Mastering the Spiritual Parts of Money
I am going to go out on a limb and say that we all, at some point, have struggled to openly talk about money. I’m talking about the nitty gritty details like how much debt you have, how much money you actually spend at restaurants or how on track you are with your retirement savings.
In order to make changes in our lives around money, we need to get in touch with both the physical aspects of money as well as the spiritual. I talk about the physical parts of money quite a bit, budgeting is a great example of this.
But what about our spiritual relationship with money, the thoughts and energy it provokes within us? There are entire books on this topic but I want to dive into three ways to better your spiritual relationship with money that will ultimately determine how much you physically have.
Be Aware of Your Limiting Beliefs
I have been reading You Are a Badass at Making Money by Jen Sincero and the first chapter hit me like a ton of bricks. I was the person that didn’t think I had limiting beliefs with money because I truly believed that I was good enough to be financially successful in the eyes of society. But when Jen said that one limiting belief is the fear that money you spend may never make its way back to you, my jaw dropped!
I had always thought this in the back of my mind that money spent is money out the door. I’ve always lived my life spending money that I “could afford” so it wasn’t a big deal that I was saying goodbye to it.
But the idea that positive alignment with money energy can lead to money coming back into our lives is the best news I have heard all week! As I learn more on this topic I suggest you do too. Here’s a resource as you dive in!
Don’t Compare Yourself to Others
For example, I paid off over $46k of student loans in 20 months. To some, that may seem like a ton of money, wow, how did she do that, that’s incredible! Others might think, wow must be nice to only have $46k of debt, I wish! Ok not only is that a limiting belief but you are also comparing yourself, stop it!
When we compare our personal situations to others we aren’t taking into account the thousands of factors that led us there in the first place!
Only you have the power to change your life and only you are living your reality. Don’t spend time wishing you had what others had. Don’t waste your money buying things that society tells you to own.
Take a moment to reflect on what is truly important to you and do the work to get those things. Whether it’s your dream to start a business, buy a larger home or invest in personal growth, set yourself up to accomplish those items with your new and improved outlook and mindset towards money. Here’s an article to help you map this work out.
Forgive Yourself for Past Mistakes
We have all done some pretty stupid stuff, right? To name a few, I financed a study abroad trip with a credit card that had interest well into the double digits. There was also that time I came out of a public school with nearly $60,000 in student loan debt while I worked the entire time (you try the math on that one).
The point is, they are done! There is no amount of complaining that I could do to change what had already happened. And trust me, I tried! I spent the first eight years out of college making my minimum payments and complaining about how expensive they were (another limiting belief right there).
As we dig into the work for a healthy relationship with money it’s key we accept our past mistakes, really feel the emotions that come to us and forgive ourselves as we commit to do better.
One of my favorite sayings is, when we know better we do better, and it’s the truth!
How will you change your inner dialogue around money? What can you do right now to better your situation? Because only you have the power to up your game a bit. Now you know!
How Your Spending Can Help Guide Future Habits With Money
We’ve all been there, too much month at the end of the money or you make too much money to be this broke!
It’s not a fun place to be and when you’re feeling that stressed with money, you can’t possibly see a way out.
What if I told you that if you looked at your current spending habits, you’d probably be able to tweak a few things to relieve your money stress? Of course there are always the situations when you simply don’t make enough money (you’ll have to increase your income or lower your monthly expenses) but I’m talking to those of you that have a decent income but it never seems to be enough.
This is where tracking our spending comes into play and it’s a total game changer! When we see where our money actually goes, versus where we think it goes, we are able to do a better job with our everyday spending. Do we want to continue spending the way we have been or do we want our money to be going towards something else like a vacation, season tickets at the local theater or a larger Christmas fund?
So how do you go about tracking your money so that you can make changes to actually be able to afford the things you love most in life? Here is a free 90-Day Expense Tracker that you can use to get started. Use bank statements, both checking and credit cards, Venmo history and whatever other accounts you spend money out of to fill in this spreadsheet to get your monthly averages. These averages will tell you how much money you spend in any category on average.
