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Money Management

Why an Emergency Fund Needs to be More Than $1,000

Why an Emergency Fund Needs to be More Than $1,000

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I know this is going to ruffle some feathers out there. The reality is that $1,000 in an emergency fund just isn’t enough. Cost of living in most places in the US, is just so much higher than this amount.

Realistically, you don’t touch your emergency fund much. I know for myself, I don’t really ever touch mine because I have sinking funds for most of the unexpected expenses that pop up. My emergency fund is truly there for job loss or serious health issues.

In both of these situations, $1,000 wouldn’t even come close to cutting it. My minimums just for my student loans are $1,100!!! I couldn’t even afford my debt minimums in the event that I lost my job.

Of course, this is why I encourage multiple income streams, but that’s not the point of this post. My point is that $1,000 isn’t going to support you in the event that you lost your job.

Everyone’s situation is vastly different, which is one of the biggest reasons that I don’t agree with a one number fits all dollar amount. Just depending on where you live, that number could be vastly different. It is dangerous to tell people a single number to work from because that could push someone into financial ruin.

This is especially true if you have large non-mortgage debt, like I did and continue to pay off. You’re not in a situation where you’re going to pay off your debt in a year. Unless you hit the lottery or something!

Those of us with large debt especially need to have more than $1,000 saved for emergencies. I encourage 1 month of expenses at first.

Depending on your situation, you may want to consider adding to your emergency fund while paying off debt. If you own a home, have children, have an unpredictable job, or any other situation that requires money unexpectedly, add more to it.

I’ve been paying off my student loans for almost 4 years. I still have $67k left. When I lived at home, I had a small emergency fund of $1,000 with my sinking funds. My expenses were very small and almost all of the unexpected expenses would be covered by my sinking funds.

Now, I have moved out of my parent’s house and I have been increasing my emergency fund every month. I plan to continue adding to it until I have 3 months of expenses saved.

Even though that money could be going to debt, I would feel much more secure knowing I have money set aside for emergencies. The reality is that it isn’t a case of if an emergency happens, it’s when an emergency happens. By having more set aside, it allows you to more easily tackle your debt.

You may think it is counter productive to have an emergency fund of thousands of dollars set aside when you still have debt. I definitely felt that way for a bit of time. Mostly because I just wanted my student loans gone so badly.

But, once you have that emergency fund set, it allows you to easily make extra debt payments because you’re prepared for something that comes your way. The stress of what if, doesn’t stop you from putting your extra money to your debt.

If you’re trying to figure out how to build your emergency fund while paying off debt, my budgeting template helps you to do this. It has a section for income, expenses, and savings. Creating an emergency fund is so important and it absolutely deserves a line in any budget until it is full.

When you have an emergency fund set, you are free to put as much money as you want to debt. So, how much do you have in an emergency fund while you pay off debt?

 

Debt

Debt Free Update: $133,718 Student Loans Paid Off!

Debt Free Update_ $133,718 student loans Paid Off!This post may contain affiliate links. Check out my Disclosure Policy for more information.

I’m super proud of this number. Honestly, it still surprises me when I see it and think about only having $67k in student loans now. And yes, I use the word only before that because this feels like pennies in comparison to where I was.

It truly amazes me how much more in control I am of my life now that I have paid off a significant amount of my debt.

My student loans defined me when I first graduated. They dictated my life. They decided my fate, not me. I had no choice but to do the things I did after college.

When your minimum payments are $2,000/month and you’re a first year teacher, you have no choice but to do what gets that paid every month and still allows you to eat.

It’s why I moved back to my parent’s house. I needed the low cost of living expenses in a high cost of living area. My salary was way higher than it would have been in other parts of the country as a teacher. I took advantage of it.

Between the higher salary and working so many side hustles, it’s the only way I got to where I am now. Well, that and really intentional spending and money management, of course.

What I’m doing now to pay off my student loans

Right now, I’m focusing on paying off my private student loans. I refinanced them in September 2018 from a 7% interest rate down to 4.97%. This has saved me so much money in interest and I highly recommend refinancing with Earnest, if it’s right for you! Read my post all about deciding to refinance here.

Refinancing isn’t for everyone, but when used to lower your interest rate, it can really help you pay off your debt fast. I personally refinanced $45k and am now down to just under $15k. If you’re interested in refinancing, you can use my referral link to get $200 when you refinance!

With having so much debt, you really need to do what works for you on this journey. It’s hard, but you can do it and you can change your life for the better. I’ve experienced major life changes for the better and I still have $67k left!

What I plan to do

I often imagine how much more my life will improve once I have no debt. The opportunities that I will open up to myself are endless at that point.

