Emergency Fund

A hat tip over Trent over at The Simple Dollar for including a couple of posts in his morning roundup that discuss emergency funds. This is something that I'm working on, and something that everybody should work on.

Here are links to posts in Trent's roundup that I thought were especially good:

• 21 Strategies for Creating an Emergency Fund and Why It's Critical
• Barriers, Again or: The Emergency Fund, Vindicated
  

It's hard to argue that an emergency fund is a good thing. If you ask most people, they'll all agree that having that emergency fund is important. However, if you ask those same people whether or not they have an emergency fund, I suspect a significant number of them will mumble, shuffle their feet and look away.

How much money is in your emergency fund?

Now I'm finding that there's not a lot of consensus out there in the world of financial advice that says exactly how much you should have. Some will say that having up to a year's salary socked away is a good plan. Others will say that just enough to cover a small "emergency" is enough. Others think three to six months of living expenses are enough.

In my "perfect" world, being that I'm self-employed, I think having roughly a year's living expenses would be just about right, but that adds up to a lot of money. I live in an expensive part of the country, and my three biggest bills (mortgage, health insurance and car payment) add up to about $2,700 a month.

That's a lot of dough. If I start to think about how much I'd need to sustain myself for a year, it starts to get pretty overwhelming. Instead, I'd like to set the number at something a little more reasonable, say $5,000.

If I had $5,000 in the bank, I wouldn't have to worry if a client pays late, or if my bank puts a 14-day hold on one of my deposits.

So for now, that's my short-term goal.

At the moment, my partner and I have just about $2,000 in our joint savings account, so we are about 40% of the way there. If we count my savings, we are already there, but I want to keep my money out of the mix, since I'm tired of it always falling to me to bail out the collective.

So how do we get some savings in the bank this month?

Our biggest struggle, I think, has been the use of credit cards to buy gas, groceries and other stuff. Every month, my mouth falls open a little wider, and I scream a little louder when I see our credit card statements. For this month, we are trying something new -- we are only using cash, our checkbook or an ATM/debit card to buy gas, groceries and the other miscellany of life. Hopefully, this constraint will keep us a little more mindful about what we are spending, and we won't get an ugly surprise bill at the end of the month.

This will mean two things: 1) we won't be adding to our credit card bills, and 2) we won't owe any more money at the beginning of next month.

We'll see how it goes. I will, of course, keep everyone posted.

Banking Changes and Planning

Last month, my partner and I decided to switch banks. We'd been with the same locally-owned bank for about six years, but decided to bail when a huge multi-national bought them out. Even though most of the same tellers and managers were scheduled to remain, we decided to move because we didn't want the profits from our money to be funneled away from our city, county and state and placed in the pockets of another country.

So we moved to a locally-owned credit union.

The move has been a pretty strange experience. We've received great service from the member service representatives who opened our business and personal accounts, and they've done a nice job of making sure that our accounts were opened correctly. A couple of the member service representatives already know us on a first-name basis, so if we need something, we can call them and they'll take care of things for us.

Sadly, the tellers don't know us yet. The other day, after I'd closed out my last account at my old bank, I came in to deposit about $500. I was a little nonplussed when they asked me for ID when I was making a cash deposit.

Say what?

"We need your ID to make sure the money gets into the right account," the teller told me.

I sighed and handed her my ID. I had a pre-printed deposit slip, shouldn't that be enough proof of the right account number?

Whatever.

So now that I've got my accounts all set up and ready-to-go, and I've enabled online banking and synchronization with Quicken, I can sit in front of my computer, click buttons, and obsess over my checking account balances.

Great.

Now obsessing over my checking account is fun and all, and it makes me feel in control as I watch my individual checks clear, but it's also a little depressing. As the month wears on, my checking account balance dips lower and lower, and I feel less and less encouraged about my financial progress.

So rather than just stare at my bank account balances, I'm trying to put together a targeted plan. With that in mind, I have three goals in mind:

1. Create An Emergency Savings Account - Although many financial advisers will tell you to pay off your debt first because of the accruing finance charges, it seems to me to be the most prudent step to get at least a small emergency fund together before I start hacking away at the debt. Paying off debt won't do me any good if my client pays late, and then I'm stuck trying to pay all my bills with credit cards and cash advances.
   
   
2. Increase My Income - Although I do have a financially sound business, my partner and I are both starting to tire of the work we do. Eventually, we would like to move on to other things, so we are trying to make that transition slowly. We are hoping that by doing things to bring in "extra" money, we'll improve our financial situation and easy that transition to new careers.
   
