Be free to live the life you choose.
An easy way to save on fruits and vegetables is to buy what’s in season. We find ours at a local fruit shed for rock bottom prices.
Here’s a picture of a box of 50 peaches for $10. At the grocery store we pay $5.99 for 5 peaches! Buy in season locally!!
For extra savings, buy in large quantities and split the price with another family. Or if you like, chop and freeze them for smoothies throughout the year.
You might like to know that you’re not alone in this question. According to Google over 27,000 people are searching for “what is an emergency fund” each month. I personally know some that should be searching. Sadly, many 40, 50 even 60 year olds have no savings set aside.
Simply put, an emergency fund is a pile of money set aside to sustain you through unexpected circumstances.
The history of my own emergency fund
Here’s how I came to believe in the importance of having an emergency fund. Years ago I found myself in my boss’s office being yelled at. Literally yelled at. I don’t even remember now what the reason was. What I do remember is that I went back to my office and contemplated quitting on the spot. At that time–with a family and mortgage and no savings built up–I felt trapped. I didn’t feel that I could quit and be okay for a few months while I looked for another job. I told my boss the next day that I would have quit if I had the money and if he ever yelled at me again, I’d be in a position to leave. Then I started saving. That feeling stayed with me. I never wanted to feel trapped again.
I didn’t instantly have a stack of cash, but now I had motivation and slowly built up a protection against feeling trapped. For the past few years, I’ve kept at least a year’s worth of savings close by in case my job and I get separated.
What an Emergency Fund is NOT:
New car fund. Having wheels is not unexpected and you should be saving up for your next car in a separate account.
Trip to Vegas fund. Start a separate savings fund for vacation and fun money.
What an Emergency Fund IS:
An emergency fund is a cushion of cash to protect against:
How much should be in an Emergency Fund?
That depends on your personality and circumstances. How stressed will you be if your refrigerator stops working tomorrow? How will you respond if you lose your job? How quickly will you be able to replace your income?
I can only answer for me and tell you that I sleep better at night knowing I have a large cushion that will catch my fall from different angles. I also speak up when I need to at my job knowing that if I lose my job my family and our lifestyle will not suffer at all. That reduces stress knowing that I have over a year to replace the family income.
I would encourage EVERYONE to make this a high priority in your financial planning. It’s been a huge step in my financial freedom lifestyle.
Any questions about Emergency Funds?
Recently, I’ve heard several college grads say “I’ll never be able to buy a house.” I know the feeling. College debt, car payments, rent, insurance, groceries all suck up the little bit of paycheck you have left after the tax man takes his chunk. It feels like it will never get better.
I’m here to tell you that it will get better.
I’m also here to caution you about the house bit.
Don’t get in a hurry to live the “American dream.”
The thing about buying a house–with or without the white picket fence–is that the down payment and mortgage might just be the cheapest part of the whole experience.
The time, energy and money that go into owning your home can cramp your lifestyle and put strain on your marriage.
I’m not trying to be a downer. It’s just that I remember when Becky and I bought our first house. All those monthly payments left us with not even enough money to paint over the nasty green paint that was throughout our house.
Allow me to run through some of the expenses and/or work of “owning” a home.
I don’t mean to scare you—just want you to have a realistic view of what it means to own a home. You may not have time and money to enjoy your house as much as you thought.
What I’m trying to say is: Don’t be in a hurry to settle in and live a traditional life. Experience the world. Travel. Savor the flexibility that comes with apartment living.
The real American dream is about freedom. Enjoy as much of it as you can before you tie yourself down to a location and commit to buying a house.
Today I’m sharing an example of living frugally. My wife, Becky, is an amazing bargain shopper.
Which is not to say she doesn’t shop. We have everything we need and live very comfortably. It’s just that we rarely pay anywhere close to full-price for anything.
Here’s an example from this week…
Bec had a $35 coupon from Bon-Ton. Off she went to the mall to see what she could round up for cheap. She found a pair of athletic shoes she liked. They were on sale for 40% off. As you can see from the picture of the receipt, after the sale price and coupon were deducted, Becky brought home $62.99 shoes for $2.79.
Living a frugal lifestyle becomes a game when you start watching for opportunities like this.
Becky finds deals like this all the time. I’ll start sharing little stories like this each Friday to give you some ideas…Frugal Friday has a ring to it, right?
What bargain stories do you have? Or what frugal tips work for you? Leave a comment below.
The formula for getting out of debt is a slight variation on the formula that I shared yesterday. Check it out if you haven’t seen it…
Getting out of debt is also a simple formula. It can be fun if you decide to make paying your debts off as fast as possible a game.
If you want to pay off your debts faster, pick up a second source of income. A part-time job, freelance gig, etc.
One other area to save that can be a biggie is the interest on each loan. Often you can negotiate the interest rate lower if you call and ask for the supervisor.
