Not Having an Emergency Fund Is the Emergency

 

Not Having an Emergency Fund Is an Emergency

    Not having an emergency fund is, in itself, an emergency. Even a starter fund of $1,000, $1500, or one month of expenses is better than not having anything set aside for emergencies. While this starter fund won't cover every situation, it will help soften the blow of any financial speed bump while trying to get out of debt. 

    Without an emergency fund, the only option during a crisis is to take on more debt, worsening your financial situation.   

Why You Need One (and How Much to Save)

    As mentioned above, a starter emergency fund of $1000 is a great goal. The recommended emergency fund should cover 3-6 months of expenses, but for some, especially those close to retirement age, could extend to 24 months. 

    The most important factor of what should be in your emergency fund is what makes you feel financially secure. Personal factors such as the following should be considered when deciding on an emergency fund amount:  

• job security
• family size 
• monthly expenses (fixed VS. variable)
• length of unemployable 

There are plenty of other factors that could persuade you to have a larger or smaller emergency fund, the key take away is that you have to determine what makes you feel financially secure keeping in mind the common recommendations. 

    Your emergency fund should be stored in a separate account that isn't as easily accessible as your primary checking or savings account. Ideally, this should be a liquid account meaning you have access to the funds as a cash asset and there isn't any stipulations on the money (e.g. you have to sell stocks, or have to request access through another individual).

When to use the Funds? 

    You guessed it.....emergencies. But who decides what an emergency is? You (and possibly your significant other) are in control of the account and what to use the account for. 

Some examples I've seen people utilize their emergency fund for would include:

•  unexpected car maintenance
•  health care 
• last minute travel to visit sick family or funerals 
• cover bills while unemployed.

I have also seen many individuals and families having to take out debt or utilize high interest credit cards to cover these expenses. The utilization of high interest debt for these costs only puts you further into a financial struggle. Emergency funds shouldn't be used for:

• new vehicles
• homes
• planned maintenance

These costs should be factored into your monthly budget or  have its own savings goal on your savings goal tracker.

    

How to Start Your Emergency Fund (Even if Money’s Tight)

   Now starting your emergency fund could seem like a daunting task. The truth is you can just start with what you can and slowly grow your fund over time. Setting a savings goal of $100, $500, or more is up to you and can start off with saving only what you can at first and build up over time. If you have already taken the first few steps into financial freedom (first one being to decide to go on this journey, and second assessing your financial situation) then you should have an idea of what is able to be saved once your expenses are paid. Start with only making the minimum payments on your debt to be able to put your surplus towards your first savings goal, your emergency fund.

    Once you get your starter emergency fund funded then it's time to move on to attack high interest debt. The ways to attack your high-interest debt will be addressed in future blogs so stay tuned.
  

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Creating Financial Goals That Fit Your Life

 

Setting Financial Goals That Work for You

    We have (or should have) already created a simple budget, now it's time to set our financial goals. These goals are going to be personal to you and your current situation. Some simple examples of a financial goal could be to save for a downpayment for a house or car, to pay off student loans, or to save for a vacation. While these are simple examples of some financial goals, I want you to think a bit harder for the goals.

What Are SMART Financial Goals?

    I want your financial goals to be S.M.A.R.T goals- meaning they are Specific, Measurable, Achievable, Relevant, and Time-bound. Let's use the example from above, save for a downpayment for a house or car, and lets make it into a SMART Goal:

        "In three years I am going to save $70,000, for a 20% downpayment for a house valued at                             $350,000." 

    We can break this goal down further to see that you’d need to save roughly $1,945 per month. Some people might say that’s unrealistic, or wonder how they’ll ever afford a house at that savings rate—but the thing is, if you completed a budget, you could figure out what your monthly savings rate could be and adjust from there.

Why SMART Goals Work

    When you follow the SMART goal method, your goals become more focused and achievable:

• Specific: You know exactly what you're saving for.

• Measurable: You can track your progress as you go.

• Achievable: Your budget helps determine if the goal is realistic.

• Relevant: The goal matters to you.

