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Income Levels Fall for the Third Straight Year

September 14, 2011 in Saving Money with 0 Comments

Income Levels Fall Again

A new study and article has found that Income has fallen to 1996 levels for Americans when you factor in the effects of inflation.
This is depressing no matter how you slice it, but you can take a proactive approach to this with your own job and future. If you’re in a slow-growth sector, it might be time to rethink your career and industry. If you’re doing fantastic work and haven’t had a decent raise (or one at all), go ask for one.
Set aside cash if you’ve got a positive cash flow. Don’t spend money on stupid stuff and things you don’t need.

Having a positive cash flow feed your emergency fund in the good times can prepare you for the unforeseen events in the future.

Stand tall and figure out your plan and do whatever you can to not let your income level slide.

[Image courtesy of Purple Matt Fish]

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Your Financial Heart Attack: Forced Change in a Heart Beat

June 20, 2011 in Get Out of Debt, Saving Money with 0 Comments

In his book, The 4 Hour Workweek, Tim Ferriss asks an interesting question: If you had a heart attack and had to work 2 hours per day, what would you do?

That’s a tough question to answer, especially if you just got done with your 8 or 10 hour day.  You, like me, probably couldn’t envision a world where you could make enough money to cover your expenses in just 2 hours of work a week.

Ferriss doesn’t stop there.  He then asks: If you had a heart attack and had to work 2 hours per WEEK, what would you do?

Not possible, right?  Well, not exactly IMPOSSIBLE as there are a number of people who have come out of the woodwork and shared their own “lifestyle design” and 4-Hour Workweek personal experiences.

Regardless of whether you think it’s possible or not, here’s a question along the lines of the “heart attack” question:

If you had to cut your spending by 25 percent in the next month, what would you do?

Sounds impossible, right?  It’s a big number, but here’s the thing…it’s not impossible.  There’s example after example after example of regular people like you and me who have radically transformed their lives and dramatically cut down on their expenses.

These folks still have a great quality of life and in fact, I’m sure they’d argue that their quality of life has increased exponentially since they started down the path of living below their means.

So over to you.  What would you do to cut your spending by 25 percent in the next month?

You could renegotiate your debts, refinance your mortgage, sell some extra stuff to pay down your debts or simply cut out some small reoccuring expenses that are adding up to big money every month.

What else can you add to this list?  Have fun with it and take action on this idea.

Game on.

Photo courtesy of Inside Heart

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Money Saving Tip: Reducing Small Expenses at Planned Events

June 19, 2011 in Saving Money with 0 Comments

I played my first round of golf of the season today. I hit the ball pretty good despite the long layoff. But it was something I didn’t do before the round that cost me a few extra bucks.

Normally I go out and buy a bunch of 20oz Gatorade bottles to use for a couple of rounds. My local grocery store usually has a sale of 10/$10 going at some point during the month and I load up.

Of course I forgot to pick up the Gatorade for today and bought two bottles for $2.50 each at the snack shop. That’s $3 extra for the day above what I normally pay. That’s the “convenience” charge I have to pay for not planning ahead.

I know, I know. A lousy $3 is not a lot of money, but it is money that could have easily been saved and deposited into one of my investment accounts.

I know $3 sounds like little money, but over the course of 20 or so rounds, that’s $60 that could be working hard for me. That’s low-balling my “not being prepared for the round” penalty. Add in the cost of food, the occasional sleeve of overpriced balls at the course and the money starts to add up over the summer.

You should always plan ahead for activities you know you’re going to do or events you’re going to attend. Eat something before a concert or ball game and you save a lot of money that can go toward paying down your debt or toward an investing or a savings account.

Me? I’m going to make sure pick up my Gatorade this week before next weekend’s round. What about you? What expenses for planned events can you eliminate or dramatically reduce?

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Hey Big Saver

June 18, 2011 in Saving Money with 0 Comments

We tend to glorify the big spenders in our lives and through the media it’s no wonder that Shirley Bassey was singing about Big Spenders and not Big Savers. That’s unfortunate because without saving, you’ll never get out of the get race.