Since money isn’t an infinite resource, it helps to see how spending in one area will decrease the amount you have available to spend in another. This is when we can ask what’s more important, this new pair of jeans or another day at a resort?
When you compare those totals to your monthly income you can start to ask yourself, can I afford to keep spending this much money in certain categories or is this the reason that I run out of money each month?
Use your monthly averages to outline a budget and don’t forget to include your goals like that vacation you have been wanting to go on. If the totals in each category are more than you make in a month, you will have to reduce your spending in some areas.
By aligning our planned spending with our income, we can ensure we reach our goals and continue to do what matters most in life, without going into debt. But the trick is to get started. Start with the 90-Day Expense Tracker to see where your money is going and decide, is this the path I want to stay on or do I have other plans for myself?
What You're Missing Out on if You Have One Job
The days are long gone that you get everything you want in life from working at one company. Not only might your needs and wants change but benefits aren’t like what they used to be, oh man I sound old. Pensions are rare and the days of a household having one working parent and one stay at home parent without financial stress are gone.
There are so many benefits to making a little bit of extra money outside of your day job, let’s dive into just seven of the reasons and then we’ll explore how you can make more money!
Protection for you and your family
If 2020 taught us anything, it’s that our jobs are not guaranteed. Losing your job can be out of your control and it can also be out of your company’s control. It doesn’t matter how great an employee you are. So let's protect ourselves and our families. If your hours are reduced at work or you don’t get that annual bonus, don’t let your lifestyle or your goals suffer.
Limitless income
When you start working for yourself, your income is tied to you, not the limits to your job title at work. If you are selling custom earrings for example, you can make more money as you make more products, share them online or attend artisan fairs. When you take the reins and start acting, not reacting, your options are endless. I don’t say that to sound cliché, I say that because it’s true.
Making money while you sleep
Selling without having to physically be in a specific space is magical. This is how you see so many people making money while on vacation or waking up to “you have a new sale” email. When you can streamline your side hustle to be online and available to consumers 24/7, your income ceiling is limitless. Go create a website or post your products on social media and start selling while you sleep.
Exploring a hobby
Have you ever wanted to start something but was afraid for some reason? Turning a potential hobby into a side hustle is a great way to test the waters. I didn’t start flipping furniture because it was a dream I had. I started because I loved buying vintage pieces but quickly had too much furniture for our tiny house (I was also spending more money than I wanted to). So I started selling furniture that I didn’t mind parting with as I bought new pieces. I sold my coffee table when I found one I liked better and I did the same with my dining room table. I quickly learned that I could make money at the same time that I was updating my house. Start small and start with an area you are already interested in, you don’t have to go all in right away.
Reaching your goals faster
When you have a side hustle and you are intentional with that extra income, you are able to reach your goals rather quickly. It doesn’t matter if you are trying to pay off debt, build an emergency fund, go on that family vacation or stop the paycheck to paycheck cycle. This was a big motivator when I was paying off my student loans. Since I was working extra I was able to still go out to eat and go on vacation because my extra income was all going towards debt.
Flexibility to work when you want
A huge perk of being an entrepreneur is that you get to work when you want. You get to decide if you are maxed out at your day job and need a break or have some free-time and want to dive in. Don’t create unnecessary stress by over committing yourself. Complete tasks you need to get done for your side hustle when you are up for it, and stop when you are over it. If you find that you are never really in the mood, choose a new side hustle, that might not be the one for you.
Potential to go full time
When I started Money Gal Coaching, I wanted to show people how I got out of debt and how anyone could do it. I never imagined this would be a career change for me. But since I started with a passion that I did in my spare time, I was able to find something that I loved that I can turn into a long-term full-time passion. When you can turn your hobby full-time, work becomes fun and less of a chore because you do what you love and you get to create the rules.
Ok so you have decided to go after your hobby or increase your income, but what should you be doing? There are so many options, here are just a few but take some time to think about what you love doing and how you can make money at it.
