Nov 17, 2018 | Financial Foundation, Frugal life, Personal Finance, Uncategorized
In a recent post, I mentioned cutting expenses by adding one frugal habit every month or so. The example I gave was reducing Starbucks trips from daily to once or twice a week. The more I thought about it, the more I realized there was something else there important enough to write about. It’s the idea of making your “splurges” special.
This sounds kind of weird because splurges, by definition, are special. They are a special treat we give ourselves. Originally, the meaning was something a little over the top, something luxurious or costly. The trouble is that for whatever reason, whether it is advertising that encourages us to indulge more often, or the stress of daily life, many of us have “splurge-spread.” What should be a special treat has become something that we do almost every day. We still tell ourselves it’s our little splurge. But it has become a part of our routine.
That’s what happened to me with my Diet Dr. Pepper habit. When I was little I rarely drank soft drinks, even though I loved them. Then when I was out on my own, I started to have my beloved Diet Dr. Pepper more and more often. I wasn’t a coffee drinker, so I’d drink a DDP for my morning caffeine fix. At first, it was just when I hadn’t slept well and needed a pick-me-up. But pretty soon, it was a daily thing. If I forgot my DDP, my day wasn’t going to be a good one. Then, I started having one in the afternoon. I realized I was headed for a two-a-day habit. And it wasn’t something special. It was normal.
So I’ve started to cut back on my soft drinks. (My tastes have changed with maturity and now I’m more of a Coke person.) It’s taken me a long time, but now I drink 2-3 a week instead of 1-2 a day. Here’s the thing, though. My Cokes have become special again. Instead of it ruining my day if I don’t get a soft drink, when I DO get one, it’s a splurge. It FEELS special again. I really savor the bubbles and the sweetness. I notice how good it tastes.
Now soft drinks aren’t super expensive, so it’s not really about the money in that case. It’s about my quality of life. And even though it might seem crazy, having fewer splurges has actually improved my happiness. When I have a Coke, it is a choice, not a habit. And oh my gosh, how I enjoy it. Before, I just took it for granted.
But what if part of it IS the money? What if the habit you decide to change can add $20 a week or more to your bottom line, and make you happier in the process? That would be sweet, right?
So give it some thought. Is there a “splurge” in your life that you don’t even notice anymore? Is it something that could either save you money or could become something special again instead of just part of your daily routine? Try reducing – not eliminating – it. And see what happens. You might find that you like it even better when it is truly a splurge.
And whatever you do – or don’t do – on this front, remember I believe in you. You got this!
Nov 10, 2018 | Uncategorized
No one likes to think about recessions. They can range from unsettling to completely terrifying depending on your financial and job situation. But even if we don’t like them, they are predictable. On average, we have had a recession about every 6 years, which means that we are getting overdue for the next one. And while none of us is looking forward to one, there are several things we can do to make sure that we are on the mildly-concerned side of the spectrum instead of the full-on panic side of the spectrum.
Create an emergency fund
The most important thing that will help the average person weather a recession is to create an emergency fund. However, an astonishing number of people don’t have any money in savings at all. Not a great thing if we’re staring a recession in the face. So the first thing to do is get something in savings.
Many experts recommend an emergency fund of 3-6 months of expenses, although some recommend one as large as 12 months’ worth of expenses. The problem is that it can take significant time to save that much money, and if you aren’t paying off debt, you are sitting on a mountain of cash that you might not even need. At the same time, you may be paying huge amounts of interest each month that will make saving anything at all that much harder.
Finding the right balance
One way around this Catch-22 is to set a certain amount for a starter emergency fund, and then switch to paying off debt. When all debt is covered, then you switch back and finish up the emergency fund. For me, I would have a lot of trouble sleeping at night if I didn’t have at least one month’s worth of expenses saved up. So maybe the logical thing to do is to focus on saving a one-month emergency fund, then paying off a portion of debt, then saving another month, and so on.
If you have read my series on Dave Ramsey’s Baby Steps, you’ll realize that this is contradicting his advice to save only $1000 and then pay off ALL debt before finishing the emergency fund. But there is a reason I don’t like that advice at this exact point in time. We are overdue for a recession. Nobody can predict the future of the financial markets. But it makes me really nervous not to have a little bit of extra money laid aside when a recession – and possibly a big one – is looming.
