The ancient Babylonians are thought to be the first to make New Years Resolutions.  They made them to find favor with the gods and breaking them was supposed to bring bad luck.  Many of us continue to make New Years Resolutions every year and most of us fail to keep them.  The Babylonians were careful to pick resolutions that they could keep through the year and we should be just as careful.

Every year I make the same New Year’s Resolutions and every year I fail to keep them.  I might make some effort to keep them for a week or two but then other things become more important.  I have really spent some time this year determining what I want to accomplish in the next year.

The Most Common Mistake

Most of us make a very common mistake when we are making our resolution.  We make a resolution to do something to improve ourselves such as losing weight, quitting smoking, saving money, etc but we never really make a plan on how to do it.  We think about it for a week or so but then just flounder because the reason we haven’t done it in the past is because we really don’t know how to go about it.

Making a plan to support our resolutions

One of my New Years resolutions is to put and keep money in my emergency fund.  Well, that’s a pretty good resolution but it is non specific.  I have to ask myself how much money should I have?  How long should it stay there?  Or even more important why haven’t I been able to keep money in the fund in the past?   The easy answer is that I keep having emergencies but if I look closer, I really haven’t had but one emergency this year and that was when my father got sick in April.  I have taken money out of the fund for groceries, to pay bills, and to do car repairs.  All of these things should have been covered in my regular budget but our income for the month did not support the budget.

So if I make the resolution to keep money in my emergency fund, I am already setting myself up to fail if I don’t make some adjustments to my budget.  This year, instead of putting all my savings into my emergency fund, I am going to start a second account to use as an operating account.  Because our income varies drastically from month to month, I am going to start putting money aside specifically to be used to cover those months where our income is low.  In the past, we have just tightened our belts and done without and then dipped into the emergency fund to cover the essentials.

My plan this year is simple, specific and measurable.   I cannot take money out of our regular income for our emergency fund.  We just don’t have enough income to support it unless the economy does a drastic turnaround.   I do have irregular income that comes from my blog, some ebay and craigslist sales.  This income is going to go into my emergency fund.  Any boon in our regular income will go into a separate account to be used in the lean months.

Another Common Mistake

Another mistake I make every year is not looking at what didn’t work over the last year.  The answer this year is easy, I didn’t work.  I have made very few posts over the last 12 months.  My focus has been on other things and I have made less than a decent effort to write or promote my websites or internet business.  This is going to change this year and I am making a committment to write daily on this blog and several others that I maintain.  I am going to set aside time each day to accomplish this.

My Plan

Increase my internet income to $100 per month for the first quarter.

For the second quarter, I would like to double that to $200 per month.

For the third and fourth quarter, I would like to be making $500 per month.

My How

eBay -  I am going to start selling on eBay again.  I pick up knick knacks and collectibles at thrift stores and yard sales and resell them on eBay.  Historically, I have done pretty well at this, usually doubling my investment.

Blogs -  I need to double my traffic on all of my blogs.  It has dropped off simply because I have not been writing and I have lost quite a few of my readers.  I have also not been promoting them.  I will be writing at least three articles per week on each blog and promoting each article.  I actually enjoy this because so much of blog promotion is just getting out and visiting other blogs.  I learn quite a bit and make some great friends this way.

Guest Posts -  I am going to be accepting guest posts on all my blogs on a weekly basis.  I am also going to try to write some guest posts for other sites.

Results

My resolutions this year and goals are rather ambitious.  It will take time and hard work to accomplish them but it is a labor of love and I will enjoy both the process and the results.  I will keep you updated on how my financial goal is going over the months.

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I wish I could write some great posts on my job search but honestly, I didn’t even apply for this job.  A friend knew it was coming open and knew that I was qualified so they called me.  The employer knows me slightly and there you have it, I was employed.

In the long run it will be a good thing.  Right now it just makes life a little more complicated.  R is still pretty much house bound and even though he has gotten outside a few times this week, he can’t lift anything or do too much on the leg.  I am going to worry about him.

I am also going to have to change his appointments at the doctor’s office to pull blood twice a week to a time when I can take him.  Working around this shouldn’t be a huge big deal but something else to add into the schedule.

I am very thankful that I am going back to work in this economy though.  The job market is tough and competitive especially here where even during normal times there are not many jobs.