7 Questions to Ask Yourself to Be Better With Money
Reaching goals can be hard and it just doesn't happen by accident, we have to actually put in the work. So whether it’s running a marathon, eating healthier or getting that next promotion at work, a plan is laid out so we know, how am I going to get from A to Z? The same works with reaching financial goals or simply getting rid of stress around money.
For example, if you want to increase our savings for an emergency fund, you have to determine, how much money am I going to need? From there, how much can I afford to set aside each month? Then you have to set that money aside and actively not spend it unless it’s an emergency.
Below are 7 questions to ask yourself so you can stay on track with your goals and crush it with your finances.
What can I do to increase my income?
I am sure you know by now but the side hustle game is real! It has never been more important to have diversified income because a job is not forever. There are so many options today so get creative, try selling something you enjoy making, teach or consult in your area of expertise or pick up some dog-walking clients.
Can I afford to pay more towards debt? What would my budget look like without debt?
If you are making your monthly payments on debt I would push you to see how much extra you can afford each month, especially on high-interest debt. By making only the minimum payments we are paying more in interest and increasing our chances of disaster if something were to happen with our income. Best bet is to pay it off as quickly as possible. And for a bit of extra inspiration, take a look at a life without those monthly debt payments, what else could you be spending that money on? Más vacaciones por favor!
Am I saving enough today to fund my vision for retirement in the future?
How much are you saving per month and are you on track for retirement? The answer is different for everyone, it depends on how much money you would like to have for retirement and how long until you want to retire. Use this calculator to see what your balance will be at retirement. If you haven’t bumped up your contributions lately you might want to look into that, 15% of your paycheck is a good goal if you don’t have high interest debt. Bonus credit if you want to reach financial independence at an earlier age, use this FIRE calculator (FIRE stands for Financial Independence Retire Early) to see when you can reach this goal!
Is my emergency fund all set or how much do I need to get it funded?
Having an emergency fund to fall back on will relieve a lot of stress in case a pandemic happens, an expensive car repair is needed or your furnace breaks in the middle of winter. A good rule of thumb is to have 3-6 months worth of expenses saved up and set aside in an account that you have easy access to. Don’t include unnecessary spending while calculating this number, it should only include what you would need to get by, we aren’t going on vacation during an emergency.
What are two of your big goals and do you have a plan to get there?
In order to truly enjoy life, we have to be sure we are doing the things that make us happiest. Sure we have to go to work and pay bills but outside of that, on the weekends or in your spare time, what do you enjoy doing most? Maybe you want to save up for a camper or you want to buy a cabin up north. Whatever it is, are you setting money aside? Do you know how much it will cost? Have you created a vision board on Pinterest to stay motivated? Ok, the Pinterest part isn’t necessary but it sure can be fun!
What system am I following to stay on track with my spending?
Just like we have to be intentional to reach our goals, we need a system in place to help us get there. Do you have a budgeting app to watch your spending? Do you use the cash-envelope system for categories you tend to overspend in? Do you log everything in Excel and update the pivot charts to see your savings progress? Whatever method speaks to you, put in some solid effort and you’ll be amazed how easy it will become.
Is there anything holding me back from taking action?
If you aren’t able to get started on the above items, why? Are you too stressed to even start? Do you not have a supportive partner? Does your debt seem too high to even begin to dream about retiring? Whatever it is, take one little step forward. Choose one thing that you can start to work on and begin there. You’ll be amazed that with a little support, it’s not as scary as you might have imagined!
Living Paycheck to Paycheck? Do This to Get Ahead.
When you rely on your next paycheck to be able to pay bills, buy groceries or have drinks with friends, life is different. Life becomes less enjoyable.
What if your paycheck was something that became a side effect of work you loved? What if you started being intentional with that money to actually accomplish your biggest dreams?
Something shifted in my life when I decided to use my paycheck to accomplish my goals. I no longer looked at my account balance as money I had to spend. I looked at it as a lump sum of money that was broken down into smaller goals. Some of the money would be used to pay down debt, some was set aside in case of an emergency and some was for bills.
