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Emergencies...

I'm sitting at home today waiting for the impending store to hit.   I realize how blessed I am, we have food, water, and fire wood.  If we are stuck for a few days, we will be okay.   I even have cash on hand-in the event the power should go out and we are unable to use either ATM's or our debit cards.  When you live paycheck to paycheck, it is almost impossible to respond to the unexpected.  I have seen the stress on the faces of people who know they will have to juggle bills to pay for the unexpected costs.  It can break your heart.  

There is a sense of calm, when you know that you have the means to get through the unexpected.
Mother nature is no different than any other unexpected costs-a snow storm or a blown tire; all unexpected events that can create havoc if you are not prepared.   If you have an emergency fund, you have the means to get through the unexpected .   The reason I advocate a savings account with a $1000 before paying off credit cards, the sense of calm and the confidence it brings knowing you can get through most anything.

I hope everyone stays safe and warm during these upcoming storms that are hitting the country at the moment.

Setting up your safety net.

Tracking your expenses, setting goals and building your budgets can be overwhelming, frustrating and demotivating.    It may seem that you are spending a great deal of time working with your finances. In the beginning you will be.As you go through the process, you will find that you spend less time as the plan becomes second nature.

You may not want to know just how bad things are; the first step to making it better is to face the music.  Start my writing it all down; your income, expenses, what you owe, and what you own.  When you look at everything in black and white, it may become quite discourgaging as it may be worse than you realized.  If you don't know what to do next-work on your safety net first.  Having a safety net, can change your life.  Knowing you have a back up for those unexpected expenses, like car repairs or doctor's bills, can change the way you think.  You know longer have the constant worry-what if something happens, it can free your mind and allow for you to relax and think of how to improve other areas of your finances.

Start your savings small-even if it's only $5 a week, have an amount and put it away with each paycheck.   When you get to $1000-then start worrying about your debt.  This safety net should come before paying down debt, retirement funding, and children's education at this point.  Once you have the safety net in place-then you can start working on the other items.

Change is never easy-it takes time, discipline, tenacity, and sometimes just grit to make it happen.   It is so easy when it comes to money to get discouraged.   It may seem that no matter what you do; nothing will ever change.  But it can change, not overnight, but it can change.  Take small steps; these small steps will lead to a better future. 

Setting Goals

Budgets and financial goals, sort of like the chicken and the egg.  Do budgets drive your goals or do goals decide your budget?  For me, I set my goals and then my budget to accomplish my goals.  I have always been one to set goals, where I have failed in the past is not writing down my goals and not checking my progress towards meeting the goal.  Setting your goals, writing them down, and monitoring your progress is the path to meeting your goals.

Your goals can be simple,  in one year I want to pay down debt by $520 and establish an emergency fund by $520.  This equals $10 per week for each.  For some you'll look at your budget and have no idea where you are going to find $20 per week.  It may be hard to do, but if you look and are committed you will find it.  One way is to look at cutting out eating out expenses-if you spend $25 per week on lunches, start packing your lunch using left overs or even buying additional groceries from the store.  My guess is that you will be able to save $10 per week just making that change.  Another area is to use coupons and combine with grocery sales.   These should be able to save you something toward your weekly goal.  There are sites on the web that combine weekly sales with coupons for your, so you spend minimal time.  Some of my favorite sites are www.couponmom.com; www.southernsavers.com; and iheartpublix.com.

My cutting this expense, and putting aside your savings toward your goal of savings and/or debt reduction; you will see progress in now time.  

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How to Increase Your Income

In order to improve your financial picture, you need to reduce expenses and increase income.   Today I want to talk about income.  There are several ways to add to the budget through additional income.  I am a big supporter of multiple streams of income, not depending on one source of income.  In the same way you want to diversify your investments, you want to diversify your monthly income.  In financial terms, "you hedge your risk of loss" by having multiple streams of income, you lose one source of income, you have others to fill in the gap.  If you lose your sole source of income, you lose everything.  

In addition to "hedging your bets" with multiple sources of income, the extra income can help pay off debt and build your emergency fund.   It doesn't take a lot of extra income, sometimes as little as an extra hundred dollars a month can make all the difference.  Twelve hundred dollars a year can save you $153 in interest on a credit card charging 22%.

I think we all agree extra income is a good thing, but how?  If you are able to work a part time job at a local retailer, that may be the easiest way to bring in money on a short term basis.  For some, a retail job just is not feasible-could be you are already working two/three jobs, maybe child care is a concern, or maybe there aren't jobs that fit your schedule, in any case there are other options. 





Other ways to earn extra income that may  fit your schedule better and may be on a more long term basis are:

Sell items on Ebay-things we may never use that just sit in a closet can bring in some cash.
Take on line surveys-some pay in cash, some gift cards. 
Look to do freelance work through sites like Elance, or Odesk.
Look to write content on sites like Textbroker.
Start a store on Etsy and sell crafts.