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One thing that struck me was that debt collectors are now starting to accept a budget with a savings plan built in.  One of the biggest reasons why debt management or credit counseling fails is when the person has an emergency of some kind and goes into default on their monthly budget.  I see this as a huge step in the right direction.

But if you take it one step further, you are usually paying most debt management or credit counselors a fee.  If the money that was going to pay them were put into a savings account, this possibly could have been avoided.  If you have the resolve and patience to negotiate with your creditors, you can save money and get your debt under control.

These ten steps to DIY Debt Management give a clear plan on negotiating your own settlement and creating your own budget.  These include a plan to build an emergency fund while paying off your debts.

Take Stock

The first thing that you need to do is figure out what money you have coming in and where that money is going.  At one point in time, I had plenty of money coming in but when it came time to pay the bills, there was never quite enough.  My money was leaking out all over the place.  My biggest problem was not big purchases, it was the little under twenty dollar purchase that were draining my income away without me even realizing it.  It’s easy to stop the big leaks because you tend to think about them and realize that you are spending the money.  However, it is also far easier to justify in your mind those little ones, after all, it’s only ten dollars or twenty dollars.  The problem is that those small purchases add up quickly.  Have you ever wondered what happened to that one hundred dollar bill once you broke it?  Try writing down every penny that you spend for a week.

Find the Leaks

Take a look at what you have written down and put an L by every purchase that you could have easily avoided.  These might be things like impulse purchases, snacks and sodas, toys to reward your children for being good..  Ah, now I have hit on something difficult.  Do you tell your kids when they go with you to the store that you will buy them something if they are good?  I know that I used to bribe mine quite often.   It was usually not a big bribe but it adds up and the kids would break, lose or be bored with the bribe in less than a day.  Make a list of the leaky items and set it aside.

Make a Plan

Make a spending plan or budget.  Make sure that the number one thing on that list is you.  If you are going to have a chance at sticking to a budget, you have got to make an emergency fund/savings account a priority.  You cannot stick to a budget if every time something comes up, you have to fall off the budget wagon and blow your budget.  My biggest mistake in budgeting was not allowing money for entertainment, gifts, Christmas, and emergencies.  I thought that until I paid off my bills, I could go without these things.  Guess what?  It doesn’t work!  It’s like going on a diet and saying that you weren’t going to eat.  Reduce your leaks but don’t try to cut them out entirely.

Write It Down

Write it down in a format that you will be able to send to your creditors. You will use this plan to negotiate a reasonable payment and interest with them.  The plan you will send to them should not be too detailed.  They don’t want to know how many sodas you will be buying during the week so keep your budget or plan categories general.  You will need to include the debt payments as well as household expenses such as electric, telephone and cable.

Leave Room For Flexibility

There are some expenses that are ‘hard expenses’ such as utilities, insurance and rent or mortgage payments.  You have to have a place to live, most of us also require electricity, food and a car to drive to work. These should be listed right under your payment to yourself.  Next would be your miscellaneous expenses, I consider this my flex fund and I gave myself more than I thought I would spend.  If you don’t allow yourself money for these types of things, your plan will fail.  It’s almost guaranteed to fail because unless you are a monk, you are going to have to buy a gift or go to a movie or just get out of the house. This is your leaky fund and all of the items that were listed as leaks are going to come out of this fund.  You will need to make a commitment to spend only the budgeted amount on them.  After your  expenses, you will list your desired debt payments.  I have included a simplified example.

Income             2200

Savings:              200

Mortgage           400

Utilities             100

Insurance              55

Car Payment       255

Misc Expenses   150 (Entertainment, gifts, vacation, leaks, etc)

Groceries             400

Gasoline              100

Medical                 50

Debt 1                 150

Debt 2                 140

Debt 3                 100

Debt 4                 100

Total                      0

Make a Commitment

This is the most important and the most difficult part of DIY debt settlement.  When you are paying someone to manage your debts, you make a commitment to them and some people find it’s easier to keep it when you have someone standing over your shoulder.  If you are going the DIY route, you will need to make a commitment to yourself, your spouse, your parents, or your kids.  If you are married, living with someone then they need to be a part of the plan and make their own commitment.   Make it for a specific period of time or a specific goal.  You are going to need to make a commitment to your creditors anyway for a period of time but my suggestion to you is to make a commitment to yourself to stick to this budget for a month before you call your creditors.  When you start calling them, you will want to be able to pay the agreed upon amount right away.