Regardless of how hard you work or how much money you make, it’s not going to matter if you spend everything you make.

Every dollar you save is $1.40 you don’t have to earn to pay for that expense. When you cut back on silly expenses you’ll quickly find yourself with a surplus. This extra money can go toward paying down bad debt or investing in income-generating assets. Over tune, this extra money will grow and the passive income from your investments will be more than your expenses. Congrats. You’re now financially free.

All this because you were a little frugal and cut back on things that didn’t add value to your life. Why not earn less at a job you love, live below your means, invest the surplus and just have a blast instead of worrying about your debts, what will happen if you get laid off and so on?

Commit to saving more and follow through. Do these two things and you’re on the path toward financial freedom and a hell of a fun, stress-free life.

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Emergency Fund: How Much Should I Save?

June 17, 2011 in Get Out of Debt, Saving Money with 0 Comments

Emergency FundWhat Exactly is an Emergency fFund?
First things first.  Before we answer the question of how much you should save in an Emergency Fund, let’s cover exactly what is an Emergency Fund.  It’s a cash reserve that you have, usually in a savings account, that you use only in emergencies.  As the name implies, you should only tap into or use your emergency fund if you have an unexpected expense that you haven’t budgeted for. 

You use your emergency fund for these larger unexpected expenses instead of a credit card because you don’t want to add to your credit card balance.  Even if you don’t have a current credit card balance, you don’t want to be in a situation where you have an emergency and need to pay for something, but no savings to pay off your card at the end of the month. 

The idea is that your emergency fund has enough cash in it to pay for the emergency without breaking your financial plan.

Emergency Fund: How Much Should I Save?
Ideally, you’re going to set aside enough cash to pay for most unexpected “worst case scenario” type expenses.  You can’t predict how much this will be, but you can use a few benchmarks from some personal finance gurus to determine the right amount for your emergency fund.

Dave Ramsey, author of Total Money Makeover, advocates starting with an Emergency Fund of only $1,000. Note: He advocates having an Emergency Fund of $500 if you make less than $20,000 a year.  Dave argues that $1,000 in cash will take care of most unforeseen expenses, which means all your other money can be funneled toward paying down your debt.

I agree with Dave’s advice. 

Emergency Fund versus Paying Off Debt
If you’ve got a lot of debt – particularly credit card debt – it’s not going to make much financial sense to keep a bunch of cash in a savings account.  Why?  Because you’re playing a loser’s game.  Why sock away hard-earned cash only to see it grow at 1 percent a year while some megacorp credit card company is banging you out for anywhere from 14 to 24 percent interest per year?  That’s a sucker’s game if I ever saw one.  If you sock away 3 to 6 months of expenses into a savings acount but you’re drowning in debt, you’re going to drown in debt for a long time.

So this is why I think Dave Ramsey and his $1,000 Emergency Fund to start makes sense.  Save this amount of money and you’ll start to sleep better at night, especially if you’ve never really had any money in your savings account before.

Once you’ve got a debt repayment plan going, you can focus on adding money to your Emergency Fund.

Emergency Fund: The 3 to 6 Months of Expenses Rule
Most personal finance books I have read have recommended that you save between 3 to 6 months of your monthly living expenses in your emergency fund.  The reason this number is suggested is that it is believed that most people, should they lose their job, would be able to find a new job and start it within 3 to 6 months.

I think this advice is good, but ultimately it’s up to you to figure out how much money to put into your emergency fund.  If you have a career that is in high-demand, then you might need less of an emergency fund.  If you’re the sole breadwinner in your family and it would take a while to find a new job should you lose yours, then you might want to save more than 6 months of living expenses.

In short, there is no “one size fits all” approach to emergency funds, but if you’re trying to figure out how much should you save for your emergency fund, the 3 to 6 months benchmark is a good place to start.

Photo courtesy of jstruan

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