The key is to think outside the box and find something that will fit your life.  As with most things, it may be slow at first, but given time it can pick up, just have faith. 

The Plan

We have the rules and the basics, now what?  Now comes the hard part, understanding what can change.    You have to take an objective look at your finances and determine the difference between a want and a need.  For me the want is "I want Starbucks every morning"-the need is "I need to eat a healthy breakfast and have a bit of caffeine every morning".    More times than not the "I want Starbucks" wins out.  I believe this happens as there is bit of psychology going on here.  I think  " I work very hard for a living, I deserve at least a $4 cup of coffee each day".  Whether this is true or not, this can set us up for failure as this mindset can carryover to other parts of our lives.  I'll write more on this in a later blog.

I have used a very simplistic budget and credit card example, to try to illustrate the process.  I know this is not a very good representation of  reality, but I am hopeful it will at least give an idea of the process.  A monthly income/expenditure list might look like this:

 

	Week 1	Week 2	Week 3	Week 4	Monthly Total
Weekly Salary	500	500	500	500	2,000
Rent	(300)				(300)
Gas	(50)	(50)	(50)	(50)	(200)
Food-groceries	(100)	(100)	(100)	(100)	(400)
Food-eating out	(50)	(50)	(50)	(50)	(200)
Phone		(100)			(100)
Clothes	(30)	(30)	(30)	(30)	(120)
Electric			(100)		(100)
Water			(40)
Car payment				(300)	(300)
Car Insurance		(100)			(100)
Credit card		(75)	(100)		(175)
Parking	(30)	(30)	(30)	(30)	(120)
Balance	(60)	(35)	0	(60)	(155)

A little depressing-you work hard and have no money.  In fact it's worse than no money-you have to borrow to pay your living expenses. These shortages are being covered either by credit cards or overdrafts from the bank.  With overdraft fees of $35 per item returned and credit card interest up to 30%; it is an expensive way to finance life.  Assuming that these overages are going on a credit card, you credit card balances may look something like this:

 

Beginning Credit Card Balance	1,100	750
Payments	(75)	(100)
Charges	75	80
Interest for 30 days @ 22%	20	13
Ending Balance	1,120	743

You can quickly see why your credit card balances are not going down, even with paying more than the minimum each month.  The interest and new charges are not allowing the balances to go down.  If you pay late or go over the credit limit, the fees can be up to $35 each;  adding even more to the ever growing balances.

The first plan is how to reduce expenses so that you no longer have to use the credit cards, pay the credit cards off,  and start putting a bit aside so you don't have to depend on credit cards for unexpected expenses.

Looking at the above example, I would look to add $25 to the weekly grocery bill and stop eating out; cut out clothing expense, and budget  large expenses throughout the month.  By budgeting large expenses throughout the month, you won't have one week where one large expense has wiped out your cash  leave you vulnerable to using your credit card to cover the shortage.  The new budget would look like this-I've highlighted some of the changes:

	Week 1	Week 2	Week 3	Week 4	Monthly Total
Weekly Salary	500	500	500	500	2,000
Rent	(150)		(75)	(75)	(300)
Gas	(50)	(50)	(50)	(50)	(200)
Food-groceries	(125)	(125)	(125)	(125)	(500)
Food-eating out					0
Phone		(100)			(100)
Clothes					0
Electric			(100)		(100)
Water			(40)
Car payment	(60)	(75)	(30)	(135)	(300)
Car Insurance	(50)	(50)			(100)
Credit card	(35)	(40)	(50)	(50)	(175)
Parking	(30)	(30)	(30)	(30)	(120)
Balance	0	30	0	35	65

Based on the new budget, you would have $65 extra each month.  I would advise to take a portion of the amount (maybe $35) and start putting it aside for unexpected expenses that always seem to come up.  I would then take the balance of the extra ($30) and start throwing it toward the credit card with the lowest balance.  The revised credit card balances would start to look like this:

Beginning Credit Card Balance	1,100	750
Payments	(75)	(130)
Charges
Interest for 30 days @ 22%	19	11
Ending Balance	1,044	631

With no new charges, and extra cash going towards the balance, the balances will start going down.  Once you pay off one card, you can apply the payment for that card towards other balances.  You will see your balances quickly reducing.   At the same time, you are saving some each month, so that if  you have an unexpected expense, you can pull from that instead of having to use your credit card.

It is an uplifting feeling in knowing that you have a plan, you can see your balances going down, and you have some money on the side for unexpected expenses.  This process though is a bit like a diet, the first month or so is hard, but once your clothes start felling looser, you realize it is worth it.  Once you see the credit card balances going down and having some money on the side, you realize it is worth it.

My next blog will be ideas on how to add income to your budget.