Give your plan a month’s trial and then sit down and tweak it.  Are you still leaking?  Are they legitimate leaks or did gasoline cost you more than you expected?  Were your medical costs higher than you expected?   If you allotted a reasonable amount for your misc and medical expenses and you came in under it for the month, I would not lower them.  Put the money into savings, because Christmas is coming and no matter what religion you are, there are going to be certain months when expenses are higher than normal.

Call Your Creditors

I have found that it is usually best to call your creditors and tell them that you are unable to make your current payments and that you want to work out a plan that will enable you to do this.  Offer to send them your budget.   In today’s economy, most of them will work with you.  It might take a few phone calls to get someone who will negotiate but keep trying.  Write down every call you make, who you talked to and what the outcome of the call was.

If you don’t get anywhere, write them a letter and include your budget along with your plan to pay them off.  Wait two weeks and call again.  Ask to speak to someone with the authority to negotiate a settlement and budget plan.  There is certainly someone there who can do it.  Remember when you are negotiating with them that most debt management plans fail so their job is to get as much money as fast as they can.  Your job is to negotiate a plan that allows you to pay them back successfully and live at the same time.  Essentially, you both have the same goal: getting your debts paid off.

Revise, Revise, Revise

Every month is going to be a little bit different.  Some months you are going to have more expenses than others.  You may get a raise or your electric bill may go up.  A budget is not written in stone.  If your electric bill goes up, you are going to have to find the money in your budget to pay it.  This means that you have to do one of two things, reduce an expense somewhere else or increase your income.  The easiest place to reduce is your misc expenses.  These are things that are not usually a necessity and you can live without them for a month or so.  This is the second reason that I told you not to skimp on these expenses.  For a short term fix for a budget deficit, you can use the money alloted here to pay the extra expense.  If it is going to be a long term deficit such as your car insurance going up every month, you are going to have to revise your whole budget.  You have been tracking your expenses for at least two months now so you should have a pretty good idea as to where you can reduce.

Do not reduce your debt payments if at all possible.  You have made a commitment to these creditors and you need to honor it.  If you default on your agreement, they will usually revert back to the original terms.  If it is absolutely necessary to reduce those payments, then call the creditors BEFORE your payments are due.  Tell them the circumstances and renegotiate the payments.  Again, since your goal is to pay off your debts, this should be a last resort.

Free Money

There ain’t no such thing as free money!  Don’t fall into this trap when you get a tax return, gift of money, bonus, etc.  This has undone me many times.  Don’t splurge just because the money wasn’t in your budget.  This will undermine you in so many different ways.  It’s like an alcoholic falling off the wagon, once you get in the mindset to spend money freely it is hard to stop with just the extra money.  Focus  on your goals.  Your priority when you set out was to pay off your debts.  Don’t lose focus on that goal.  Pick one debt and send a larger payment to get it that much closer to being paid off or pay off a smaller debt with it and pat yourself on the back.

It is hard to stay focused on paying off your debts.    I have ready many articles that state that budgeting is easy but I am not going to lie to you about it.  It may be easy for some but for me, it was very difficult.  It took almost 50 years for me to figure out that most of the stress in my life came from my debts and my struggle to pay them.  I would get started and do great for a month and then just lose focus on what I was doing.  Then I would feel guilty and just shut it all out. The reason that I started this website was to help me focus on paying off my debts.

Congratulate Yourself

You will notice that I did not say reward yourself.  Too often we associate rewards with spending money.  We get a new job, we celebrate by going out to dinner.  We buy new clothes, we splurge.  That was the old us.   So instead of spending money and undermining all your efforts, take a moment every day to congratulate yourself for your successes.  They may be small successes at first, such as saving five dollars by packing your lunch or combining trips to town but they are still successes.  Feel good about it!

When you get your first savings account statement, take a good look at it.  It will come to be the measure of your success.  Watch it grow.  Nurture it.  If you are putting ten percent of your income into savings, then you will see it grow quickly.  My emergency fund is the biggest reason that I can stick to my budget and it is my biggest reward for doing so.  It gives me security.  It keeps me from feeling so much pressure that I go out and spend just to relieve it.