It can be done and it will be done. Even during the summer, when I don’t get my salary from my old school.

I’m teaching summer school and VIPKID during the summer to bring in some income. I also have my summer sinking fund to pull from and my leftover money from June.

Yes, my debt payments will decrease this summer. I don’t plan to make any extra debt payments in July. Whatever I have left at the end of August will be sent to debt.

I am a planner by nature, I can’t help it. I’d rather be over prepared than under. So, that’s why I’m not risking it and waiting until I am paid from my new school to send any extra money to my student loans.

This is definitely hard for me. I stay motivated by seeing my debt total go down. It will still decrease because my minimum payment on my private loans is $865 and it doesn’t accrue anywhere close to that amount every month.

But, I won’t be making any crazy progress this summer. Again, it’s okay because I know I will get back on track in the fall. I just need to weather this storm.

Handling six figure non mortgage debt on a single income is a different kind of journey. If that’s you, send me an email! I want to connect with more people who have been or want to be on a similar journey to mine.

How much debt did you start with?

Debt

Paying Off My Student Loans Is Saving Me $12k A Year

How I'm Saving $12k a Year by Paying off My Student Loans

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Everyone considers student loans to be a good debt. And for some people, it absolutely is a great way to get the career you love. But, for others, it may not be the best move.

I know for myself, I didn’t even know what student loans were when I was signing the checks for 5 figures of student loans. Naively, I didn’t even know how they worked and I definitely didn’t know what interest was.

Personally, I was in the fortunate position of never having any other debt than student loans. Unfortunately, this meant that I truly had no idea how debt worked.

I signed myself up for $201k in student loan debt and had absolutely no idea that it meant I’d pay SO much more in interest. And I had no idea that it would completely dictate my life post grad. But, that’s a whole other topic.

Student loans are crazy because they allow young adults to take out mortgage sized debt with high interest rates and little to no education. I was taking out loans for 5 figures, totaling $201k, some with 8% interest, and no education on financial literacy.

This was my fault completely, I take ownership of it. But, I think this is a serious issue. One that needs to be changed ASAP for the future young people in our country.

And now that we’re in this situation, what can we do for all of us drowning in debt. I’m not saying loan forgiveness is the answer, like it has been thrown around lately in the news. It absolutely is not the answer.

We took out the debt, we should absolutely be required to pay it back. But, we can do something to change our situations right now.

I graduated grad school in August 2015 with $201k in student loans, mostly from undergrad. Never once did I expect some program to bail me out. I’ve absolutely worked my butt off to pay off $133k in student loans since graduation.

Once I finish paying these off, I will be saving myself $12k every year, just in interest. I would have originally been paying $12k every year for 20 years, if I didn’t commit myself to paying off my debt.

Do you know how much that is over 20 years? $240k. Of course, some of them would drop off at the end and maybe I’d have refinanced my loans to get a better rate. But, that’s a TON of extra money just getting thrown away, on top of the principle of $201k.

I’m not even including my principle payments in this number. That number would be much bigger. I’m most concerned about the money I’m just throwing away to interest every year. It’s doing nothing for me.

So, how much money are you throwing away to interest every year? I encourage you to find out by looking at your statements and seeing how much goes to interest every payment you make. Or, you can use your tax statement you get every year.

Another way to see your students loans and how much money you’ll put to them is by using undebt.it. It will allow you to see how much money you’ll put to your debt on a normal payment plan, and then what more payments will do to it.

Our society preaches that student loans are good debt. Yes, they can be valuable to better your career, if done correctly, but you need to be careful about student loans.

My question to you is, are you planning to pay off your student loans early? If not, what’s stopping you?

I’ve been in your exact shoes and I’m happy to say that my life is so much better already and I haven’t even finished paying off my student loans.

I still have $67k to pay back, but I can finally breathe now and not feel like I’m totally drowning in debt. You can feel relief, you just need to do the work like I did.

I want to know what’s stopping you from paying off your student loans, send me an email or comment below.

Money Management

How to Prevent Over Spending

How to Prevent Over Spending

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Having a budget is great. You are telling your money where you want it to go and you’re being mindful of your spending. But, how do you stop yourself from over spending?

If you’re like I was, I would make my budget at the beginning of the month. I had some great intentions for my spending that month. My student loans stood no chance with how well my budget was made.

But, then it sat in my Drive for the month until the end when I zeroed out my budget. I was fortunate that I made a lot more than I spent because I lived at my parent’s house and worked a lot of side jobs.

I’d reconcile my budget at the end of the month and whatever was leftover I sent to my student loans. Extra payments were being made, so who cares if I overspend in my eating out budget?

