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Why You Need an Emergency Fund and How to Get It

Emergencies are a fact of life. When you’re faced with an expected event—from a broken bone to a job layoff—you can be ready. An emergency fund is a stash of money set aside to cover financial surprises life throws your way—events that can be stressful and costly.

Last year, Mitch and Jenn had a string of bad luck. Mitch broke his leg in a skiing accident, Jenn’s car broke down requiring major repairs and their home’s aged roof decided to fail right in the middle of a major storm.

 

The timing for all of this wasn’t ideal—four weeks before Christmas. The financial and emotional toll of these events continues to be huge, but nothing like it might have been if they hadn’t been diligently building their Contingency Fund, more commonly known as an emergency fund.

An emergency fund creates a safety net for a home and family. This way you are less prone to experience a disaster when an emergency comes your way.

Mitch’s health insurance is covering most of the costs of his surgery and follow-up therapy. Still they’ve had to come up with more than $2,400 to cover his deductible, co-pays, and prescriptions. The car repairs were just shy of $2,700—not surprising given the car’s age and 140,000 miles.

It was the roof that really threw them for a loop. The estimate to repair it—with no assurance that said repairs would last for longer than a few months—was $750, with a new roof coming in at an estimated $12,000.

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How to Splurge on a Budget

I got the biggest shock of my life the day I realized that living on a budget wasn’t the straitjacket or rigid “diet” I assumed it would be. It was my life as a credit-card junkie that put me in financial bondage.

 

Woman happy with a piggy bank

 

Living on a budget saved my life because it allowed me to get out of debt. It gave me my freedom. Want to know my secret for staying on a budget for so many years? I splurge. Seriously. And I do not feel guilty. I love nice things and I love to travel.

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How to Live on a Budget and Love It

For many years I wouldn’t have anything to do with a budget because I couldn’t stand the idea of anyone—or anything—telling me how to spend my money. And where did that get me? Into one big financial mess.

 

Looking over the shoulders of a happy couple creating a budget they can live on and love

 

Every month, when I ran out of money, I would turn to MasterCard and Visa for a bailout. To me, any available credit was the same as income. It was my money to do with as I found necessary. Really bad idea.

What I learned from going through that experience and finding my way back to solvency is that, as much as we may loathe it, a budget is the ticket to financial happiness―not the straitjacket I feared it would be. I’ve come to prefer calling this a “spending plan” rather than a  budget, but honestly, the terms are interchangeable. It’s just a way to pre-spend your income on paper first.

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How to Save $1,000 Cash Painlessly

The most important thing you can do to make your personal economy strong is to have an umbrella—an emergency fund with enough money in it to pay all of your bills for six months. And it needs to be safe and secure in a bank account. You read that right—half a year’s income! Wait. You can’t even imagine being able to save that much? No worries. The secret to getting there is to start small. Let’s say you make $1,000 your emergency fund goal.

U.S. $100 bills folded and secured with a paper clip

Save 10%

Weekly, or as you get paid, save 10% of your paycheck. Too much? OK, start with 5% or even 1% and build up from there. Just start!

Make it automatic

This is going to be hard, but I know you can do it: Make feeding your emergency fund—whatever the amount—the very first bill you pay, before anything else.

Once you have accumulated $50, go to your bank or credit union and open a savings account. Or open a free savings account at an online bank like Ally.com or Marcus.com (Goldman Sachs).

While you are opening that account, set up an automatic deposit authorization. This will give your bank authorization to automatically transfer the amount you designate from your checking account straight to your emergency fund. Here’s a secret: You won’t miss what you don’t see in the first place. Okay, you’ll miss it for the first few paychecks, but soon you really will not miss it.

Get rid of non-essentials

Give up the little things such as cable TV, eating out, and gym membership and that landline phone you have, but never use. That’s a start, you’ll know instinctively how to add to this list.

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Let’s Clear Up the Mystery of Ceiling Fan Direction

As a toddler, I must have driven my parents crazy. And I am still doing it, but now to my husband. I can’t help it. I want to know the “Why?!” about everything. Take ceiling fan direction for example. Most ceiling fans have a switch with two options. “Forward” spins one way, “Reverse” the other. But why? What for? Who made that rule?
Ceiling fan is rotating at the ceiling of the room.

Years ago a reader sent in her handy tip, passed along from her husband, a heating and air conditioning specialist: In the winter, make your ceiling fans spin counterclockwise. Or was that clockwise? To be honest, it totally slipped my mind as soon as I shared it.

Shrugging young woman confused over fan direction

But I do remember the barrage of responses I received. Some thanked me for printing the correct answer to the burning question, while others told me I was wrong and it should spin in the opposite direction. But why?!

Today, I have the answers.

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5 Reasons You’ll Quickly Regret Raiding a Retirement Account

I know it’s hard. I know you’re desperate. You’re stressed and losing sleep. Things are tough. You have to do something, and soon. But whatever you do, don’t touch your retirement account. Don’t borrow against it. Don’t withdraw from it. Just leave it alone.

What’s so bad about liquidating a retirement account? Here are five reasons you’ll quickly regret doing that:

 

Happy piggy bank all locked up to keep retirement account safe

1. Momentum

Your retirement account, even during times when it appears to be losing value, is money you are going to need after you reach retirement age. And I can guarantee you are going to need it much more then than you do now. If you bleed it dry now, you stop the momentum—the pace at which it is growing. Think of your retirement account as completely out of your reach for now.

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Less Randomly, But Not Quite

light blue random numbers background texture

1. If last week’s Saturday blog stats hold any meaning at all, it appears my readers enjoy a numbered, quick hit list of, well … random things.

 

2. I love to knit. It’s not the least expensive hobby in the world, but I do enjoy a good Yarn Sale. This woman, on the other hand, knits for free—dubious as her sense of style may be.

 

3. People who consistently save 20% of their income can do that because they scrimp on this one thing you probably don’t.

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No More Car Payments: How to Buy the Car of Your Dreams with All Cash

Let’s say that tomorrow morning you wake up to discover that overnight—gulp!—your car was destroyed beyond repair. You’re not covered and you’re devastated.

You can’t live without a car. But you have no money—not a nickel in savings. So what do you do? If you’re like most people in that situation, you head to the only dealer in town who’s offering $0 down financing and a monthly payment that somehow you’ll figure out how to afford.

Salesman handing over the keys to the car of your dreams

Realistically, what payment can you afford if you pull the plug on cable TV, stop eating out, and basically cut out all frivolous spending? $200? $300 $600? 

Okay, back to reality. Your car isn’t destroyed, and you’ll keep driving it for a while. But remember the amount you said you believe you could afford each month if you really put your mind to it? Let’s say it’s $300. Keep reading. 

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The Bank of You

Open a savings account somewhere convenient and begin immediately to make $300 monthly payments into that savings account. Just as if you were in that terrible scenario mentioned above. Every month. Make the sacrifices now, cut the spending now. Be strict with yourself—rigid and unbending! No late payments, no slacking. 

In the meantime, and as you are making these big new payments to yourself, continue driving the car you have now for at least one more year, even if it is a real clunker. You can endure anything for a short time when you have a plan for it to end.

Soon, you will begin earning interest —Ally.com currently 2.20% APY—on the growing balance instead of paying interest on a conventional auto loan. 

At the end of one year—12 payments to yourself—you will have accumulated $3,600 cash plus interest. Not bad! 

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