Pay off debt
OK, so you have decided to get an emergency fund saved up. And you’ve chosen an amount to start with, one that’s enough to let you sleep at night, but not take 6 months to save up. Now it’s time to kick the debt pay off into high gear. For this, definitely start with your smallest debt. Why? Because every debt that you pay off is one less payment you’ll have if you get laid off. Even a reduction of $50/month in minimum payments can reduce the stress and make the emergency fund go a little further.
So this is what you do. Make minimum payments on everything but your smallest debt, and pound that sucker. Pay it off as quickly as you possibly can. Don’t eat out. Don’t splurge. Don’t buy ANY new clothes. Put every extra penny toward paying off that first debt. When the littlest debt is paid off, take that minimum payment, add it to the payment on the 2nd littlest, and pound that one.
You might not get all your debts paid off before a recession hits. However, you’ll be in a much better position if you have an emergency fund (even a small one) and have started paying off debts.
Once you’ve paid off a few debts, you might want to re-assess. Does your job seem stable, or is there trouble on the horizon? If it seems stable, you might want to stay the course. But if there is talk of a RIF at work, or if your partner’s job seems shaky, you might want to increase the emergency fund a little more before you pay off any more debt.
Create a side hustle – or two
This one goes hand in hand with the others and will help them to go a lot faster if you do it right. Start a side hustle or a small business to amp up your income. That gives you more money to put toward your emergency fund or your debt. The important thing here is not to spend too much money setting it up.
And the good news is that there are a lot of side hustles you can get going fast with very little investment. Here is a list of “high-dollar” side hustles – side hustles that allow you to make $20 or more an hour. If you’d like to get the real scoop on VIPKID, you can check out my interview with a friend of mine here. She’s been doing VIPKID for almost a year and it really works for her. Shoot, for a month or two, you could just deliver pizzas or babysit. But if you are serious, get out there and do something to earn cash and speed up the rest of the plan.
If you can earn an extra $300-$400/month, everything else is going to go a TON faster. You’ll build your emergency fund faster and pay off debt faster, too.
There is one SUPER important thing to remember here, though. Any money you make from a side hustle might not have taxes withheld, especially if it is a small business you start on your own. Make sure to put about 25% of that money back so Uncle Sam doesn’t surprise you with a big tax bill next April.
Update your skills
If you feel like your job isn’t as secure as you’d like it to be, updating your skills might be a higher priority than a side hustle. Now, I love extra money coming in. But what if you are worried that your company isn’t doing so well or that you might be one of the first to go in case of a downturn? Getting a few new skills under your belt might be more important than immediate income. Focus on skills that would make you more valuable in your current job or more marketable if you needed to go job hunting. Computer skills are always a good bet, but if you are almost proficient in a foreign language, that might be a good choice, too.
Again, spending an arm and a leg isn’t ideal. But you can get an absolute TON of learning for free online. Check out this list of the 10 best sites for FREE learning. Or this one for specific IT courses.
Check your monthly bills
Besides earning more money with a side hustle, you can also cut your monthly bills to find more money. In case of a recession, it will help to have lower monthly expenses. And in the mean time, you will have extra money extra month to put toward your emergency fund or toward debt.
It seems totally overwhelming and a lot of people don’t know where to start. But I’ve got a plan. Start by assembling all of your monthly bills and statements. Check your statements to find subscriptions or monthly charges you might have forgotten about. Then start calling. If you can cancel the charge (like with a gym membership you rarely use), do it. But if you can’t cancel it, see if you can get the charges reduced. If you get even three bills cut by $15/month, that adds up to $45/month total.
Choose and implement 1 new frugal habit
One of the things that trips a lot of us up when we want to reduce spending is feeling like we have to reign it all in at once. We rush in, slash like crazy, and then give it up after a week and a half because it’s just too overwhelming.
Let’s not do that, K? Instead, pick one item, JUST ONE in which you could make some cuts. Then create a plan. Do you buy coffee at the Starbucks near your office every morning? Could you cut it to just one morning a week? Depending on your order, that alone could save you $60-80/month. How many times a week do you eat out? Reduce it by one, just ONE per week and stash that money.
Again, I’m sure you have a LOT more ways you could cut expenses, but pace yourself. This ain’t no sprint. It’s a marathon, Honey! Give yourself time to really solidify one frugal habit before you rush into another one. My suggestion would be to aim for no more than one new money-saving habit every 2-4 weeks. You want it to become so routine that it doesn’t takes almost no willpower at all to continue it. That way, when you add another habit, the first one doesn’t shrivel up and die.