Draw two jars and put them on the refrigerator or hang them on the wall by your desk.   Put your savings goal at the top of one of them and the total amount of your debts on the other.  Fill the jar every month by the amount you have saved or paid.  Make it visual so you can see the results easily.  Congratulate yourself for every small step.

Your creditors are not going to congratulate you.  Your bank probably won’t congratulate you for saving money.  You are the one who is going to have to find ways to stay motivated to do it.    If you want to share your successes or your struggles, feel free to leave a comment.  No one understands how difficult it can be better than me and quite a few of the people who read these articles.  I am always happy to celebrate a success or share in a struggle.

Take Heart

It gets easier.  The first few months are the hardest.  If you can stick to your plan for a couple of months, you will find that the whole process gets easier each month after that.   You will find the things that motivate you to continue whether it’s watching your emergency fund grow or watching your debts shrink.  You will find that there is less stress in your life and that you have more time and energy to enjoy living it.

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Two years ago, I began my journey to ‘fix’ my financial situation.  I began reading personal finance books and blogs with a passion and one of the rules that I saw the most was “Spend Less Than You Earn”.   While at first glance it seems like great advice, it was almost enough to make me give up.  I was over my head in debt and my income was shrinking not growing.  Obviously, spending more than I earned had gotten me into this mess.

Spending less than I earned every month was pretty much an impossibility.  I had so much debt and so little income that every penny that I made had a  place to go.  When  I wrote down my first budget, I was so far in the red that I couldn’t see black.  How could I possibly spend less than I earned?

I look back now and realize that it was the first book that I read “The Richest Man In Babylon” which helped me the most.  This book was written in 1926 by George Samuel Clason.  It was originally a series of pamphlets that were handed out by banks and insurance companies.  Clason’s firt rule was to “Pay Yourself First”.

Pay Yourself First

In other words, no matter how much you owe others or how much you spend, you need to pay yourself first by saving some of your money.  Clason suggests saving 10% by spending only 9 out of every ten dollars earned.  I always questioned this amount but I can tell you that 10% works.  It is a small enough amount that if you put it into savings, you will not miss it.   Even when I was barely making enough to live on each month, that $10 on every hundred was small enough that I didn’t miss it.

At first, I thought I would put whatever money was left at the end of the month into savings.  I quickly learned that if I waited until the end of the month, the money ran out long before the month did.  There was always an extra bill to pay  or groceries to buy or that extra tank of gas to go someplace.  There was never any money left at the end of the month.  The habit of spending what I had in my pocket was so deeply ingrained that it left without me even realizing it.

When I started to put that 10% into savings FIRST even when I knew I was not going to have enough money to pay bills or buy groceries.  Every single month that I put money into savings before I paid bills or bought groceries, I made my savings goal and somehow I managed to pay the household bills and eat.  I  didn’t pay all of the bills but I could not have paid them without saving anyway.

Now I know that many of you are thinking that you would have used the money that I was putting into savings to pay the debts.   Clason’s second rule is to control your expenses and to learn the difference between needs and desires. Clason’s second rule is to control your expenses and to learn the difference between needs and desires.In some ways, I agree with you but I had come to think of my small emergency fund as my survival fund.  If something went wrong, I would not be able to pay the essentials like rent, utilities and food without some small amount of money in savings.

Emergency Fund

My initial savings goal was $500 to be used for emergencies.  It seems like a small amount but it took me almost 6 months to save it.  I tried snowflaking money into it by selling things on eBay and on craig’s list.  I saved my change and added it to my savings.  All of it helped but in the end the only thing that really worked was paying myself first.

Eventually, my income grew and my debt load shrunk.  It is now possible to spend less than I earn but that first lesson is still the one that governs my financial life.  No matter what else I buy or pay, no matter what I have to give up, I pay myself first by putting that 10% into savings.

After 2 years, I still do not have the fully funded emergency fund (6 – 8 months of living expenses) that is recommended.  I would like to think that I will eventually build up to that amount but I have enough to keep my head above water for a month or so.

Beyond Emergencies

Paying myself first has become more than just a tool to build my emergency fund.  The emergency fund also doubles as an operating account.  I do withdraw money from it for more than emergencies.  There have been times when I have had to take money out of it to keep the farm operating.  My goal is to only take money out for emergencies and to pay for something that will increase our income.

