Emergency Fund Complete!

Today, I can finally say that I have an emergency fund! It is ready to tackle the unexpected events Life decides to throw at me. This is a big milestone for me because I have never had $1000 in savings before. I can not begin to describe the feeling of relief from stress that this brings. After reading “The Total Money Makeover” by David Ramsey on my way back from holiday vacation, I set out to take control of my finances. The first step in the book is to get an emergency fund of $1000 established. This seemed like an ass-backwards way of dealing with your debt but I read some more blogs, articles, and books that all hinted at the same thing. An emergency fund allows you to stop using a credit card and to start using cash instead. Granted my emergency fund came from the security deposit refund on my old place, but hey I’ll take what I can get.

My goal is to have two emergency funds. One will be for true emergencies such as “I need to fly home to Philly tonight because a family member was in a car accident” or “I got into a fender bender and my deductible is $500”. This emergency fund, lets call it Major, will have a balance of $1000 and will be in an online savings account by the end of the month.  The second one is for mild emergencies like “I forgot to pick up a birthday gift for my niece whose birthday is this weekend” or “Its my turn to provide for the soccer team half time snacks at today’s game”. This emergency fund, called Minor, will have a balance of $500 and just be in a regular savings account at my bank.

It is difficult to define what a true emergency is and everyone has their own definitions. So thats why I have two funds.  I don’t like making decisions, and by forcing myself to act a certain way my decision is made for me. 

The best part about having the Major and Minor, I know that if some emergency comes up, whether big or small, I’m covered.  

Always Ask for a Discount

Asking for a Discount

This past weekend I took my girlfriend out bowling. (A side note, bowling is a fun time for everyone even if you suck at like I do) It was a local bowling place and was pretty full with families and high schoolers when we got there.  The total cost was $30.00,  which was split amongst $5 for shoe rental and $5 a game per person. As I was paying, I joking asked the counter lady, “So I get my 10% discount for being awesome, right?” The counter lady smiled and said “Since you were nice and agreed to play next to those teenagers, I’ll give you a free shoe rental. How’s that?” I was like woohoo because asking for a discount actually worked! Most people I encounter that I ask for a discount from just give me a half-hearted smile. 

The great thing is that I got more than a 10% discount! If she had gone with a simple 10% off, I would have paid $27. But since she threw in a $5 shoe rental I only paid $25 which means I got a 16% discount! Here's another example of someone asking for a discount and getting more than they hoped. (Click here for article)

The point is to always ask for a discount, even if it’s a light hearted manner and you know you aren’t going to get one. Every chance I can I ask for a discount, and sometimes I know full well that they aren’t going to give me one. I like forcing people to say “No” because by doing that they are out of their passive-aggressive comfort zone, and the situation favors me now. I digress from the topic, back to getting a discount...

Where I live 10% off is like getting something for tax free (stupid California sales tax of 9.75%!) and is definitely worth asking for. Also, a lot of employees do have the power to add on a 10% off coupon that might be at the register or toss in some item for free, such as shoe rentals. The important thing to remember when asking for a discount is to always be nice and friendly when asking, especially to retail employees as they get towards the end of the day. From my experience working in retail, I was more likely to give discounts near the end of the day or my shift. If the store is super crowded, like at holiday times, a good way to ask for the discount is this:

“Since I had to wait for 20 minutes to get help, do I get a 10% discount for being a customer thats still     happy about shopping here?” or “You have the power to give a 10% discount for being a repeat customer, right?” 

An employee would have to be seriously cold hearted not to do something because not only have you pointed out that the store is lacking in customer service but also that you didn’t complain about it. On the second approach, you question their ability but also give them a solution to prove to you that they are all-powerful and can prove it. 

 If you don’t get a discount don’t complain about it. Always say thank you and go about your business. It’s a numbers game, meaning the more times you ask the more chances you have to get a discount. But if you don’t ask, you definitely won’t get the discount. 

