emergency fund

In my second edition of One Simple Step to Simplify Your Finances mini-series I discussed how consolidating can help you simplify.

Hope you have taken action and have begun to consolidate your accounts.

Now it’s time for the next simple tip to help you get your finances under control.

Are you financially prepared for your next unexpected expense?

How do you pay for those unexpected expenses?

A key necessity to living a simplified financial life is to be prepared for the unexpected.  We have all incurred those unexpected expenses which are many times out of our control such as:
  • You have a urgent medial treatment not 100% covered by insurance
  • Your car is damaged in accident
  • Your furnace or air condition needs to be replaced
  • Your company downsizes and you must find a new job

However if you prepare yourself you can minimize the stress and financial damage you incur if you establish an…

Emergency Fund

 

If you have an emergency fund in place you would not have to wonder where you will find the money to cover those unexpected expenses. You would simply go to your emergency fund to cover the expense rather than wonder how and where you will cover these expenses.  It’s much easier to save money for these expenses then not save and cause unnecessary stress.

Why Do I Need an Emergency Fund?

No additional debt
Having an emergency fund enables you to avoid taking on additional debt to cover unexpected expenses.  If you do not have an emergency fund in place, you are likely to turn to your credit cards or personal line of credit such as a home equity line of credit to pay your unexpected expense. It’s possible you may even delay paying one of your other bills to cover this expense.

By using debt to cover an expense it only increases the cost of the unexpected expense.  Once you have used credit to pay the expense you have only delayed payment.  You will still need to determine how you will pay off this additional new debt.  This once unexpected debt can set you back financially for several months or years depending on the cost of the expense and your ability to pay it back.

Financial safety net
Having an emergency fund is similar to having a safety net in place to catch you when those unexpected expenses occur.

With an emergency fund you have money set a side to pay for those unexpected expenses.  This allows you to simply pay for the expense without impacting your monthly budget which could create a financial hardship for you and your family.  Having an emergency fund can act as a financial bridge if you’re unable to work unexpectedly for an extended period of time without pay or suddenly lose your job.  Your emergency fund can cover your monthly expenses until you are back at work or have found new employment.

Less worries
Having an emergency fund in place and adequately funded you do not have to stress yourself out worrying where you’re going to find the funds to pay for unexpected expenses or how your going to pay your monthly expenses if you lose your job or unable to work.

Where Do I Keep the Money?

Since you do not know when an unexpected expense will occur, these funds must remain very liquid and easily accessible.  You should not put the money into any investment which could lose money.  That kind of defeats the purpose of an emergency fund.  You should hold the money in a saving account or money market account which you can access when needed.

How Much Do I Need?

The amount needed in your emergency fund is always up for debate.  You probably have heard you should keep $1,000, 6 months of expenses, or 6 months of income.  I believe it depends on your personal situation.  Everyone’s financial situation is different so you need to build your emergency fund that works for you and provides you the financial peace of mind you need.  Here are a few things to consider:

Your income stream is it consistent or does it fluctuate?

Your insurance deductibles?

Your current debt outstanding?

These questions can help guide you.

How Do I Fund It?

The best way to fund your emergency fund is to automate the process.  This way you do not forget to do it.  Once you set up the automated transfer you will continue to build it every month.

The above benefits are why it’s important to have an emergency fund in order to simplify your finances.

Now you must take action by funding your emergency fund. Start by establishing a monthly automatic deduction from your primary account to another account if you do not already have an emergency fund.  If you do have an emergency fund make sure it is adequately funded.

  Are you ready to begin simplifying now?

If so, sign up for my newsletter and you will receive a weekly email to help you simplify as well as receive a free eBook which provides you 9 simple steps so you can simplify your finances with in 30 days. Sign up now by entering your name and email address below.

Til next week take one step at a time.

Next week I will provide another simple tip for you to implement.  So stay tune and sign up for newsletter so you don’t miss any of these tips.

 

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The College InvestorRobert FarringtonWelcome to this week’s edition of Simple Inspiration Interview.   Today I honored to have Robert Farrington from The College Investor join us for this week’s interview.

Robert started The College Investor in 2009 from his passion to help others with their personal finances. His goal for the site was to be as transparent as possible to highlight the good financial advice as well as bad advice.  The site also offers financial coaching so young adults can learn how to stay out of debt and learn to invest and save.

So if you are a millennial who is looking to get out of student loan debt and begin investing as well as looking for some guidance on taking control  of your after-graduation money situation The College Investor is your resource to use.

Let’s hear how Robert has simplified his personal finances:

What event lead you to simplify your finances and your life?

The main event that led me to simply my financial life was getting married to my wife. I consider myself a financially savvy individual, and my wife is as well. As a result, when we got married, it meant mixing two people with a bunch of different accounts. We each had checking, savings, credit cards, investing, and retirement accounts – and it was, frankly, very hard to manage. We would each spent our own thing, and then try to figure it out later. It led to fights, and mix-ups which cost us interest.

What area of your financial life needed the most simplification?

It was all about the organization and management of our accounts, income, and expenses. Bringing two people into one financial house was hard enough, but organizing and managing it was tough.

Where did you begin to simplify your financial life?

First, we talked and compromised on a system that worked for both of us. It meant joining our accounts together – just one checking and savings account. We also just used one credit card for all our expenses.

We then setup as many automatic payments as possible – mortgage, utilities, etc. This all came out of our joint checking account, reducing the stress of bill paying.

What was your biggest challenge or roadblock when it came simplifying?