When I made this shift in my thinking, while being intentional, it no longer mattered when that money hit my checking account. I was no longer rich on the 1st of the month and broke by the 10th.
If getting ahead of your bills and not having to rely on your next paycheck to pay your immediate bills sounds like something you are craving in your life, I have good news for you. It’s easily within reach, you just need to make a few intentional shifts in your habits.
Sell anything around your house that you no longer need, use or want for some extra cash
Cancel any subscriptions you don’t use and ask yourself if you need all of the ones you do use
Cook at home and use everything in the fridge to avoid waste
Reduce your spending on everyday items by buying generic or in bulk while cutting your impulse and excessive purchases
Save any ‘bonus’ money such as stimulus checks, tax returns or gifts
Keep an eye on money you are giving out as gifts
Get a side hustle and find ways to increase your income
You don’t have to do all of these items, I would rather you do a few things really well than all of them poorly.
When I was getting out of debt, I focused on cooking at home, reducing my spending and increasing my income. By making more money and spending less, I was able to make larger payments to my debt each month without having to give up too much of my lifestyle.
Sure I had to get creative with my vacation time and say no to house projects. But by being intentional with my money, I was able to make real progress while still enjoying the things that made me happiest in life.
You Can Be Earning Cash, on Your Cash!
Not to start off with a cliché Alber Einstein quote but “Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.” I lead with this because not only is it so true, but I'm willing to bet you’re paying interest on something as you are reading this (and probably on a few things).
But there is hope! The easiest way that anyone can take advantage of compound interest is to start a high-yield savings account. If you are asking yourself, ‘what the heck is that’ then you are in exactly the right place.
A high-yield savings account features a higher interest rate and generates more returns, which is a fancy way of saying that it gives you more money back for just having money in the bank. Yes, real money, not rewards or points.
Money.com goes into detail explaining that, “unlike other methods of generating returns, such as investing in the stock market, putting your money in a high-yield savings account poses little to no risk...if you’re going to hold cash, you want to seek out a bank that has consistently competitive rates to maximize earnings on that cash.”
Pro-tip, since the amount of interest earned depends on the amount of money you have in the account, be sure your savings for larger purchases are in this account, such as a down payment for a house, vacation fund or your emergency fund.
Here are how the numbers break down. If you had $2,000 in a checking account with a standard APY of 0.06%, you would earn $1.20 over the course of a year. In a high-yield savings account with a 1% APY, you would earn $20 a year.
Be sure to read the details of your high-yield checking account, they all are a little different. They will have different interest rates, requirements on an initial deposit or minimum balance and some might even have fees.
Here are some examples of some accounts you may want to look into but be sure to do your research and find an account that will fit your needs!
Habits of a Millionaire, Just in Time for the Holidays?
Let’s get straight to the point. Budgets are the key to building wealth and while you might know the importance of one, I don’t know if you are giving them as much credit as they deserve.
Ramsey Solutions, the Dave Ramsey empire, conducted the largest survey of millionaires, with over 10,000 participants, all to find out what some of the common trends were.
Here is what they found:
8 out of 10 invested in their company 401k
79% did not receive an inheritance
Only 31% averaged $100,000 a year over the course of their career (and one-third never had a six-figure salary)
The average millionaire made a habit of budgeting every month
Since the holidays are here, and 52% of us Millennials are going into debt because of it, I’m here to offer a solution. Don’t wake up in January with your credit cards maxed, desperate to cure your holiday hangover, let’s change the path you might be headed down.
Here is a free, easy-to-use template to get your holiday budget created today! Use this spreadsheet to organize your holiday spending categories, assign dollar amounts to avoid debt and record your transactions to help you stay within budget!
While this year’s budget may not be fancy, we only have a month until the big holiday so let’s be realistic with how much you can save, I want you to know that it’s ok. 2020 has tested us, pushed us and prodded us to act differently.