So if a recession does come our way (and it WILL, the question is only “when?”) you’ll sleep so much better at night if you’ve put yourself on solid ground with even one of these tips. Don’t overwhelm yourself by trying to do all of them at once. Think about what is realistic for you, do that, and then pat yourself on the back.
You got this!
Nov 3, 2018 | Increasing income, Side hustles, Uncategorized
One of the side hustles you hear about most is teaching English to students overseas, principally in China. This can be a great side hustle for teachers, or if you need to replace only a portion of your own income in order to stay home with kids, this would be an option to actually help you bridge that gap. Here is a link to their teacher website, so you can check out the basics.
I wanted to get the scoop from someone I know and trust, so I called my good friend Julianne. She has a strong entrepreneurial streak and previously started and ran her own paint-your-own pottery store. She has since moved away from that area. VIPKID allows her to work from home and keep a flexible schedule. If you decide to give it a go, her referral number is http://t.vipkid.com.cn?refersourceid=e01&refereeId=4058854. and I’m sure she’d love for you to use it.
How long have you being teaching for VIPKid?
It’s been just about a year now. I started in Oct. but my shedule wasn’t full until after Chistmas. That’s fairly typical. About 2 months to get your time slots filled.
In an average week, how many hours do you work for VIPKid?
15-20
What was the hardest part about getting started?
Probably just getting familiar with their format. Their teacher portal and also all the lessons. Just getting in the rhythm . There are at least 7 different levels and within each level there might be 100 different lessons. Just getting in the flow of what’s in the lesson – what you’re going to need. And then the tech stuff. Is the webcam working? That stuff is super important. They’ve been updating a lot because they’re getting so many new teachers, so just getting that figured out.
About how much do you make an hour?
$20/hour. Everybody has a base pay. My base pay is $8 per 25 min lesson. As long as you show up on time you get an extra dollar, and if you teach at least 45 classes per month, you get an extra dollar. So that makes it $20.
How much do you make from bonuses, like referrals and special promotions?
Not much really. I think if I worked more hours I would. There are certain prime time hours that I can’t work because I am getting the kids ready. But sometimes they will give a bonus if you open up all those slots.
I haven’t really done much on the referrals. There are other opportunities within the company. They have stuff like teacher mentors and curriculum development. You can move beyond just teaching , but I don’t know much about it.
What do you like best about VIPKID?
The flexibility. Most of the kids are really fun and they take their lessons seriously. I like to be able to work at home. I can sit in my little office in my comfortable clothes. Once you get into the rhythm of the lessons, it’s pretty easy.
If you could change one thing about VIPKID, what would it be?
Maybe that the Parents can rate the teachers. So every class you teach, you can get 1-5 apples. If you don’t get a 5 apple, you aren’t eligible for some things and if you don’t have a perfect 5 rating other parents might not book you. If there’s a kid misbehaving and you reprimand them, they can give you a low score and theres nothing you can do about that. VIPKID isn’t very flexible about the evaluations. Sometimes it’s a little difficult to correspond with VIPKID about stuff like that.
Who would you recommend VIPKID to? In other words, what would you consider to be their ideal recruit?
Someone that really enjoys working with kids. Somebody that can have a little bit of an understanding of the culture, especially regarding education. Why the parents are putting their kids through this education. They are spending a lot of time and money on these lessons. Someone who is energetic and patient and understands that it can be challenging to learn another language. You don’t have to be a teacher but need to have experience teaching children in some way.
Other options
So there you have it. Since Julianne and I are such good friends, I have heard about her VIPKID journey from the beginning, and I know it has really made a difference for her. If you want to try a side hustle, but don’t think VIPKID is the one for you, check out our post on other high dollar side hustles that can net you well over $20 an hour.
Oct 27, 2018 | Uncategorized
A couple of years ago, I was fortunate to attend a business workshop in Nashville, Tennessee. It was two days so packed with business education that I thought my head would explode. Several of the sessions have since faded from memory, but a few have stuck around and changed something notable about how I do business. One of those was the presentation by StoryBrand. You can check out a couple of free videos here at the StoryBrand website.
Now, StoryBrand charges over $2,000 for their in-person workshops, so the chances that I’m going to be able to do as good of a job as them are slim to none. But I can tell you one simple idea that make me not only think, but also take action to make my branding more customer centered.
Here’s that idea: You are NOT the hero of your customer’s story. Your customer is the hero of their OWN story. And you are the guide.
It’s about connection
Here’s why that matters for selling stuff. Many of us know that we need to make a connection with our customers (or potential customers), and we try to do that by sharing our story with them. On the surface, it seems like a great idea, but we are missing a very important part of the puzzle. It’s so obvious, and at the same time so easy to miss.