The biggest challenge was agreeing on a system we were both comfortable and then simply trusting each other. We were both savvy financially and watched every penny of our accounts when we were single. Then, even though we had one account, it was hard to not know what the other person was doing.

The key is trust. We were one unit, and each of us shared the same goal. So after some time of just making it work, it is now second nature.

What app or tool helped you the most when it came to simplifying?

I’m a huge fan of Quicken. It’s great for putting every account in one place (which was essential for organization), and it has great tools for tracking expenses.

How has simplifying changed your life?

It has made organization and bill paying a cinch. We now spend about 20 minutes per week on our finances, and there are never any arguments about money.

What advice or tips would you give to others who want to simplify their finances?

It starts with organization. If you haven’t looked at a money organizing app, like Quicken, Mint, or Personal Capital, I highly recommend that you start there. Once everything is laid out, it becomes easier to identify areas to simplify.

Do you have an emergency fund established, if so how did you determine the amount needed to fund it?

Yes, we have an emergency fund. We wanted to have 8-12 months of expenses in our account to feel safe. It’s probably more than we need, but it gives us a personal sense of security.

What book, blog, or podcast would you suggest to someone who is looking to simplify or improve their finances?

Mine, of course.  Check out his Ultimate Guide to Student Loans: The Definitive Guide to Student Loan Debt.

How long did it take you to simplify?

I would estimate that from start to finish it took about 9 months to a year. The actual organization and setting up the automatic payments was only 1-2 months, but the building trust part took time.

What are your current financial goals?

Maximize retirement savings every year.

 

Robert I appreciate you taking your time to sharing how you have simplified your finances and offering some tips on how others can simplify as well. If you would like to read more about how to eliminate debt or invest check out The College Investor or follow on Twitter @CollegeInvestin.

To read previous interviews in the series click Simple Inspiration Interviews.

If you are interested in sharing how you have simplified your financial life, send me an email and I will follow up with you.

Enjoy the rest of your week. Til next time, take one step at a time to simplify.

 

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Consolidate

In my first edition of One Simple Step to Simplify Your Finances mini-series I discussed how automating can help you simplify.

Hope you have taken action and have begun to automate your savings.

Now it’s time for the next simple tip to help you get your finances under control.

How many investments accounts do you have?

How many bank accounts do you have?

Having your money spread around across multiple accounts can be challenging to keep track as well as time consuming. Having multiple accounts means your money is spread out which can result in you losing track of your money. This can lead to financial mismanage and result in you not saving enough, causing overdraft fees, unnecessary account fees as well as possibly leading you to spend more. If you find yourself in this situation it’s time to simplify your financial accounts.

You can simplify the manage of your accounts by simply…

Consolidating

 

Why consolidate? I am managing my money just fine even with multiple accounts and providers.  You may be just fine but if you want to simplify things consolidating has its benefits.

Here are several benefits to consolidating your financial accounts:

 Consolidated Statements

When you keep your bank account or investment account with one financial institution its easier to see all of your money when in one statement versus having multiple statements to keep track of each month.  Even if you have more than one account with the bank or investment firm of your choice you can request a consolidated statement to see everything on one statement.

Less Paper

When you have multiple providers you may be inundated with statements as well as tax documentation during tax time. Consolidating reduces the number of statements and tax forms you will receive each year which makes it easier to manage.  You will spend less time tracking down year end tax forms or even remember which tax documents you should have received.  Less statement means less mail you have to sort out.

Less Time

When you have less accounts to keep track of it is easier to monitor your accounts.  It makes it less stressful as well as you spend less time keeping track of every account.

Less Passwords

Having a single bank relationship means less sites and passwords you have to keep track of. We can all use less passwords to remember.

Less Fees

Having a significant relationship with one bank or financial firm can help lower fees, receive better rates and open the door to better services.  With financial firms you maybe able to lower your commissions as well as receive personalized investment advice or service.  By consolidating your banking accounts with one bank you maybe able to obtain favorable relationship benefits such as waiving month deposit account fees and receive favorable terms and interest rates for loans.

Easier to Track

It is easier to track and manage your investments when they are in one location, as opposed to several. This makes it easier to track investment performance and determine your overall asset allocation.  When your money is scattered among numerous various account with a number of firms, it can be challenging to know exactly what assets you hold.  It also makes it more difficult to determine your asset allocation and if you need to re-balance your funds.

Helps Others Help You

There maybe a time when someone else has to help you with your finances.  It maybe a friend or family member.  It will be easier for them to help manage your finances if your accounts are consolidated and all funds can easily accessibled with one or two providers.

As you can see managing your money is much easier once you consolidate your financial accounts.

Review your existing bank and investment accounts.  How many deposit accounts, investment accounts and retirement accounts do you actually have?

But before you begin to consolidate determine what the purpose of each account is for.  When you consolidate review the benefits you receive from each institution and reason for each account to determine where you should consolidate the accounts to.  You don’t want to consolidate and later decide you should have use a different bank or financial providers.

Think through the process before you execute on it. Start with reviewing your bank account which are usually easier to move then an investment account.

Are you ready to begin simplifying now?  If so, sign up for my newsletter and you will receive a weekly email to help you simplify as well as receive a free ebook which provides you 9 simple steps so you can simplify your finances with in 30 days. Sign up now by entering your name and email address below.

Til next week take one step at a time.

Next week I will provide another simple tip for you to implement.  So stay tune and sign up for newsletter so you don’t miss any of these tips.

 

 

 

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