The problem is that this creates a terrible habit of spending whatever I want, as long as it’s within reason. I had the privilege of having extra money, but what happens when I don’t have this? I overspend and don’t have the income for it, that’s what.

Also, it slows down your progress towards any financial goals that you do have. I’m not saying you shouldn’t spend any money, but you shouldn’t spend money just to spend it. Make your money bring value and joy to your life, not just to spend for no reason.

So, here’s what I do to make sure I don’t over spend every month.

1. I make sure I have a realistic budget.

There is nothing more defeating than constantly over spending month after month. So, do yourself a favor and create a realistic budget that actually reflects your spending.

What’s the point in making a budget, if you’re making one that doesn’t reflect where you are in your money journey? I’d love to delete my student loan payment from my budget, but that’s just not possible. So, you shouldn’t do that with your other categories either.

Don’t make your budget based on where you want to be, but where you currently are. So, make your budget realistic from the start to set yourself up for success.

2. Check in with your budget daily or weekly.

In order to prevent over spending, you need to make sure you check in with your budget regularly. That’s why your budget should have an “actual” category. This is where you note your actual spending for the month. Without this spot, your budget is useless.

When you reconcile your budget, make sure to take some time to reflect on your spending so far in the month. This is especially important midway through the month.

In my budget, I personally use Google Sheets because I can set up all the formulas to do the math for me and change colors based on where I’m at. Green means I still have money leftover, red means I overspent. You can get your own copy here.

If you’re in the red already and still have month leftover, you need to figure out why you overspent and how to make up the funds. If you’re in the green, that’s good and you need to see how much more you have in comparison to how much month is left.

This is the key to not overspending. Check in with yourself throughout the month and if you’re getting close to overspending, stop future spending, if possible.

3. At the end of the month, check in with your budget and make changes.

When the month is over, it’s time to zero out your budget and reflect on your month’s spending. If you did over spend in a certain category, where did you spend the money? Was it a special month that you forgot to budget for? Or, is this typical spending for the month and you should increase the category?

Certain categories I wouldn’t increase, even if you did overspend. You need to decide what is important to you and why you overspent in that particular category. If you underspent in eating out, but overspent in groceries, that makes sense! To me, this is still a win because chances are your overall spending is lower in this situation.

You could also find ways to streamline your budget categories. If we consider the above example, they directly affect the other. When we spend less at restaurants, we typically spend more at the grocery store. So, maybe just have a single food category to cover both.

This allows some flexibility in your budget month to month. It also gives you the freedom to spend your money in that category however you want.

You need to find the right balance.

Budgeting takes times. It’s not something you will master over night. Even after years of budgeting, I still have months where I overspend. It happens and we can’t dwell on it.

But, we should reflect on it and consider why we overspent. For example, this month I spent more in my food category. I know it’s because I went to a lot of unexpected happy hours and lunches with my coworkers before I left my old school.

Realistically, I should have planned for this going into the month since I knew it was my last month at the school. Lesson learned and I’m now moving on from it.

Overspending will happen, just make sure you have a plan to prevent it and a plan for when it does happen. How do you prevent over spending? 

 

Money Management

How to Manage Your Sinking Funds

How to Manage Your Sinking Funds

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I absolutely love sinking funds. They are a total game changer to any budget. If you don’t know what a sinking fund is, you can check out my post here.

They can be tricky to manage at times and getting into the swing of them definitely is difficult. Sinking funds budget in a totally different way. The great part about them is that you can use them in whatever way you want.

I personally try to keep only a few. Having too many gets complicated and I’m all about that minimalist life right now. I combined a ton of my sinking funds into very broad categories. Managing them is easier this way.

I personally have 3 sinking funds currently, you could argue I have 4. I have a car, moving out, and summer sinking fund. Also, I contribute monthly to my emergency fund because that is used for any medical expenses that come up unexpectedly.

Most of my sinking funds are fully funded currently. My moving out and summer sinking fund will be gone shortly. That means I will only have my car sinking fund and my emergency fund. This is what works for me.

Over the years, I have created a system to manage my sinking funds. I try to keep it pretty low maintenance because I don’t want my sinking funds to take up a ton of my time. They are super important though and have helped me out so many times.

1. List out your sinking funds.

The first thing you need to do is list out your sinking funds. If you don’t have any sinking funds, think about the recurring expenses you have that are hard to plan for, or that you want to be prepared for when they come up.

Once you have them listed, think of realistic amounts for each of them. Most sinking funds won’t be contributed to forever, unless it’s for yearly expenses you have.

