There is so much talk about emergency funds I kind of assume every one has one. But recently, thanks to No Debt Plan, it’s been brought to my attention that lots and lots of people don’t have one. Or have an insufficient one. Why?? Why aren’t people taking the time and resources to install this extremely important piece of the plan?

Seriously, why? Please tell me. What are you doing with your money if you are not putting it in an emergency fund? If you have a small e-fund and are paying off debt, then fine. But what about all the other people out there? Are you saving for retirement and not emergencies? Are you saving for your kid’s college? Are you saving for a car? Are you just not saving at all?

An emergency fund is the basis for all other financial moves. We currently have 4 months of expenses saved and will continue to save until we have 6 months of expenses. Other than debt repayment an emergency fund is the most important thing you can do with your money. (In my opinion.) It gives you power. It gives you security. It gives you peace of mind. It reduces your jealousy when your neighbor brings home his new car. I mean, hey you could have that too… if you wanted to finance your family’s security. I wish I could invent a product that could do all that, I’d be rich! But you can’t buy something that will make you feel that great. Quite the opposite.

I received some inspiration from a very unlikely source a couple of months ago. (Maybe a year, maybe more… I have no sense of the passage of time anymore.) I was watching The Colbert Report and he had a guest on that said, “People who eat healthy enjoy their food just as much as people who don’t.” I felt like I had been smacked upside the head like the people in those V8 commercials. Dur! Of course they do! I always had this image of healthy eaters having nothing but carrot sticks and pretzels for lunch. That’s not it at all. Healthy eating can be full of flavor and color. And you are allowed to eat until you’re no longer hungry.

But if you take away the excuse of not enjoying healthy foods, then there really isn’t a reason not to. I mean, if you like vegetables and they make you healthier then why wouldn’t you eat them? Ever since that day I’ve experimented with more healthy foods and have found that it’s true. I do enjoy my food as much as ever. In fact, I often enjoy it more. There are so many more options and the food often has more flavor.

So what does this have to do with personal finance? Well, take those lessons I learned about food and apply them to your money. What if I told you that people who live within their means enjoy their money as much as people who don’t? It’s true. I’m even willing to bet they enjoy their money more. Just like food, it’s not about depriving yourself. It’s about giving yourself more options. Life has more flavor when you have a healthy budget. You can still have everything you need and lots of things you want. It doesn’t have to be about wearing clothes from Good Will and reading books from the library by candle light.

Creating a healthy budget is just like creating a healthy diet. You don’t have give up the things you adore. If you love your fancy cell phone then fine, upgrade when you want. But maybe your plan is too big, or you don’t really need all those extra cable channels. Make the sacrifices in places you can and see how it feels. I bet you will be pleasantly surprised.

Pic by: Lisa Sanderson

Much like I was fixated on the phrase “I deserve it” a few weeks back, I have now been noticing a new phrase, “Why wait?”. “Why wait?” has been popping up all over the place. Most notably it’s been mentioned in car dealership ads and furniture store ads. “Why wait?” they ask.

Why wait to buy that fancy new car you’ve been eyeballing? They have a real shiny one for you and a fantastic interest rate to boot. Why wait for that new living room set you’ve been dreaming about? They have hundreds to choose from and no payments or interest until 2010. That’s right! 2010! Doesn’t that just sound light years away? Why wait for all this cool stuff when you can have it right now! You could be driving that fancy car and sitting on your new couch right this very second!

I’ll tell you why you should wait, you can’t afford to buy it. If a low interest rate is appealing then I already know something about you. You can’t afford it. How do I know this? Because if your financing this stuff then you don’t have the cash to buy it. If you don’t have the cash, then you can’t afford it.

Let’s say you want to buy a couch that costs $1,000. You don’t have the money to pay for it with cash, and you don’t feel you should have to sit on that old futon your brother gave you. So you head down to the local furniture store, mediocre credit in hand.

The sales guy tells you how easy it will be to get that couch. Why should you wait, when you can have it right now! You couldn’t agree more! So you agree to buy the couch on credit. Your payments are only going to be $39.75 a month. Great. They don’t mention that you will be paying for this couch for 3 years, and at 24.99% interest. But who cares? You shouldn’t have to wait, you need it now!

Ok, so lets take a look at that loan and see why you should have waited. Besides taking on necessary debt you will end paying $431 in interest over the course of the 3 years. So the couch that should have cost you $1,000 ends up costing $1,432. That’s why you should wait.

But let’s say you decide to wait. How will you ever pay for that couch? Well, you’ve already agreed to pay $40 a month on the loan, so start with saving that. If you saved that every month and earned 3% interest you would reach your goal in 2 years. You would actually own your couch a full year earlier and save yourself over $400.

And that, my friend, is why you should wait.