Clason’s third rule is to make your savings multiply.  This can mean as little as earning interest on your savings by putting it in a savings account or cd but it can also mean using it to invest in something that will increase your earnings.  While we don’t take money out of savings to buy things that we desire, I do not feel guilty about taking it out to take advanatage of opportunities.

We buy and sell horses for a living.  We generally budget a certain amount of our income to buy more horses.   Every once in awhile an opportunity to purchase a horse for very little comes along and if we didn’t have some savings, we would have to turn it down.  For example, a friend recently had a horse that she needed to sell quickly.  It was  a wonderful horse, registered, well trained and very pretty.  She wanted a little more for it than we currently had budgeted for restocking, however, I knew that we could easily make double or triple that amount when we sold her.  I took the money out of our savings to buy the horse and sure enough I more than tripled our money on her.

For those of you who are not in business, there are many chances for investment.  You might invest in a college course that will increase your earning potential or you might be investing in your own home.  The important thing is to not only save 10% of your income but also to make that 10% work for you so that it increases.

If you are new to personal finance and struggling to get your head above water, don’t be discouraged by the advice to spend less than you earn.  Try paying yourself first and you will soon find that you are spending less than you earn.

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When I had a job, I automatically had money put into a 401(k) plan.  It was thoughtless savings and when I left that job or fell on hard times, I ransacked the account, paid the penalties and counted my blessings.  If I had only known then, what I know now.

I watch my children, young and old, making the same mistakes that I made.  If they don’t have money, they spend it anyway.  When they do have money, they spend it like there is no tomorrow.  I cringe when I see the way that they spend money.  Don’t get me wrong, most of them are grown and have the right to buy what they want and live the way they want but I feel like I should have taught them better.

These few things took me 52 years to learn.  I wish that I could teach them to my children, it would make such a difference in their lives.

#1 – Save, Save, Save

Kids, I can’t tell you how long it took me to learn this lesson.  Save a small percentage of your money and protect it from yourself like a mother protects her nest.  When times are good, saving is comparatively easy and while it’s easy to save, it is also easy to rob that savings because it was so easy to accumulate it.  When times are hard and you can still manage to save a little, your savings are harder to come by and will give you security.   You will also value whatever small amount you can save.   It’s hard to remember that times might not always be good and you might need that savings at some point in your life.  So when times are good, save as much as you can; when times are bad, save as much as you can and remember when you dip into that savings for something that you might need it more tomorrow than you do today.

#2 – Debt Has Eternal Life

Most of the things that you buy today will have no value in 5 years.  That new phone or new car or new tv will not be worth a tenth in 5 years.  Quite a few of them will have no value in a year.  Yes, they are cool today but you will get bored with it quickly and want a newer model.  If you go into debt for it, you will probably still be paying for it long after it is gone.   Save credit for a house and a car as they are probably the only things that will outlast the payment. Even after paying your debt off, it lives on in your credit report.  If you have a 5 year loan, it will stay on your credit report for 12 years.

#3 -Learn About Money

No one teaches you about money.  There is no class in school that teaches basic finance much less about saving and investing your money.  You are pretty much on your own when it comes to budgeting, investing, saving and planning.  There are tons of good books out there that you can read about finance.  Take the time to learn about it.   Investing is fascinating and it was a total mystery to me until a few years ago.  I am still not sure I totally understand all the facets of it.  If you don’t know what a zero based budget is, find out.  You may not want to do it but at least learn about the choices you are making.

#4 – Don’t Put All Your Eggs In One Basket

What led to my own financial troubles was relying on the equity in my house to be the biggest part of my financial plan.  The unthinkable happened, real estate values dropped like a stone and I lost all that equity.  In six months, equity of over $100,000 dropped to $0.  I wish now that I had invested some of that in other things so that I might have had a chance to save some of it.  If you invest your savings in one thing such as the stock market, and it falls, you can lose it all.  Diversify.  Keep some in a savings account, some in CDs, some in stocks, etc.