For example, I felt comfortable having $1,000 in my moving out sinking fund. Once that sinking fund was full, I stopped contributing to it.

My summer sinking fund is slightly different. That is contributed to monthly to supplement my income in the summer when I don’t get my teaching salary. For the last 4 years that has been contributed to for 10 months of the year. My new school is on a 12 month pay schedule, so this sinking fund won’t be needed.

2. See if you can combine any sinking funds.

When I first started, I had so many sinking funds. It was a mess honestly. I spent so much time managing it all and trying to figure out what went where and which sinking fund to pull from. It was just way too much.

That’s when I moved to a more simple approach. Anything that has to do with my car, comes from the car sinking fund. I stopped marking for specifics because it took way too much of my time.

This was also when I put my medical sinking fund into my emergency fund. About 2 years ago I started having reactions to antibiotics. This caused my doctor to make me go through a ton of allergy tests about a year ago to find a safe antibiotic for me to take.

Out of nowhere, I had a ton of medical expenses. Nothing major, but my medical fund was wiped clean from all the copays and medications (I am so grateful I have quality health insurance!). This made me dip into my emergency fund.

This experience made me realize that most of my medical expenses are emergencies because I don’t know they are coming. So, I beefed up my emergency fund and left it at that.

3. Create a system to manage your sinking funds.

Most of my sinking funds are pretty permanent. Or, they were at the time I started them. For this reason, I created new accounts for them in Ally. I love my Ally accounts and have had amazing customer service with them.

This allows me to manage them very easily. I set a limit that I am comfortable with for each category and contribute to them until that limit is reached. For my emergency fund, I always contribute $100 to it because I haven’t hit 1 month of expenses yet, now that I have moved.

Once I hit 1 month of expenses, I will add a buffer of $500 for medical expenses and that will be my sinking fund. For me, I feel comfortable having this system in place. It covers most of my recurring expenses and it is easily managed.

If you have a lot of sinking funds in one account, I suggest you have a spreadsheet or some other way to manage how much is in each of your sinking funds. Personally, I wouldn’t have sinking funds at home. One, it isn’t secure this way and two, it’s not doing any work for you sitting at home.

By having my sinking funds in Ally, it is earning me some interest. If I’m having money just sitting around, I want it to be at least earning some interest.

Figure out a system that is easy to manage and works for you.

Every person’s financial situation is different. What works for me, probably won’t work for you. That’s why you need to take the time to figure out a system that does work for you.

Sinking funds are a wonderful thing that allows you to prepare for a lot of situations. That’s why it’s so important to figure them out. If you need help with this, this is part of my monthly 1:1 coaching I offer.

Getting your budget right will help you finally start reaching those big money goals you’ve always dreamed of reaching. How do you use sinking funds?

Making Money

How to Create More Income Streams

How to Create More Income Streams

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When you’re budgeting, it gets to the point where you just can’t cut anymore expenses. Well, you could, but it may compromise something important to you. This is where multiple income streams comes in.

That’s why I love earning more money. You can always earn more, but you can’t always cut out expenses. I personally had 5 income streams I regularly relied on the last 4 years. The more streams the better!

It also is good practice to not rely on only one source of income. This is a risky game to play. Even if you think your job is a reliable source of income, you just never know. Things change so fast in our society, including your job.

By having more sources of income it allows you to be flexible in where your income comes from. If one source of income is lost, you can move your efforts to other sources.

There also is a never ending amount of money that can be earned by having multiple sources of income. This is especially true if you create more passive income streams. Passive income streams allow you to do the heavy work in the beginning and then continue to make money with little to no work.

Here are some of the things I have learned to create my many income streams.

1. Use your skillset to immediately add more income streams.

The first way to make more money is to utilize the skills you already have. This is a quick way to make money because there is no learning involved before you make money.

For example, as a teacher, I immediately started tutoring and babysitting. This allowed me to use the skills I already had to add more income streams. I was able to get these income streams up and running as fast as I found clients.

Try to think about the skills you have right now and how to turn them into additional income for you. The great part about the Internet is that there are tons of people looking for freelancers to complete small projects. If you have a skill that is one for hire, get yourself out there and find some quick jobs!

2. Be aware of your full time job and your schedule.

The great part about additional income streams is the extra money you have coming in obviously. The bad part is that they sometimes take a lot of time to do. When adding additional income streams, you need to be mindful of what you can realistically do.

If your additional income stream is going to impact your full time job, I would say it’s a bad idea. Make sure that you have time and energy for everything.

To figure this out, I would suggest slowly adding income streams. This will allow you to see if you can handle the additional work in the beginning. If it gets to be too much, scale back, or find a different way to make more money.