Making a Successful Budget

When budget making, you should start simple.   A budget is not some complex scientific enterprise. A budget is a tool that will help you save money and help you focus your money towards your goals. I tried to have an all encompassing budget that alloted for every penny that I earned. The problem that arose for me was that if an unexpected expense occurred, it threw my whole budget out of whack. I was also spending large amounts of time thinking about how to best organize my budget, make it easy to read, and other little nitpicking things that really didn’t pertain to the budget itself. After some serious reading and experimenting, I came up with a 3 step process to create a successful budget for getting out of debt. The only rule is that you must spend less than you earn.

The first part is to set rough guidelines as to how much you want to spend in a certain area. My first month I planned on spending $300 for food including work lunches. I thought I could spend this amount and not go hungry but still not eat filets everyday.  During this first step, you need to track your expenditures for a month. I recommend a small notebook, sometimes called a cash notebook, that you can carry in your pocket or bag. At the end of everyday I empty out my pockets and tally up my receipts in the notebook.  

“Once you’ve set some realistic targets, spend the month sticking within those targets. Keep a categorized list of your spending and regularly update your budget with your totals in each category along with any pay you receive. Your first month is likely to have problems as you realize that it’s hard to get off the routine of spending. That’s OK, just keep making an effort and you’ll eventually get there.”  

                                             ~ The Simple Dollar blog by Trent Hamm

At the end of the month, total up your expenses for each category that you have created.  Compare these numbers to the rough budget you created at the beginning of the month.  Did you spend more food than you expected? Less on gas? Was there a one-time large expenditure that might have doubled spending in a category? What ever your answers are, make the adjustments now. Again the only rule is that you must spend less than you earn. 

The second step in the budget making process is to fine-tune your budget and prioritize all of your expenses. During the next month, you should update your budget at least once a week. Your goal is to create a budget that you can live with and try to trim all of your unwanted expenses. This is the step where you can really see the areas that you can save money and start climbing out of debt. After my first month, I realized I was spending closer to $450 on food and most of that was from buying lunches at work and dining out. I like to go out to lunch at least once a week at work so I plan for that in my monthly budget and reduced my dinners out to once a weekend. I was able to reasonably budget $350 for food. I just cut $100 from my budget that can go towards debt repayment. 

During this step you really need to ask yourself: Do I need this or can I get by on something less? I noticed that I had a cell phone bill of $150 bucks and was only using half the minutes due to free mobile-to-mobile minutes. I reduced my plan, saved $50 a month, and use my land line for calls when I am in my apartment. Could you bundle your insurance together? Most places allow you to do that and get a discount. Can you not go out two weekends a month or do a free activity offered in your community? Once you have figured  out your priorities and adjusted your categories accordingly, congratulations you have created a budget (Budget 1). Now, you are ready for step three. 

Step three is the harder step for most because you’ve been living for two months now on a good budget. You have kept within your limits and spent only what you earn. You feel good. Congratulate yourself on accomplishing a big feat: you made a budget...for someone who has no debt, not for you. You, my friend, have debt to pay. Here’s what to do.

Take a piece of paper and make three columns. In the first column write down all of your categories from your budget and in the second column write the amount you have allotted for each category. In the third column, reduce all of your amounts by 10% (Budget 2). Do not include the categories that are fixed, such as rent, car payment, and insurance. Now the third column just became your new budget amounts. This is how I found money to start paying off my debt. You are spending less than what you earn, and that excess goes towards your debt pay off. It does not matter if you squeeze out $5 or $200, the point is to reduce your spending so you can get out of debt faster. 

                          Budget 1   Budget 2

Rent                 $1,000.00 $1,000.00

Car Payment    $250.00    $250.00

Insurance    $120.00    $120.00

Utilities              $90.00      $90.00

Food            $350.00    $315.00

Entertainment    $100.00      $90.00

Gifts                      $50.00      $45.00

Clothes            $100.00      $90.00

Household      $75.00      $67.50

TOTAL         $2,135.00 $2,067.50

At the end of every month, review your budget and if you need to adjust your categories do so. Using this method I saved over $100 a month from my budget and was able to apply that to my debt. The crazy thing is that I thought I was going to be living so frugally, but in reality I never missed that 10% I cut out.  