#5 – Budgets Are Not Evil

A budget does not mean that you can’t spend money on what you want.  It is simple a decision making process to determine where you really want to spend money and how much money you will have to spend.  It is a process that allows you to prioritize your spending so that you have money to spend on the things that are important to you.  It gives you the security of knowing what you have, what you owe and what you will be getting.  Budgets aren’t set in stone, you can change them easily.

#6 – Credit Cards ARE EVIL

The single most devastating thing that you can do to your finances is buy things with a credit card.  Almost all credit cards charge ridiculously high interest rates even the best charge more than you would pay at a bank.  If you pay the minimum payment, you will be primarily  be paying the interest charge and you will pay it forever.  If you are late, most credit cards will not only charge you a late fee but raise your interest rate.  It is extremely difficult to pay off the balance especially when your budget is tight.

#7 – Emergency Fund

A credit card is not an emergency fund.  You need to have some amount of money in a savings account in case of an emergency.  Hopefully, you will have enough in it to support you for a couple months if you have no other income.  At the very worst, you should have enough in it to get you and your stuff home.  It is not easy to have the discipline to save an emergency fund but the more you save, the easier it gets.

#8 – Financial Freedom or Financial Peace

I don’t know if I will ever have financial freedom but I will have financial peace.  There will come a time in my life when I know that I have enough money to live on in the worst case.  Every dollar that I put in savings gives me more security and less worry.  To me, financial freedom would be the freedom to be able to follow my dreams and to have the money to do so.  I doubt at this point in my life, I will reach that but there is no reason why you can’t.

#9 – The Best Thing You Can Do For Your Marriage

Developing a financial plan and having an emergency fund is the best thing you can do for your marriage.  Agreeing on a financial plan, determining your financial goals and relieving the financial stress will do more for your marriage than any counselor in the world.   I have listened to all of you and your biggest marital problems are financial.  You and your spouse need to sit down and reach agreement on what is important to each of you and find a meeting point.  Once you have developed your financial goals, develop a plan to reach them and then stick to it.  This will help your marriage more than any other thing that you can do.

#10 – Teach Your Children

Do what I say, not what I did.  Once you have taken the time to figure out what to do with the money you have and  don’t have, teach it to your children.  Teach them about saving, help them to develop a habit of savings, let them see how their money can grow.   Teach them about budgeting.  Let them plan how they are going spend their money and let them suffer the consequences of not following their plan.  It is a hard lesson but it’s easier when you are there to help them.  Once they have learned about budgeting and planning, teach them about credit.   Teach them everything you know and it still won’t be enough.

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To complicate matters, our income has dropped over the last two months.  This probably has as much to do with all the other stress going on.  I have been less diligent about advertising and I have been much more focused on the crisis of the moment than on business. It has been hard to focus on writing, it has been hard to focus on much of anything.

Today is the first day of the rest of my life.  I woke up this morning and realized that my emergency fund has dwindled and that I have done nothing to rebuild it.   The first thing that I did was move half of my paypal account into my Ing Orange Savings account.  It won’t bring my emergency fund back up to the $500 minimum but it is a start.

Over the last two years, I have found that the most important step to improving my finances is to start.  It doesn’t matter if you are trying to save an emergency fund, pay off your debts, increase your income or build your retirement, it’s starting that is the most important step.    It gives you an imediate sense of satisfaction and accomplishment and starts the momemtum going.

If your goal is to build your emergency fund, put $5 or $10 into it to get it started.  If you need to pay off bills, pick one and send a snowflake off right now.  If you need to increase your income, sell something on Craig’s List or eBay.  Building your retirement, use the snowflake concept to send a little money to your retirement fund.

You will imediately feel better.  You will feel as though you have accomplished something positive.  Use that feeling to keep your momentum going, find a way to do something towards your goal every day.  Give yourself credit for every little thing that you do.

In my case, an emergency fund is not something that I can build quickly.  There is not enough money in our budget to put large sums of money into savings.  I am doing well if I can put $25 into it at a time but even smaller $5 deposits add up quickly.

Today I got started getting back into the savings habit.  I feel good about it.   Instead of looking at how far I have to go, I am going to look at what I have accomplished.  I am going to rework our budget so that we can find some amount of money to send to R’s alimony bill.  It will only be a drop in the ocean but no one will be able to say he isn’t trying.

Do you ever lose your focus?  How do you get started back?

