TGIF Guardians! We made it to Friday! As you know we are focusing this month on budgeting and saving. With that in mind, let’s talk about why we are doing this.
Fixing our credit and finances has to be strategic and planning is very important. As they say, if you fail to plan, you plan to fail. We want to learn from our past mistakes and opportunities, so that we can see real results that last for years to come. So, not only do we need to see how much income, expenses and debt we are working with, but we also want to prepare to for both our short term and long term goals. In order to do that, we need to map out how we are going to get there. We are taking January to plan our work so we can work our plan over the next 11 months.
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The next part of that is working to create an emergency fund. An emergency fund is money that we set aside for expenses that are unforeseen. Having such a fund will help us to eliminate the debt cycle of robbing Peter to pay Paula thus eliminating causing us to go further in debt by taking out payday loans or whatever we do when we get into a pinch that ultimately bury us in a deeper ditch.
Here are some common mistakes that I found I have made in the past when I am trying to save and build my emergency fund:
Trying to invest before I save;
Investing without truly knowing what I am doing;
Attempting to turn virtually nothing into something by taking too much risk, which almost translates to that my nothing will always be nothing or become another debt
So our emergency fund should only be touched in the event of true emergencies, only to be touched when your income is disrupted; i.e. loss of job, serious illnesses or accidents. THAT’S IT! Some of things that don’t qualify as being true emergencies is when those shoes you’ve been eye-balling go on sale, when you get that one coupon from NY&Co come in the mail or across your email, you know the one….or when your favorite artist is coming to town for that one concert or comedy show you’ve been watching snippets of on Facebook or IG. We are talking about life altering, bill altering, grocery altering, transportation altering, roof over your head altering emergencies.
How much should my emergency fund be? Typically, you’re on the right track when you have 3-6 months of your monthly expenses saved. But we are forming new habits and we shouldn’t overwhelm ourselves trying to save especially if we don’t have the disposable income to manage setting that much to the side. So, we will take baby steps and start with 1 month of expenses, then we can go from there. This is where essential and discretionary expenses are important, but we’ll go deeper into that in another post.
Where should I put the money for my emergency fund?
Some requirements for where you should put your funds is:
the funds should be liquid
should be earning interest
should NOT be subject to losses
With that being said, you should put the funds into a savings account or a money market account ONLY. CD or ‘club’ accounts are not an option for this because they are not liquid and if you withdraw the money early you would subject to paying penalties. U.S. Treasury bonds are not an option either because they can lose market value if you liquidate before maturity.
Online banks usually work great for this because they typically pay higher interest than your traditional bank. You can also get a money market account if you currently have investment accounts at a brokerage firm. These are great because these funds have a net asset value of $1. So, if you purchase 500 shares in a money market fund, they will have a value of $500. Now the interest is laid separately and fluctuates depending on what the fund invests in. In some cases, the yield on a money market account is higher than savings accounts, but this isn’t always the case.
If you need help setting your budget, finding money on your paycheck or easy ways to earn extra cash, schedule your private 1 on 1 budget strategy session at https://creditguardians.simplybook.me/v2/#book today!
I hope this helps someone and as always, helping you to#RebuildRestoreRevive!
Credit Guardians Consulting 
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