So here we are, creating a budget, changing our spending habits and building a future for ourselves because we deserve more than just going to work and paying our bills. Thanks 2020 for the wakeup call.
Turning Junk Around the House Into Cash!
If spending this much time at home has taught us anything, it’s that we have a lot of crap!
Seriously, how many knickknacks, items in a drawer, old electronics in a closet or old clothes does someone need?
I personally think that if Marie Kondo’s sparking joy movement would have landed on Netflix shortly after the ever-so-amazing Tiger King, we would be in a much better place physically and emotionally with our homes.
I don’t keep a list of random odds and ends that I sell, I honestly don’t need to rehash the amount of stuff that I owned at one point. But, by perusing my history on Facebook Marketplace (much better for household items than Craigslist these days) I have recently sold:
An old painting for a neighbor - $40
An extra trash can - $20
A leaf blower - $200
An extra charging hub - $15
An old cable modem - $30
An electronics docking station - $25
A Vikings jersey that I won at bar pre-covid - $75
Our dining room table, I found a cheap one that I liked better - $700
Our coffee table, also found a better one for free that I refinished - $80
That's $1,185 in my pocket that I never would've had otherwise, and I had to do was take a picture and describe the item on Facebook Marketplace.
You get the point. If you find yourself staring at something every day and it doesn’t make you happy or proud that you own that item, get rid of it! There is no rule that you have to keep it.
And if it can bring in some cash, then why not?
This App Will Change How You Think About Budgeting !
While I was getting out of debt I started using an app early on that I think was a total game changer. This app not only helped me stay accountable, but it took all the guessing out of “how much do I have left in groceries” or “oops I spent too much, now what?”
Drumroll please - YNAB (You Need A Budget). Yup, that’s the name of the app!
Now, there are a lot of budgeting apps and there is a chance that you might already have one. But let me tell you why this one is different and why you should think about spending the $7 a month for it.
First off, if you spend too much in a category, YNAB will turn the category red and you won’t be able to ignore the problem. It will then ask you where you want to pull money from to make things right again. When you overspend that money has to come from somewhere and YNAB has no problem holding you accountable.
The second reason I love YNAB is that it let’s you use credit cards and it’s easy! I won’t go into the details here but just know that you can still accumulate your miles while you are paying off your debt.
Lastly, it makes saving for larger items a piece of cake. Maybe you want a savings goal for a specific item, like a new coach. Or you are saving for vacation but are going to be spending money along the way. Or maybe it’s a monthly bill and you are sick of looking up how much it is each month. Yup, it’s all there, and more!
The point I want to make is to encourage you to reach out and find tools that will make things like budgeting or paying off debt easier. Don’t try to create fancy spreadsheets or processes for saving receipts that you will never use.
Why make things harder?
5 Things I Did to Get Rid of Debt
1. Create a budget (see last week’s article on how to do this)
I always thought a budget was for poor people that needed a plan. Which ironically was me but I didn’t think so at the time. By writing down your plan ahead of time you are able to ensure that you aren’t spending more than you make and that every penny is going towards your goals.
2. Pay extra on current debt
This may seem like an obvious one but you’d be surprised. Use your budget to determine how much you can afford to pay extra each month and make that payment first! When we make debt payments at the end of the month life gets in the way and we don’t pay as much as we had originally planned. By comparing my spending habits with my income I was able to see how much I could afford to pay extra on debt with my current lifestyle. No matter what my income was each month, I would always pay the same amount towards my debt.
3. Don’t sign up for new debt
I had to call this one out because our society normalizes debt to an extreme, we even have “good debt” and “bad debt”. Debt is debt. Period. Depending on your personal goals you may want to eliminate certain debts before others but to truly build wealth, don’t take on new debt.
4. Get a side hustle
Everyone should have multiple streams of income coming in, it’s a safety net in case something changes with your job. Increased income doesn’t mean increased lifestyle. Send extra income towards your debt or use it to pay for larger purchases in cash. While I was paying off debt my side hustle was waitressing. It was dependable easy cash and I had been doing it for so long I could do it in my sleep.