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I think the struggle to save that first $500 is a rite of passage.  It’s hard!  It hurts!  You take one step forward and 2 steps backwards over and over until you finally start taking two steps forward and then one step back, and then three steps forward and one back until you finally have it!  And by the time you have it, you have developed a saving habit.

What a feeling!  It’s like graduation.  I was proud!  I wanted to celebrate!  My little nest egg was there.  What I didn’t realize until I had a real emergency and had to spend my little nest egg was how much stress it removed from my life.  Suddenly I was back at step 1 and worried about how I would pay for any emergency.  What if my car broke down?  What if there was an unexpected medical bill?  While I didn’t consciously think about these things apparently they were in the back of my mind because my stress level increased.

I was back to struggling to rebuild it but you know, this time it was easier.  I had a firmly entrenched saving habit.  Taking that 10% off the top of all income didn’t intimidate me anymore.  I knew that I wouldn’t miss it much if at all and I knew the security that comes with it.

The financial benefit of having an emergency fund  is simple.  When you have money saved for emergencies, you don’t have to borrow money when they happen.  The emotional benefit of an emergency fund is much more complicated and much more rewarding.  It makes you feel secure.  It gives you freedom.  It empowers you.

When do you stop saving?  You don’t!  When your emergency fund is fully funded with 6 -12 months of expenses, you simply switch to saving for retirement if you haven’t already started one.  And the funny thing about all of this is that when I know I have money in the bank, I am less likely to ‘need’ to purchase something.

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I have spent the last several hours compiling a plan to get my financial boat back on course.

1. Where The Heck Are You?Obviously, if I don’t know where I am now, I won’t know how to get where I want to go. I think this is one of the biggest hurdles for most people. How do you accurately determine what shape your finances are in? I sit down with the monthly bills and determine what has gone up (or down) and if there is enough income to pay them. Not having a job with a regular paycheck, I also have to determine what my expected income is for the month. Then I need to figure out what I am going to have left over for living expenses and savings. I have a monthly budget but it’s still easy to get blown off course with added expenses or crises.
2. Is Your Course Faulty
   Sometimes you have to look at the course you have set and determine whether it’s the right one. We have recently been considering the pros and cons of purchasing a newer used vehicle. With all of our vehicles being over 15 years old, it would be really nice to have one newer, more dependable vehicle. Our question has been whether it is more efficient to repair the ones we have or to save that money and put it towards a newer one. Currently I have 3 vehicles and each have their own purpose. I have a 93 Geo that we use for running around town and long trips when we don’t have to haul the trailer. The Geo needs 2 new tires and door handles but it gets better than 45MPG. I have an 89 Ford truck that we use around the farm for hauling trash, wood and currently for pulling the trailer. It’s in good running condition except for an oil leak that means it uses a quart of oil for every tank of gas. I also have a 88 Chevy dually that is in the final stages of an engine rebuild. It needs an undetermined amount of repairs and it is really the one that we are questioning as it will also affect our income.
3. Prioritize
   Once you have made your decisions about the course you really want to take, you need to decide which things are most important. For me, spending time with my parents is high on my priority list. It is not something that I can put off or change. I am going to have to push back some of the other things on my list in order to do this. I had been considering getting a part time or temporary job but I cannot do that and still spend 3 or 4 days a week in Georgia. If I go back to my vehicle decisions, the Geo is really going to save me money on gas in the next few months and so it might make sense to buy the tires that it needs.
4. Make a Map
   So now I know where I am, where I need to go and which destinations are the most important. The easy part is to figure out how I am going to get there. I am going to go back to my budget and tweak it here or there giving a priority to my new destinations. I don’t think that a new truck is on the horizon in the near future so it will probably make sense to go ahead and make the repairs on the Geo. The total cost will probably be around $150. I know that doesn’t sound like much but it is over 10% of our total expected income for the month. That makes it a major decision.
5. Increase Speed
   This is simply an evaluation of whether it is possible to increase my income for the month. While it is difficult to do with the economy and my other limitations, it is not impossible. I am going to sit down and make a list of possible ways to make additional money.
6. Decrease Fuel Costs
   Again, this is simply checking my expenses to see where I can decrease spending. There are some things that are fixed: phone, mortgage, internet but there are other places that I can decrease my spending. My first step is to go through my budget and determine which expenses I can control. These would be things like fuel, groceries, entertainment, and even electric. Yes, it is possible to control your electric bill.
7. Short term Goals
   My short term goals tend to be more flexible. They change more often than my long term goals. By the time, I have gotten this far in the process, writing down my short term goals are fairly easy. I need to increase my income to pay for repairs to the Geo and to rebuild my emergency fund. Short term financial goal: $650 in extra income.
8. Long Term Goals
   My long term goals are fairly simple: become debt free, have 6-12 months of living expenses saved up and to begin investing for retirement. They haven’t changed much in the last year. What most people lose sight of when they are budgeting is that your budget should be your map to obtaining your long term goals. If your budget is not showing you how you are going to get your long term goals then you need to rethink it.
9. Is Everyone On Board
   If you don’t want a mutiny to totally take you off course, you need to make sure that everyone in your family is on board with your budget changes AND your goals. You will have real challenges if half of your family has a different idea of what you should be doing to reach your goals. If everyone is committed to your goals, you can work as a team to reach them. If your spouse does not think it’s important to save money for an emergency fund then they are not going to be willing to make sacrifices for it.
10. Taking Back Control
    Now you know where you are going and how you plan to get there. When unexpected things happen, you can quickly evaluate the effects and change your plan slightly to compensate instead of getting blown this way and that way. If you have an unexpected expense, you will know your budget and your priorities well enough to know that you can take money out of the truck fund to pay for it instead of giving up on your budget altogether. I can’t tell you the number of times that I have felt like my budget was totally blown out of the water by a car or home repair. Instead of adjusting, I gave my budget up totally and started over the next month. If it happened in the beginning of the month, I might blow the whole month instead of making a minor adjustment and keeping on with my current budget.