Related Posts:

Millionaires drive Minivans

I deserve it

Stop living paycheck to paycheck

Pic credit: wizchickenonabun

The summer in Phoenix is brutal. This is our expensive time as far as utilities are concerned. I know in other places it’s the winter that is the expensive season, but not around here. With the air conditioner running pretty much constantly to keep the house at a reasonable temperature it gets expensive quick.

Our electric company has a time of use plan that we could sign up for. It provides cheaper electricity during off peak hours, and more expensive electricity during peak hours. They advertise that it will lower our electric bills, which can get as high as $280 a month. During the summer (May 1^st to Oct 31^st) the peak hours are weekdays from 1pm to 8pm. We would pay an average of 18 cents per kWh on the time of use plan vs. an average of 10 cents per kWh on the regular plan. During off peak times we would pay just under 6 cents per kWh on the time of use plan vs. just under 10 cents on the regular plan. There is also a $3 monthly fee to be on the time of use plan.

This is a great plan if you work during the day. I’m kinda temped to give it a try anyways. But I don’t know if it will work for us. Since I’m home all day we keep the air on all the time. Granted we do the laundry, cook, run the dishwasher, watch the most tv, and have the lights on during off peak times. I’m just not sure that is enough to combat the 7 hours of the air running at the expensive rate.

What do you guys think?

For the first five years of my adult life I worked for tips. Which meant three things:

• I got paid daily
• I got paid in cash
• I never knew how much I was going to make.

Having a budget was entirely necessary. It’s pretty easy to overspend when your pockets are lined with cash after each shift. I got into the habit of writing down my days tips on the calendar each day when I got home from work. At least that way knew how much I was making. I also took $6 out of my tips each day and put it into savings. After that, I really made use of the envelope system. Although I didn’t know there was a name for it at the time. I did get a small weekly paycheck. I would save those up each month and deposit them all at once. It was enough to pay my rent.

At age 23 I got a new job and was no longer working for tips. Getting paid every other week by check was new to me. So, I needed a new kind of budget. I listed my expenses in a word document and allotted my income accordingly. I stuck to my original plan of holding my paychecks until the end of the month. At the end of the month, when I knew exactly how much I had made, I would fill in the upcoming month’s budget. When a bill was paid I would put the payment info into the budget. If it was a fund rather than a set amount, such as discretionary income, I used receipts to keep track of my spending and at the end of the day I would make a note of how much I had left in that category.

Then I met my husband. He upgraded my clunky word document into a nice organized Excel spreadsheet. This is the way to go. The budget is still basically the same. We sit down together each month and plan the budget for the upcoming month. We keep our receipts and use them to track our spending. We’ve recently started using Bruce the tax guy’s suggestion of organizing your receipts in envelopes for tax purposes. It works out nicely. My favorite part of our budget is that we both have our input. We each know exactly what our goals are and where our money is going. To me, just that alone is worth the effort it takes to have, and stick to, a budget.

I want to get some professional pictures taken of my son. He turned two about two months ago and I feel guilty that I haven’t taken him. I’ve succumbed to the sales pitches of what it means to be a good mom. I’m not a fit parent unless I have a picture of my kid standing next to a big plastic number 2. It sounds stupid, I know. But gosh darn, they are just so cute!

I’ve had a coupon stuck to my fridge for the past three months for no sitting fee and various other savings. I just can’t seem to justify spending the money. It’s not like I don’t have a gazillion other pictures of him. We even had to buy an external hard drive just to keep them all on the computer. But still, I want professional pictures taken of him at each birthday.

Part of my guilt is that I have them of my daughter. I faithfully took her every year, even when I was only making $7,000 annually. That means I spent almost a week’s pay to get her pictures taken. And now I can’t find the money, even though it’s now a small fraction of a week’s pay. Oh the guilt!

I had decided I wasn’t going to take him. The coupon expires at the end of March and I don’t have the money. So I thought it was finished. But then the guilt came back over me. I thought about how if I don’t do it now I will lose this chance forever. So, I took him to get his haircut so he looks nice for his photo shoot today.

I feel good about taking him. I decided I would rather regret spending the money than regret not getting the pictures taken. I can always earn more money but I will never again be able to have pictures taken of my two-year old little boy.

We all say things like “I saved $10 on these shoes.” But everyone knows we didn’t really “save” any money. At the end of the month we won’t have an extra $10. What we should say instead is “I stretched $10.00 on these shoes.” That explains what really happened.

The idea isn’t that we actually saved any money. What we did was stretch our money. We took that $10 and used it to buy something else. Stretching enables us to meet our needs with less money. I don’t have money left over from stretching because I used it to improve my lifestyle instead. Our budget is uncomfortably tight right now. This weekend I found a way to stretch about $20 a month at our favorite restaurant. I’m excited about this because it will mean we get to go out to eat an extra time. I’m not going to fool myself into thinking we will actually save any of that money.