5. Have some real (and sometimes hard) conversations with yourself
Personal finance always involves self reflection. Whether you make a lot of money, or have a smaller income, can you afford the lifestyle you currently live? I am going to guess no if you have debt. Do you need to cut subscription services? Do you really need a new phone every two years? Small lifestyle changes add up and make a large impact towards paying off debt.
3 Easy Steps to Get Started With Your Budget
A budget can seem overwhelming, stressful and sometimes, boring! But a budget is the key ingredient to paying off debt and saving for those things in life that matter most helloooo vacation!
1. Track your current spending
Look at your spending from the last couple of months and get an average for money spent in each category. Think of categories as buckets your transactions fall in - restaurants, clothing, hygiene, monthly bills, subscriptions, etc.
2. Outline a budget with your new and improved spending habits
After you know how much you currently spend in each category, add up all those categories and see if you are spending more or less than your current income. You may need to do some adjusting. If you are spending more than your income, you will need to decrease dollars assigned to categories. If you spend less than your income, where should that remaining money go - saving for a new car, a down payment on a house, your 401K?
3. Start budgeting!
Now is the time to follow your new budget with the goal to stay at or below the spending limit for each category. Be sure to track each expense so you know if you are getting close, or going over, the money assigned to each category. A budget is not perfect so continue to track your expenses and adjust your budget with each month.
Why and How You Should Be Saving With Sinking Funds
A sinking fund is when you set small amounts of money aside each month towards the purchase of a larger item. Wouldn't it be easier to save $100 a month for Christmas and have $1200 by December rather than putting Christmas on a credit card and stressing about it in January? YUP! Or how about that 6-month insurance premium? It's much less scary setting aside money each month rather than sacrificing all your fun money the month it's due.
Sinking funds can be used for anything that is not a monthly expense and becomes a line item in your monthly budget. So for example, in your budget, you will have a line item for your rent/mortgage, groceries and Christmas sinking fund (along with a bunch of other stuff). And each month you are setting money for the Christmas sinking fund aside but you aren't actually spending money in that fund until it get's closer to December.
How do you organize money from all these sinking funds? You can transfer the money into a separate account or keep it in a labeled cash envelope. There are also a few apps that help you organize money into separate categories to make your account balance more clear - Qapital and YNAB are a couple that I recommend. Use whatever makes the most sense for you!
This Is Why You Might Be Broke...
Are you confused at the end of each month because you know how much money you make, and there should be plenty to cover your bills, but then POOF - it's gone before you even knew what happened? Unfortunately, I think we can all relate to this one! I promise I won't harp on the importance of a budget in this post, even though that would tell you exactly where your money is going.
My guess is on subscriptions! And not only subscriptions themselves, but the mentality that the purchase doesn't effect anything. How many things are you "subscribed" to each month? I'm not talking about magazine subscriptions like the good old days. I'm talking about Netflix, Hulu, Disney Plus, Amazon Prime, Bark Box, Spotify, all the beauty boxes, Dollar Shave Club, Stitch Fix, Hello Fresh and the ever so popular wine club -- the list can go on FOREVER.
This is where your money is going. $5 here, $15 there, you don't even notice each individual transaction but by the end of the month your paycheck is out the window. And it is not each tiny service that is making you broke, it is the mentality that these things don't have any effect on your money.
I'm not saying you can't have these these things, some of them save you time, increase your mental health, allow you something to look forward to during quarantine. I get it! But do me a favor, go through your bank statements for the past month and write down your subscriptions. Do you need them ALL? Are you paying for something you barely use? Can you find a free version? And before you sign up for the next new thing, take a second, see how it is going to fit in your life and determine if there is something else you need to give up to account for this new cost. Small changes like cancelling some of these services can free up money to put towards things you truly love.
Let's Create a Vacation Budget!
Did you know you could create a budget for just about anything? When you sit down and do the basic (yet crucial) steps that involve creating a budget you become aware of how far (or not far) your money can get you, no matter what it is being used for.