Take as much money as you can live without each month and use it to put an extra amount on the highest interest loan you have. Let’s say you have the following loans:
In this example you would pay extra money on the $7,500 loan each month. If you can earn and save an extra $750 per month and apply to the $7,500 loan, you’ll have it paid off in less than 10 months.
Now take that $750 extra per month, plus $150 (the regular payment you were making on the $7,500 loan) and put that $900 against the $5,000 loan each month. You’ll be free of that loan within five months.
Now take the $900 plus the $100 and apply against the $2,000 loan. All paid off in another couple months.
This example will change according to how much money you can generate from earning and saving each month, but now you know the rules of the game.
There is one advanced strategy that I hesitate to talk about because it is misused so often. If you promise to use it responsibly, I’ll let you in on a tactic that I used to get out of my debts quicker.
If you have decent credit, you can often get teaser rates on new credit cards. Teaser rates range from 0% to 5%. Even 10% can be a good deal if you’re paying over 20% currently.
Sign up for the new card with the teaser rate, then transfer your existing high interest debt to these cards to take advantage of the teaser rates while you’re attacking the debt.
Now here’s why this is an advanced strategy that can bite you if you are not EXTREMELY careful:
Watch the transfer fees. Sometimes the new credit card company will charge a fee to transfer the balance. This fee can be more than you would pay in interest. Factor the fee into the monthly interest over the time you expect to pay it off. Is the rate still lower than you’re currently paying?
If you make a late payment, the credit card company will jack your rate up to an astronomical rate (20%+) instantly. Set up payment via electronic transfer from your bank and watch it closely each month.
Also teaser rates are only low for a limited time. After that time, the rate will JUMP. Be careful to pay off the card before the jump or transfer it to another card with teaser rate.
Human nature is often how you got into debt to begin with. It’s tempting to slip into bad habits when you use one card to pay off another. All of a sudden you have an empty credit card…so many things you could buy. =)
These are all strategies my wife and I used to get out of debt over the years. I seem to learn everything the hard way. I’ve tried out all sorts of debt…college debt, auto loans, consumer debt, credit card debt, business loans, family loans. I love the feeling of having none of that now. We are now down to a small mortgage and no other loans.
Do you have any debt stories? How about freedom stories of getting out from under the debt?
It is important to understand the basics of money if you wish to gain financial freedom.
Unfortunately, this isn’t taught in schools. Most parents don’t understand finance well enough to teach kids. And so the cycle of poor money habits continues.
The good news is that getting financial freedom truly is simple. I didn’t say easy.
We all know physical fitness has a couple basics…eat right and exercise. Simple, but not always easy.
The basic rules for money accumulation are as follows:
Told you they were simple steps. Follow these and you’ll find financial freedom.
Earn it.
Obviously we can’t have financial freedom without any finances. First step in getting some money is earning it. The more you earn, the faster you can reach financial freedom.
We live in a time when there are thousands of ways to earn money. Here are a few… a traditional job, freelance graphic design, your own photography business, selling stuff on ebay, mowing lawns or doing chores for your parents.
Save it.
It’s not enough to earn lots of money. Many people earn millions of dollars and still don’t have financial freedom. The problem is they spend more than they earn.
The second part of the formula is to save the money you earned. At least some of it. 10% is a number that is often used as a baseline that you should save out of your earnings. The more you save, the faster you can reach financial freedom.
I can hear you saying you can’t possibly save 10% of your paycheck. I hear you saying your bills are already more than you make. I didn’t say it’d be easy. I’m only telling you what the formula is.
You can try another formula…winning the lottery, finding a rich uncle or marrying into money. I wouldn’t count on those methods though.
The hard truth about the simple formula is that you only have a couple options…earn more and/or spend less. Earn more by finding additional clients, picking up a second job, getting into direct marketing, negotiating a raise at your job or any number of moonlighting options. AND/OR spend less by clipping coupons, canceling cable tv or eating out less so you can begin saving at least a couple percent each month.
This sounds more dramatic and difficult than it actually is. Try it for a couple months and see if you don’t feel more confident…on your way to financial freedom!
Grow it.
Okay, this is where it gets fun. Earning and saving can be tough work. As you learn to grow your money though you’ll be excited at how your money can multiply.
The way to grow your money is to invest it. Carefully!
Take your time and really learn the areas you choose to invest in. Each possibility has unique opportunities as well as potential pitfalls. Look at your personality and timeframe to see whether investing in stocks, bonds, real estate, a friend’s business or your own business make sense for safely growing your money.
Remember: Warren Buffett, one of the richest people in the world, has two rules regarding investing:
Seriously, you worked hard to earn that money. Treat it right. Don’t be careless in your investing choices. I have literally spent hundreds thousands of hard earned dollars to learn (and keep learning) that lesson. I’ll share some of those sad stories in future blogposts.
The cool thing about this little formula is that it consistently works for both personal finance and business.
Leave a comment below to let me know how you apply this simple formula to your personal finances or business.