   
3. Pay Off My Debt - This, of course, will be both the simplest and most difficult step. It's simple in that it's clear what needs to be done, but difficult in that it is going to require a significant amount of self-discipline to get it done.
   

Of course these three goals are just for starters. I'm going to need to also work on things like spending less, saving more for retirement, and making better investment choices. But for now, these are the big three.

Opposites Attract

One of the reasons that I think I've lost ground on the debt side of our financial equation is the fact that my partner and I see money very differently. I see it as something to be saved for a rainy day (especially after having to file bankruptcy ten years ago) and she sees it as a tool to obtain things that she wants.

I abhor debt. She doesn't care.

I like big balances in my savings account. She views money in a bank account as permission to buy large-ticket items.

We fight about money, a lot, and our differences are reflected in the balances of our various savings accounts. My account, as of this morning, has a balance of $3,655.56. Her account contains only $5.00. Our joint savings account has a balance of $2,192.17.

It bugs me that out of all our accounts, my savings account is the one with the most money in it.

Even though I was the one that had to file for bankruptcy ten years ago, I think I've been the one to do a better job of managing my money overall. Between my 401(k), rollover account and SEP IRA, I have over $100,000.00 in assets. My partner has just under $10,000.00.

I realize, though, that my $100,000.00 isn't going to be nearly enough to cover my retirement. It's a start, but I'm almost 42 years old, and I don't think it will be enough by the time I'm 65 unless I get busy and put a lot more money away. As for my partner, she's of the mind that she's going to work until she's dead.

I don't see this as a good strategy.

I've been trying to get our collective overspending under control for quite some time, and it doesn't seem to be working. Every time we gain a little ground, we slip further back. When we have a hard slip, it always seems like it is up to me (by borrowing from my retirement account, or dipping into our savings) to make up for the shortfall.

It's scary and I feel vulnerable, and I'm trying as hard as I can to get my partner to adopt more thrifty habits. At the same time, I'm doing more and more to partially separate our finances (it's hard to create a complete break, since we own a house, two cars and business together) so that perhaps my partner's spending habits will at least cause me less stress.

But I'm scared, because I owe more money now than I did when I first declared bankruptcy. The only difference is that the bulk of my debt is in real estate that I could sell for more than what is owed if necessary.

Two Years Ago, or the Road to Hell is Paved with Good Intentions

Two years ago I started this blog in the hopes that I would have something meaningful to say to people who were post-bankruptcy. I was planning to write on post-bankruptcy survival, and how hard it is to get past the experience. I started out well, wrote a number of what I consider to be decent posts, and then I stopped writing.

I'm not sure why I stopped. I guess I ran out of things to say, and then basically forgot about the blog. It wasn't until this evening, when I was surfing around the Blogosphere that I realized I'd abandoned this blog two years ago.

I wasn't even sure if I remembered the passwords. Surprisingly, I did, and Blogger very nicely converted the blog to the the new version of Blogger, and here I am.

So two years later, I owe more money, but my credit scores are much higher, and my cash flow is dramatically better. My standard of living is better, and I have more money in my retirement accounts.

Debt	2005 Balance	2007 Balance
Credit Cards	1,141	3,545
401(k) Loans	17,706	0
Mortgage	180,350	216,789
Auto Loan	0	13,567
Total	$199,197	233,901

But I won't lie, it's disturbing to see how much our overall debt has grown in the past two years. We now owe $34,704 more than we owed two years ago, including our mortgage debt.

Of course our house is worth more than what we owe on it, so things aren't completely dreadful. But I have to admit, that I've had plenty of squabbles with my spouse about spending and the fact that we are deeper in debt than ever.

But this news really, really, really bothers me. It bothers me that we are worse off than we used to be, and it bothers me that I've managed to let this problem slide for two years. In early 2006, we refinanced our house, to pay off the loans against my retirement accounts and to pay self-employment taxes due to the IRS, and it seems like we've made little forward progress.

Of course we do have a few things to show for it. My retirement account is worth nearly $100,000, and we are no longer driving a car that wheezes and leaks oil and coolant wherever it goes.

So it's not all bad.

But I realize, we are working a trend that is not in our favor.

Even though the big contract that I mentioned is still going two years later, and we expect it to continue for at least another two to three years, I have that nagging feeling in the pit of my stomach that we aren't doing the right thing.

Debt, with perhaps the exception of mortgage debt, is pretty much universally bad. We need to start turning this ship around.