• Time-Bound: You have a deadline, which creates urgency and direction. 

Breaking Goals Into Short, Medium, and Long-Term

    Once you have an understanding how to create S.M.A.R.T. goals you can then break these goals into short, medium, and long-term goals. 

• Short-term goals: Within 1 year
  Example: Build a starter emergency fund in 6 months

• Medium-term goals: 1–5 years
  Example: Save for a downpayment on a house

• Long-term goals: 5+ years
  Example: Reach a specific amount in a retirement account

    Categorizing your goals helps you prioritize them. For example you should prioritize paying off high interest debt before focusing on investing, or building an emergency fund would take priority over paying off high interest debt.

Use the Goal Tracker in the Workbook

    If you need help keeping track of your financial goals, the goal savings tracker in the budgeting workbook I created can be a helpful tool.
It can be found [here].

Final Thoughts: Your Goals Will Grow With You

   Just like your budget, your goals will change as you go through life. They're not set in stone and can be adjusted as your life evolves.

  If you want to share your financial goals, feel free to leave a comment. (Please limit this to financial goals). Shared goals can be as broad or specific as you'd like to share, for my wife and I we are currently saving for our yearly vacations. We have a set amount that we put into a sinking fund and we use this for our vacations. 

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Step One to Financial Freedom: Create a Realistic Simple Budget (Free Workbook Included)

 

Start with a Simple Foundation

    Creating a simple, realistic budget is the start of your journey to financial freedom. A budget will help you understand where your money is going and gives you the power to take control of your financial future. To get started, all you need to do is list out your sources of income and your monthly expenses. Once that’s done, subtract your total expenses from your total income. This will show you whether you’re in a surplus or a deficit each month.

Understanding a Surplus

    Ideally, your budget will show you being in a surplus, meaning you have money left over after all expenses are paid. If this is the case, you're in a good position to make decisions to move you towards financial freedom.  With this surplus of money you have choices, you can choose to pay off debt, save it, or adjusting your lifestyle to include new spending. The best use of the surplus is dependent on where you are on your financial journey.

What if You're in a Deficit?

    If you calculated out your income and expenses and are in a deficit, it is time to take charge of your finances and make some adjustments. Being in a deficit can lead to financial stress and long-term debt. To fix this you could increase your income, decrease expenses or a combination of both. Increasing your income could involve negotiating a raise, picking up extra shifts, or starting another job or side hustle. Decreasing your expenses starts with making sure your numbers are accurate and knowing what can be changed. Many clients I see aren't fully aware of how much they spend each month. I have had clients tell me they spend $100 on subscriptions or $800 on groceries, but once they review their bank statements and rattle off the cost of each subscription they had or every time they went to the grocery store the true costs where closer to double of that they believed it to be, roughly $250 and $1800 respectively. This is why utilizing bank statements is a key factor in creating a realistic budget.

Choosing the Right Budget Template

    There are many free budget templates available on the internet. A simple Google  search or search on Canva will bring up a lot of choices. There is also a free budgeting workbook included in this blog. Take a look at a few different budgeting templates to figure what you prefer to use and utilize that template. Some will just simply have the expenses listed out, others break up the expenses into "Fixed" and "Variable" expense, while others will break them into subcategories. The essential elements: income, expenses, and whether you're in a surplus or deficit will be a key point of every budget. 

Download Budgeting Workbook here

Start with Real Numbers

    My advice prior to filling out a budget, is to have a copy of your most recent statements of every account you have. This could include: bank statements, credit card statements, auto loans, mortgages, personal loans, and any other accounts money enters or exits (e.g. venmo or paypal). By having these statements you will start with the most accurate picture of your financial situation.  There should be no guess work in creating your starting point.  Having an accurate starting point is essential to being able to see where and what can change on your budget. If you are married, I'd suggest you and your significant other sit down together and fill out the budget. This will promote transparency and ensures no one feels left out of financial decisions.