Some income streams are more taxing on us, figure out what works for you.

3. Be organized.

When you have multiple income streams, you need to be organized. There is no way to do this if you’re all over the place. I personally love creating systems and procedures to do things. This is used in my work, but also my tasks I need to complete for myself.

For example, I keep my schedule in Google Calendar so it is always with me on my phone. This allows me to easily schedule jobs as soon as they come in. By having my calendar on me at all times, it ensures I don’t double book myself or miss jobs by forgetting to add it to my calendar.

Also, I keep a spreadsheet for all of my income streams. This allows me to track my income easily. It also makes it very easy to figure out taxes for my side hustles. I automatically pull my taxes and update my spreadsheet when my payments clear my account.

4. Create passive income streams.

This is something that I am currently working on more. Passive income streams does not mean no work. It usually means that you do the work up front and then continue to earn money from it.

This can be done in so many ways, but is a great source of income. Especially when you have multiple passive income streams. This is usually when a product is created and then people continue to buy the product. It takes work and time to create, but then continues to earn you money.

I’m currently working on this type of income and building more of it.

There are so many ways to make more money, it’s just a matter of figuring out what is right for you.

There are so many different ways to make more money. Whether you decide to work for another company, create your own side business, or create products, there are plenty of ways to make more money. Figure out what you want to do and start making money doing it.

The great part about additional income streams is that you can monetize your hobbies. This is something that I love doing. If you can find a way to monetize the things you love to do, you’re set!

Personally for me, I love teaching and personal finance. What I especially love is teaching personal finance and helping others with their finances. It’s a work in progress for me, but I’m committed to doing the work by creating many different income streams. What are your income streams and how did they start?

Money Management

How I Budget Every Month

How I Budget Every Month

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When you are first budgeting, it can be a process to figure out. After awhile, it becomes second nature though. The most important thing is to find a system that works for you. Once you’ve found the system that works, the key is streamlining it.

I would suggest trying different ways to budget until one feels natural to you. I love hearing how others budget and manage their money. It always gives me a new perspective and things to consider when I manage my money.

Sometimes I get stuck in my ways with budgeting. It’s good to periodically look over your budget to see where improvements can be made.

This is the process I do to manage my money every month. I use a template I created on Google Sheets, you can get a copy of the template here.

1. Before the month starts, I copy my budget from the previous month and make adjustments.

The great thing about using Google sheets is that you can simply copy the tab from the previous month. This makes it much easier to create my budget every month. The first thing I always do before the month is make a new tab for the upcoming month.

Once I have the new tab for the new month I can start making adjustments based on the previous month. I’ll look over my variable categories and see which I can lower or need to increase. Also, I’ll add any expenses I’ll have for that new month.

2. Throughout the month, I check in every Sunday.

I have been budgeting since 2014. When I first started, I checked in every day with my budget. This kept me accountable to my goals and made sure I was staying within my budget.

Now that I have created better habits and am naturally more frugal, I only check in once a week. During that time, I update my actual spending for the week in my different categories. Any of my bills that were paid, I add them as well.

By checking in with my budget, it allows me to see where I’m at in my budget and how much more I have left until the end of the month.

I do use credit cards that I pay off every month. This allows me to quickly update my transactions every Sunday. If you use cash, you can easily track your spending with your receipts.

Since I do a few side hustles, I will also add the additional income I make each week as it comes in. This allows me to see where I’m at with my additional income. It holds me accountable to reaching my goals and allows me to see if I need to work more to reach my goals.

This also makes it easier to work more. Sometimes it’s hard to work so much, but when I see how much closer I am getting to my goals, it’s easier. For example, I can calculate how many more VIPKID classes I need to teach that month and it might encourage me to stay up a little later or get up a little earlier.

3. At the end of the month, I zero out my budget.

I follow a zero based budget, so every single dollar has a job by the end of the month. At the end of each month, I add up all of my income and all of my expenses.

My salary is the same every month, this is the number that I budget with at the start of the month. Throughout the month, I add my side hustle income to my budget.

This means at the end of the month I have leftover money, assuming I didn’t need to cash flow any unexpected expenses. The leftover money goes to my debt.

Find your system and make it work for you.

This system took me a while to figure out. It’s what works for me, maybe it will work for you. Or, maybe part of it will work for you. Take the time to figure out what works for you and get your money to work for you.

Budgeting your money is just that, telling your money what to do. It’s not about restricting yourself, it’s about making your money go where you tell it to go. So, figure it out as soon as possible and stop letting your money slip away from you. How do you budget?