is peace of mind, and the freedom to choose where to put your money.

What could you do with your money if you had no debt?

I’m Not a Doctor

I want to put out there that I’m not a professional, and so this is part disclosure and part reassurance of my motives.

I’ve recently lost 25 lbs. Not a ton of weight by any stretch, and I’m taller than average so I guess I “carried it well”. But still, I felt kind of gross and so I read about losing weight, chose a strategy to do it, and followed through. Basically the strategy was the calories I ate had to be less than the ones I burned (this is called CICO – calories in, calories out). It wasn’t sexy or gimmicky, but it was free and very effective. The thing is, I didn’t take any advice from those naturally thin people who seem to eat candy bars for breakfast, or overweight people who hadn’t found a solution. But I also didn’t pay attention to the ads trying to sell me an expensive diet plan or weight loss program. I wanted advice from experts (doctors) or my fellow “losers” – the ones who had been there, figured it out, and lost weight.

Being financially fit is a lot like being physically fit. I don’t want to hear advice from a trust fund kid or a filthy rich lawyer or something. I especially don’t want to hear advice from someone who is broke! When I was looking for money advice, I wanted to hear a rags to riches story, someone who had made mistakes and turned it around. Dave Ramsey’s story resonated with me when he talked about declaring bankruptcy with two small children, being scared and vulnerable and having to figure out how to build his life back up.

And that’s kind of where I was, drowning in debt with no direction. Here’s the irony – I majored in Business in college, took lots of finance and economics courses, and then got my first “real” job as a Financial Advisor at Morgan Stanley! I passed my Series 7 license exam, as well as Series 66 and 31. (These are required licences for registered representatives who are selling stocks and things at an investment firm.) The Series 7 is a six-hour exam, so I had to study my ass off and it was no joke – you were fired if you didn’t pass after six months.

But the hysterical part of this is that I was 21 years old, with lots of student loan debt and an overpriced BMW payment. I had zero savings and a really great downtown loft with garage parking. I soon upgraded to a mortgage and some expensive home repairs on credit. My partner got a car payment as well, and I assumed that soon we’d be spending on a nice wedding.

So while I do have some financial management and investment experience, I also have the “drowning in debt and brought it back from the brink” experience. I’ve done the things I talk about and I know they work. So while your mileage may vary, and personal finance is personal, these principles work. But I’m not your doctor, just someone who lost the weight and wants to help you do it, too.

Click here if you are interested in a free one-on-one financial coaching session.

Musings on Death – ie Shit Just Got Real

We’ve just returned from another funeral. #cancersucks

I held it together pretty well until they started talking about our departed friend’s biggest regret. Just shy of 60, he had not gotten to retire and travel and spend time with his wife and family.

I realized at the funeral that many, many people will reach the end and regret working too much and not spending more time with their loved ones. Very, very few will regret not working enough. A recent study put “working too much” as second of the top regrets of the dying*.

And that is what this is about, the whole FIRE movement. To me, it is the freedom to spend my time with the people I love the most, the ones who make me feel happy and like I belong. The ones who are my top priority, the relationships that make our life meaningful. People who care about me and appreciate me. Being financially independent gives you the opportunity to spend more cherished moments building relationship, and less sitting in a gray cubicle browsing the internet.

The whole point of FIRE is not to stockpile a hoard of cash and tell your boss to shove it. (That’s just the how, lol) The Big Why is to choose to spend your time doing the things you love, spending time with the people you love, and maybe doing the people you love (hah). Obviously humor is my coping mechanism, sorry.

But seriously, remember when I mentioned that working too much was second the list of the top regrets of the dying? You want to know what number one is? The most common regret was “I wish I’d had the courage to live a life true to myself, not the life others expected of me”. This regret also can be absolutely avoided by taking the road less traveled, quitting your meaningless corporate job and taking to the beach (or the farm, or the mountains). Be brave. Your life is waiting for you out there.

It’s too important not to try.

What about you? What will you regret?


*This information was taken from the 2011 book by Bronnie Ware called the Top Five Regrets of the Dying.

You Only Live Once (and other bullshit cliches)

Hello Dear Frugal Readers!

Does it annoy you when a friend, family member, or passing acquaintance hears about your frugality and says one of the following trite cliches?

  • You can’t take it with you!
  • You only live once!
  • What if you get hit by a bus tomorrow?
  • You’ve got to enjoy it today, tomorrow isn’t guaranteed!
  • Spend it while you got it!

Now, I am not a financial professional, but I play one on the internet. And so, I would like to help you combat these ridiculous statements that are usually made in good-faith by well-meaning idiots.

But first, some background: Why should you listen to me? My husband and I are debt-free including the house, and are currently on track to retire in our 30’s (about five years from now). We do not make giant incomes – together less than six figures. We’ve done a fair bit of research, saving, investing, and just general butt-kicking to get where we are. Huge fans of Mr. Money Mustache, Dave Ramsey, Frugalwoods, The Mad Fientist, Budgets are Sexy, etc. I like to think we are part of a silent minority of “frugal weirdos” that are quietly following these money gurus, but that the general population never hear from.

So let’s first debunk these statements that all follow the general spirit of #YOLO. As in, Life is short, buy the shoes! These statements seem to justify spending every last penny (and some of the bank’s pennies) in order to enjoy your life in the present. A short-term viewpoint, it rests on many assumptions:

  1. You must spend ALL THE MONEY in order to enjoy your life.
  2. If you do not spend all the money, you are depriving yourself, living like a desperate hermit.
  3. Saving money is boring and does not provide happiness.
  4. You will probably die young.
  5. You will (somehow) regret not spending all your money when you die young.
  6. There is no one to whom you would want to leave excess money when you die young.

