Recently, I have opined about the travails with our dishwasher. Today, we are supposed to get it installed, but I am not holding my breath. I am not happy about having to pay almost $1300 for the entire dishwasher and moving electricity and the like. However, I am not beside myself because I had put away a little money in an emergency fund ahead of time for these kinds of situations. Our emergency fund isn’t much, but it is enough to cover this little debacle. My task now is to rebuild the fund and hope that we don’t run into any more emergencies/unexpected expenses.
It is that unexpected expenses/future I want to talk about here. According to a variety of articles almost 50% of Americans have no savings. Nothing. Now I am sure a good portion of the people with little savings are struggling to pay the bills each month. I mean they hope that they get to the end of the month without any kind of hiccups.
I can somewhat imagine that scenario because I have written here about how we live paycheck to paycheck. It sucks when you are at the end of the month and realize that you have little left over for saving or anything of that nature. Part of that is maybe we are little less discipline than necessary, but the point is I can understand how people worry about things. Which is why I am huge advocate of a little planning. Without planning a little bit I would’ve had to put the dishwasher on a credit card and not paying that bill at the end of the month.
*Full disclosure: I did put the dishwasher and the electrician on a credit card, but paid them off immediately. I did it to earn the points for my VISA rewards card.
What Do I Mean By Planning?
There are two types of plans: short-term and long-term. For the short-term you need to have some kind of rainy day fund in case it rains. The very first financial tip was why you need an emergency fund. But that post didn’t say anything about how to get it. I mean it just doesn’t pop out of thin air. So how do you get it? Well that is where planning comes in. Maybe it is you give up lattes for a month or you cut back or whatever. But you have to create some kind of mechanism to create some kind of little rainy day fund. $1000 is ideal, even more is better.
Emergencies don’t happen every day. I mean they are pretty rare (e.g. a dishwasher not working). So just putting a $100 a month aside in a savings account that you can’t get too would be a good idea. You could even argue that the dishwasher isn’t really an emergency. I mean we can wash the dishes by hand. It isn’t like it would kill us. And I don’t know if I would even qualify it as an emergency. But I admit I like having a dishwasher. So this became a priority for us.
The second type of planning is long-term. The American workforce is changing rapidly. And our ideas about what people should do with their lives are changing rapidly. Retirement, for example, is a 20th century construct. It didn’t exist really until after World War II. The stereotype is that you retire at 65 and go play golf or shuffle board with your older friends until you die. That kind of thinking doesn’t work anymore. The personal finance world is full of people who have “retired” early. I have argued on this blog about changing the nature of retirement. People often find value in work. I know I do. I also know that I want the option to continue doing what I am doing. I want financial independence and FU money more than early retirement.
But we have to have some thinking long-term. Maybe that is setting long-term goals like 5, 10, 15 year goals about where you want to be in life. How do those goals work monetarily? For me, my passion is getting and imploring people to save for their future. Even if it is just a little. And if that means you give up Starbucks or eating out once a week. So be it.
One of my biggest pet peeves is the provinciality of people. They can expand their vision beyond their immediate circumstances. For some I know that is difficult, particularly if you are struggling day to day to pay the bills. But often those people are the ones who want to have larger goals. It seems to me that many people I know who are provincial are the ones who have professional jobs. They go about their lives without thinking and/or planning for things in the future. They seem to be content to just kind of muddle along.
Each person is different. That is why it is personal finance. But I know that I have come up with four financial rules for myself that help me plan.
Jason’s Financial Rules To Live By
Pay Yourself First. This is my number one rule. Pay yourself first. I pay myself first by automatically saving a certain amount for retirement. Currently, it is about 15% of my income, but I hope to double that in the future. I also try to put at least 100-200 away in a savings account for some emergencies. But you need to pay yourself first. And that comes before kids. That comes before going out to eat. You don’t save last. You save first. You can decide how you want to do so, but doing short-term and long-term at the same time can be done.
Pay All Your Bills Next. Before you think about paying down debt, saving for a vacation, whatever your bills need to be paid. Now if you are struggling and can’t pay all your bills in one month basic necessities come first. Food, shelter, electricity, and basic clothing. Everything else comes last. But make sure your bills are paid for before you do anything else. After those basic bills comes debt items. Pay at least the minimum payment on mortgage, car, etc. But if you have no more than that so be it.
Pay Off More Debt. Debt, to me, is a modern form of slavery. There is no such thing as good debt. When you have debt you owe your time/money to someone else you are not free. I want freedom. I want to be able to tell my dollars where to go. No matter what you will have some kind of bills to me. I mean you can argue whether or not that is a debt or not. I don’t consider my water bill every month a debt. I don’t consider my real estate taxes a debt every month. I am talking about bigger things like cars, homes, student loan debt, etc. This third rule is when you have extra money after #1 & #2. What do you do with it? I say put at least a portion and you can decide that for your circumstances toward paying off debt. If you are fan of Dave Ramsey he would have you take every dollar that is extra and pay off that debt sooner. In fact, he would get rid of rule #1. I don’t necessarily agree, but it doesn’t matter how you get there as long as you get there. I probably could get there faster if I just stopped some of my retirement savings and plowed it toward debt, but I just can’t get around the fact of the fact that I am missing out on buying stocks cheaper, which will pay off in the long-run. Maybe I am wrong, but that is my philosophy currently.
Have Fun/Entertainment/Future Expenses. You could call this my potpourri rule because it is a jumble of things. If you have money left over I think it is important to have a little fun like go to the movies or go out to eat or whatever. Now if you are tens of thousands (outside of your house) in debt then it might be a little reckless, but you do need some levity in your life. This is also where you can think about future expenses.
Mrs. ROB and me face some future expenses such as an upcoming tax bill, some medical expenses, and the summer. I will explain all of those in future posts, bu those future expenses, which are coming down the pike over the next six months, need to be thought of and planned for a bit. Some of it can be taken care of through some of our current expenses. For example, I can allocate some of our food budget to tackle some of the food expenses. But what do you do about a tax bill or needing money over the summer? Well, you need to plan for it. That is especially true in some professions like being a teacher. I am lucky and get paid over a 12 month period. However, I have lots of friends and family (my brother and sister-in-law are teachers) that don’t necessarily get paid year round. What do you do over the summer months? What do you do if you work construction and there is no work during the winter?
You have to plan for some of those items. It is a necessity and putting money aside to meet those expenses can help. And this is going above and beyond the paying yourself first. For example, if you pay off debt before you need money that is one less expense to worry about in an unemployment lull.
The old adage an ounce of prevention is worth a pound of cure maybe one of the greatest bits of wisdom for the financial world. A little planning can save you lots of headaches in the future.