Bonus Tools in the Included Budgeting Workbook

    The budgeting workbook included in this blog also features a few helpful extras. There’s a debt tracker, which allows you to list out all of your debts—things like the creditor name, interest rate, type of debt, monthly payment, projected payment, and the remaining balance. It will also calculate the number of months remaining and a projected timeline based on the details you provide. Additionally, there’s a savings goal tracker that lets you keep track of specific savings goals such as building an emergency fund, saving for vacations or birthdays, or planning for vehicle maintenance.

What’s Coming Next

    In the next blog, I’ll be diving into different methods for paying off debt and discussing the pros and cons of each approach. 

    Just in case you missed the download or need another copy here's the link to the free Budgeting Workbook if you're ready to get started:

Download Budgeting Workbook here

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Why Budgeting Matters (Even If You Think You're Doing Fine)

 

Why Budgeting Matters

     As a financial counselor, I see many clients that don't understand how or why budgeting is important. Budgeting, at its core is knowing your numbers. If you don't know your income, fixed expenses, or variable expenses, then you can't fully understand your financial picture. 

What Should a Budget Include?

   At a minimum, your budget should include your income and expenses. A more in-depth budget should subcategorize your income(s) and expenses to truly see where money is being spent. There will be a future blog about different budgets. This blog is just the understanding of why we should be utilizing a budget. You might be asking "why should I use a budget if I feel fine financially?" The truth is that no one knows what the future holds for us; having a budget will ease the financial burden. 

But Budgeting is too Restrictive!!

    Many of you might be thinking to yourself a budget is too restrictive and I don't want restrictions on my spending. Well here's the key: your budget is yours to control, it's flexible and can be adjusted as needed. The reason one should have a budget is to track your spending, ensuring you don't overspend and jeopardize your future financial security.

The Real Purpose of a Budget

    The true purpose of a budget is to help you live within your means. Many people do not realize they are living beyond their means, often times relying on credit cards or loans to cover monthly expenses.If every month you are having to spend on a credit card or find yourself constantly taking out a loan then you are living outside of your means, even if making the minimum monthly payments are doable.

    The simplest of budgets will highlight this issue by showing a deficit. The budget will show the user they are living outside of their means, stealing from their financial future to cover today's expenses. Understanding and evaluating your spending habits will help prevent any long-term consequences.

Up Next: Building Your First Budget

    In the next blog post, I’ll walk you through simple ways to start your first budget, and will share a link to a budgeting workbook. The workbook includes multiple types of budgets, a debt tracker, and a financial goal tracker.

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Meaning Of Financial Freedom

 

What is Financial Freedom?

  Financial freedom, what does it mean? Well, it could mean a lot of different things. Your picture of financial freedom could be and should be very different than mine.

     For my wife and I financial freedom is being able to enjoy our life, not stress about if our expenses will be covered by our income, ensuring that our kids won't be financially responsible for us when we retire, being able to take family vacations, and ensuring our kids are happy with what is provided to them. 

    At its core, financial freedom means you have control over your finances, a plan for your financial future, and living life on your own terms.

How Do We Achieve Financial Freedom?

   You have already taken the first step, finding resources to help you with your finances. Much like that first step the remaining steps are going to have to be intentional. Here is a basic overview of the steps I'll talk about in upcoming blogs: 

1. Assess your current financial situation
• Understanding your current finances
2. Set financial goals
• Defining your meaning of Financial Freedom and setting S.M.A.R.T. goals
3. Adjust your current financial situation
• Evaluating your spending and savings to make changes to align with your goals
4. Create a starter emergency fund
• Start building a savings for unexpected expenses
5. Pay off high interest debt
• Focus on getting rid of or reducing debt payments
6. Fully fund your emergency fund
• Aim to save anywhere from 3-24 months of expenses depending where in life you are
7. Pay off remaining low interest debt
• Looking at being debt-free
8. Save and invest
• Saving and investing for your's and/or your kid's future.

    While these steps seem simple they will be addressed in depth in future blogs, as mentioned above. I'll talk about strategies and provide actionable tips to help you through them. Hopefully, you continue down the path of financial freedom and take control of your finances.

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