As you may have guessed, I disagree with all of those statements. We are proof (as are many, many of you) that saving money is actually really fun, and breeds security and contentment. I can enjoy my life just as well on $50k as on $500k – and there’s science to prove it. Let alone the freedom money will buy when we can quit our jobs!

On the deprivation mentality – we are coming from this place of crazy abundance and gratitude. We live lives of amazing luxury and you may only be able to fully appreciate that if you step back for a second and look around (the world). We’re not depriving ourselves of anything. If we won the lottery the only thing that would change is our early retirement date – we wouldn’t buy a mansion or something. And for those of us already early retired, like Mr. Money Mustache – if he did something so stupid as play the lottery, and won a substantial sum, I am betting all the hypothetical lottery money it would change his life 0%.

And actually – no – you probably won’t die young. And even if you do – you will be dead. No regrets possible. And even if you die young with enough notice to harbor regrets – not spending all your money will not be on your list, I promise. Not spending more time with your loved ones – yes, perhaps. And lastly, I can think of many family members and non-profit organizations that would greatly benefit from an endowment of my Frugal Fund, when I do kick the bucket.

So the rub – how to respond to broke-ass Joe Schmo when he hears of your crazy debt-free lifestyle and plan to retire in five years, and tells you that “you can’t take it with you”? (Because that was obviously my plan, Joe. I want to be buried in my 2005 Honda Civic with a 10 lb bag of lentils in one hand and all my Vanguards in the other.)

I have begun to patiently espouse the following line: The funny thing is – I feel like “you can’t take it with you” is an excellent argument to only work for someone else as LITTLE as you possibly can, and to enjoy your time on your own terms before you do eventually die, instead of working 50 hours a week toward filling your life with meaningless plastic stuff. “You only live once” is literally my reason to pursue this FIRE lifestyle in the first place!

You may be met with a blank stare, but at least you will feel good that you did not perform a frugal flip out, while still sticking to your guns.

And lastly, fellow frugal weirdos, I leave you with one of the truisms of life:

Always you have to contend with the stupidity of men. Henry David Thoreau


Get Some Breathing Room – The Impact of an Emergency Fund

Did you know 47% of Americans would not be able to cover an unexpected $400 expense? Is that surprising to you, or are you one of them? I used to be and it wasn’t fun. It kind of felt like living on the edge of a cliff. I was always watching my step, afraid to fall off.

There are different names for having a large pile of cash sitting around. Some people call it a Rainy Day Fund, or Just in Case Fund, but I prefer Emergency Fund. That name reminds me that this money is earmarked for an actual money problem that I may (will) encounter.

The size of your Emergency Fund is completely up to the circumstances in your life, and even your temperament. Not just the simple questions like How much money do you spend in a given month, but others like How stable is your job? Are you part of a dual income household? How many dependents are depending on you? How quickly do you think you could obtain a new income stream if you lost your main source of income?

When you are debt-free you need much less of an emergency fund because you are not making gigantic payments to the bank each month. But if you are struggling under debt, maybe your emergency fund isn’t very large yet.

In my case, my husband and I both work full-time. We have no dependents. His job is extremely stable (almost 20 years at the same company). I could reasonably find another job pretty quickly if I needed to, or at least unemployment insurance. We don’t spend as much as we make, so there’s some flexibility in our budget that we could take advantage of if something happened and we may be able to cash-flow it rather than dip into the fund.

We’ve opted for a six month Emergency Fund, meaning we could cover all of our expenses for six months if we both lost our jobs (highly unlikely). Notice that I said EXPENSES and not income. You don’t need six months of your income if you are saving 50% of that income into retirement accounts. You need to cover your expenses while you are job hunting or building a new business or whatever.

I cannot stress to you enough the peace of mind that having this money has brought into our lives. I can vividly remember losing a job and feeling extreme desperation, not being able to cover rent next month and scrambling for a new job (any job!). I remember checking my bank balance before grocery shopping. I remember Fear.

Having a strong foundation underneath you (that is not built of credit cards) is such a freeing sensation. We have so many more options now than before. It’s like a safety net that removes the stress and fear of any little thing going wrong. Now a flat tire is no longer a money emergency – it’s just a minor inconvenience. Removing the fear of small emergencies allows you to shift in your thinking from “getting by” to “planning for the future”.

Ways to Save a Baby Emergency Fund:

  • Hold a garage sale
  • Sell small things on eBay
  • Sell big things on Craigslist
  • Trade in your car for one less expensive (with a smaller payment)
  • Cut cable or expensive data plans
  • Cut little recurring expenses like warranties, magazine subscriptions, or gym memberships
  • Do a 30-day No Restaurant Challenge
  • Do a 30-day No Shopping Challenge
  • Do a 30-day Pantry Challenge
  • Any money windfalls (Christmas, Tax Return, Extra Paycheck) can immediately set up a small emergency fund.

Any little bit counts, and it can only get you closer to your goal. Make a fun thermometer and hang it on the fridge to color in as you make progress. Get the whole family involved. Plan a fun celebration (game night with grocery store pizza!) when you hit your target.

Having a little emergency fund as you are paying off debt will help ease the pressure to put unexpected expenses on a credit card or get another small loan. You’ve got cash, so you can cut up the cards and not look back. Get some breathing room. You can do this.