Most people are afraid of budgets because when you write it down, it becomes permanent. Budgets should be written but not be written in stone. They need to be flexible. You need to have a process for evaluating and updating not only your spending habits but also your goals otherwise when unexpected things happen, you will be unprepared to deal with them.

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I was making plans to drive down next week.  Getting finances in order, making sure that we would have the funds to not only come down for a few days but also to have the bills paid at home.   There is not a lot of excess money in our budget as a matter of fact, there is practically NO excess.  At any rate, I thought that I had it covered and we would both be able to make the trip.

On Tuesday morning, my Mom called in tears.  She had reason to suspect that she was having an episode of diverticulitis.  She had one once before and almost died.  She was crying because she did not know what she was going to do about my Dad as he cannot stay alone.  She made an appointment with the doctor and called me back later saying that they were indeed going to hospitalize her that day and that they had checked my father in as well.

I had to use the emergency fund to come down to take care of their house and animals.  I left Tuesday afternoon and arrived late Tuesday night.  When I got to the hospital on Wednesday morning, they had given my father 4 units of blood over night.  Apparently he has internal bleeding somewhere and that is the reason that he has been going downhill so quickly.

They are both scheduled for tests this morning and we should have some answers about what is causing this.  In the meantime, I am staying here taking care of things.  While it is not particularly costly to stay here, it does limit my ability to bring in income at home so I guess the emergency fund will get a workout paying the monthly bills as well.

I am thankful both that I have it available and that it looks like my parents will be well and home again soon.  And I will be back to building my emergency fund up again.

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However, this leaves us with a continually fluctuating fund.  For the last two months, income has been slim to non existent and the fund has dwindled down to nothing.  Now that March is here, it looks like things are picking up again so I will start rebuilding it.

My hard and fast rule is that 10% of all income goes into the fund.   It doesn’t matter if we sell a horse worth thousands or a saddle for a hundred, 10% goes into savings.

Then I snowflake money into the fund as well.  Snowflaking is fun. When I save a few dollars at the grocery store with coupons, I put that money into the fund.  If I have money set aside for something and I don’t spend it, I transfer that money into the fund.  It’s usually only small amounts but it builds up quickly.

I save my change.  Every night when we come in, R and I put all our coins into a jar that eventually gets counted out and added.  I also put any one dollar bills that I might have into the emergency fund.

Being forced to drain our fund is discouraging and I have to remind myself that this is why we have it.  Building it back up is a challenge and it’s kind of fun.  It’s very rewarding to watch it grow again.

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