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MSN Money Article on Budgeting

A good article on how to start a budget for recent graduates and those just starting to live on their own. The article uses a 60% Budget method for budget, which means that all of your monthly expenses make up 60% of your pre-tax income.  The remaining funds are portioned off into 10% increments for retirement, debt pay off, and savings. 

Dealing With the Stress of Debt

For the past year or so, I have been on an emotional roller coaster when it came to dealing with my huge debt. I would stress myself out just by thinking about how much debt I still owed and that it would take forever to pay it off. Every time I made a payment to a credit card, I would be elated and then I would see how little of a difference that payment made. It was ups and downs for the better part of year and then the stress started to affect my health. I would not sleep through the night or my mind would wander at work which increased my stress level. Eventually I went to my doctor to see if he could help, and he had a great idea. 

My doctor suggested I go see a therapist. Now, where I grew up a therapist was for someone who had mental issues and multiple personalities. I was very hesitant about going but go I went. The first few months didn’t help much but that was mainly because I was so reluctant to expose my failings to another. I was not worried about the cost because in my opinion, when it comes to health there is no price tag too high...you only get on life. Slowly but surely I started to open up and explain my situation to my therapist. It was a hard road to walk down. I had to own up to my credit card purchases, the poor financial decisions I made in the past decade, and face the facts that I was the only person responsible for it. 

Now, because of my therapist, I am less stressed about money and finances in general. I know its not going to happen overnight but eventually I will be debt free. I have a plan and knowing that has allowed me to sleep at night. A therapist might not be for you but talking about your financial situation will help in the long run. It gives you a starting point because you can’t hide from your debt even if you hide it from everyone else. The debt will still be there but now it doesn’t control you, you control it. 

The Bottom

This year I have decided that I will no longer be a debtor. I realized that I was living beyond my means and had a large amount of credit card debt to show for it. It was a huge shocker to me when I realized that my parents had not really taught me anything about how to save or create a budget. Don't get me wrong, my parents taught me how to make money and work hard to do it. They just never showed me how to keep it. I was determined though to change and the start of a new decade was the perfect place to do it.

On my flight back to San Francisco, I wrote some goals I wanted to accomplish for the year and read a very good book. "The Total Money Makeover" by David Ramsey has really changed the way I view how to handle my finances. I have read several books on personal finance and each book has contributed to my understanding of the subject but TTMO really brought all the concepts together in a very simple format. So when I got home (to an empty apartment...totally another story for another post), I wrote out my debts. I started with the smallest balance and worked my way to the biggest. It was an eye opening gut wrenching life pivotal moment to see all of my debts lined up and the large total underneath. I have five credit cards, two student loans, and a car loan as follows:

American Express - $1,291

Barclays iTunes Visa - $2,743

Chase Southwest Visa - $5,520

Bank of America Visa Signature - $8,019

CapitalOne No Hassle Visa - $10,697

ACS Student Loan - $11,471

Ford Motor Credit - $31,293

Great Lakes Student Loan - $35,565

TOTAL: $106,558

This is equivalent to one year's salary for me. Yes I make $100,000 per year and I have nothing to show for it. That was the hardest part about this whole experience. I realized that I had enough debt to equal an ENTIRE YEAR of income. I didn't like that so I had to change.

I started small and gave myself some goals to accomplish for the month of February. You are probably saying well what happened to starting in January? I was going through a lot of crap personally and just couldn't do it. So February is my New Year, fiscally that is. I sat down at my desk and started a budget. I put in my rent, bills, debt payments, food, entertainment, etc. and came up with a pretty decent budget. Now mind you, I had created pseudo budgets in the past that I thought I was keeping when in reality I was just ignoring. I wrote it down and look it at almost everyday. I bought a small notebook and began tracking my spending. Every time I spend money, I write it down. I am not trying to reduce my spending...well, I am...just not at this moment. I am seeing where all my money goes during the month. At the end of the month, I am going to add up my expenditures and compare them to the budget to see where I was over and where I was under.

SO now I am at the bottom and started my climb out from underneath my debt. It will be a slow climb at first but as time goes on, I am sure I will gain speed and strength. Along the way I hope to share with readers some info and insight into how to achieve financial freedom.