Let's take an example that we can all relate to - vacation! Let's say you have $600 in your vacation savings account and a friend asks if you want to go to Chicago for the weekend because flights are only $100 - yep! Your hotel, for three nights, is $200 (splitting with your friend). You head to Target and buy a couple of new shirts and some toiletries, $75 (at least!).
Once you get to Chicago, you buy the 3-day train pass for $20 because your hotel isn't as close as you wanted it to be. You start figuring out that you are spending $80 a day on food, two quick meals and one sit down restaurant. By the end of the weekend you will have -$35 with the new food expenses. You still have a concert you planned on going to and a couple of local museums, so you put the rest on your credit card and will figure it out when you get home.
Well, here we are. Home with more credit card debt. This is an endless cycle that creating a quick budget could have solved. Maybe you don't run to Target the night before. Maybe you get a hotel a little further out since you will have the train pass. Maybe, you can't go?
Let's practice! Create a sample budget of a past vacation - write down all your expenses and what categories they fall in. Once you're done, use this as a template for future trips and rearrange money as needed (maybe you need less restaurant money but more flight money).
How Much Extra Should I Be Paying on My Student Loans?
This is a fun question because when I start digging deeper into your finances as a coach and I tell you how much you can afford on paper - the jaws drop! We have been trained to think that if we are making our minimum payments we deserve a pat on the back - because we did it! Right? We didn't have an adjusted payment, we aren't in forbearance, we made the payment. Well, sorry, but no.
That minimum payment will cost you tens of THOUSANDS of dollars in interest that frankly, you can't afford. Nobody can! In most situations you should be able to pay double (at least!) on your loan to get rid of it! There are a lot of financial calculators online, I like Unbury.me, that help you play around with various extra payment amounts to find out just how long it will take you to pay off your debt.
Give it a shot, it's really motivating to see if you pay just a little extra each month, the number of years you can knock off the term of your loan!
How to Calculate How Much Money Should Be in Your Emergency Fund
Any good emergency fund consists of expenses that continue on during an emergency. While there are a few different scenarios in determining when we can tap into this savings, there is only one way to calculate it and it is pretty simple.
1. Housing - rent or mortgage, it also includes electricity, trash, water and those sort of bills. Netflix is not here, and if times are tough, neither is WiFi.
2. Food - groceries. Don't put your restaurant spending money or brewery adventures in your emergency fund calculations. This is how much money you need to put food on the table for your family. And if members of the house are still working, this includes packing a lunch (no going out to eat at work either).
3. Transportation - let's be realistic, even in a crisis you will need gas to go buy your groceries or to pick up kids from school. Maybe you take the bus, include your bus passes here instead. You aren't accounting for saving for a car in this fund or a repair that you want to get done in the future.
A proper emergency fund consists of 6 months of savings for the above items. Add up expenses for each month, times it by six and there you go! This money should live in a savings account that you have quick and easy access to. You are not trying to gain interest on this money, you are getting prepared for an unfortunate time in your life.
Reader Question: What Is the Best Thing to Do With Savings? Invest? What Kind of Account Is Best to Have It In?
A: This is a great question and it depends on the type of savings you are referring to! Let's assume you have no debt for this example. Your emergency fund should be in a separate account from your primary checking and it should be accessible. The point of this money is to get it when you need it so make sure it's in an account that doesn't require minimum balances or a specific amount of time that it has to be in the account. The purpose of this money shouldn't be to be making money so don't worry about the interest rate. You may see better rates with online banks, be sure you have a card to access the money.
With all of that, additional savings should be going into a Roth IRA. Personal finance coaches don't give investing advice so I would recommend you speak with a financial adviser on other account types. I would avoid single stock options if it was me.
If you don't have an emergency fund or you have debt, this should be your priority. Set aside $1,000 for each person in your household first. After that, work to pay off all your debt. Once your debt is paid, save six months worth of living expenses for your emergency fund. And that brings us back to the top!
Hope that helps!