Our customer doesn’t care about OUR story. They care about THEIR story. We’re all that way. We want to know what’s in it for us. Not because we’re horrible people, but because in order to survive and thrive, that’s what we have to do. We have to solve our own problems, not everyone else’s.
So if your ads, flyers and, and customer communication isn’t based around THEIR story, it might make them say, “Oh, that’s kind of cool.” But it’s a lot less likely to get them to buy from you.
The customer is the hero of their own story, so make it about them
Let me give you an example. Imagine a company that sells hand-made leather wallets. Their site’s landing page is all about how the founder’s grandpa, great-grandpa, or great-great grandpa founded the company on quality materials, integrity, and superior workmanship. It’s a cool story, but it doesn’t make you buy. They are the hero of the story, and you don’t really see your place in it.
On the other hand, imagine that same landing page paints an image of a friend of yours pulling a wallet out of his pocket for years, and each time treasuring the fine workmanship and noticing the softness of the leather. Then a smile spreads across his face as he remembers how you were the one who gave it to him for their retirement, or graduation, or other special life event, And then he starts thinking about all the special memories the two of you share. That wallet is a symbol of friendship, shared memories, and of course, your impeccable taste. Suddenly, YOU are the hero. You have a place in the story. Shoot, it’s not the company’s story anymore, it’s your story. They are just helping you get there.
Do you see the transformation there? Even if you don’t buy today, the chances are much better that the story –which is now YOUR story – will stick in your brain and that the next time you need a super special gift, you might return to that site and actually make a purchase.
My own StoryBrand re-write
So let me give you a real-world example. Prior to hearing the StoryBrand talk, the headline on my flyers was something like “Spanish Classes starting soon. Register today.” I know. The creativity! The poetry! How did I ever come up with it? Amazing huh?
After I stori-fied it? “You can give your child a ticket to the world. We can show you how.” I might be biased, but I think the second one is a ton better, because the parent is the hero. We are placing the emphasis on them, and my company is just a helper. It also subtly places us in the role of a trusted adviser, an expert of sorts, which is exactly how we want them to see us.
Now, I’ll be honest. I was a small business and I didn’t do A/B testing to see which tagline was more effective. So it might have made absolutely no difference in sales. I don’t know.
But placing the customer at the center of our tagline made a difference in me! Every time I saw those flyers, I remembered what our role was – a valued and trusted guide to parents who want their kids to learn a language. It made me fiercely protective of my customers because I was their guide. They were trusting me to show them how to help their kiddos in a way that they couldn’t. It was a powerful psychological shift. And that truly impacted how I dealt with them.
Your journey
Since then, I always try to make my customer the hero. I hope you feel that as you read my blog. Obviously, the examples are from my own life. But the blog is meant to be about you. About helping you to create the life you want through improving your personal finance and/or through teacherpreneurship. About helping you to create options for you and your loved ones. About you living your best life on your own terms.
Here’s to you, hero! You got this!
Oct 24, 2018 | Group classes, Starting a new group class, Uncategorized, Working with preschoolers
After teaching high school for 17 years, I was pretty apprehensive about going cold turkey to preschoolers. I mean, high schoolers actually get jokes. And they have an attention span of more than 32 seconds (some days, although not always). I did have preschoolers of my own, and a sister and a best friend who were firmly in the early-ed end of things. But seriously, I could think of about 1,842 ways that I could totally screw this up.
So while this is certainly not the last work on the topic, I wanted to take a little time to share with you some of the most important lessons I learned when I left my adolescents behind an ventured in the much cuter, much more terrifiying (for me) world of preschool.
Be flexible.
This one is common to both ages, but possibly even more important in working with the littles. While older kids have more or less learned to function in a school setting, the littles aren’t necessarily there yet. A rainy day, a special activity, a sunny day, a friend being absent, a friend being present – all of these can send a student (or possibly your entire class) into a tail spin.
Honestly, I dreaded rainy days. It just seemed like the kids couldn’t concentrate as well. So if it turned out to be rainy, I almost always cut a storybook and added a song or two. Luckily, I didn’t have to cover a set curriculum, so I had the freedom to do that. And it really helped save my sanity.
And sometimes it worked the other way. After 15 minutes of trying to get them to chill and listen, we finished a book and were supposed to do a moving game. But they were sitting and listening SO well, I wasn’t about to lose that opportunity. So I’d get out another short book while they were in the mood, even if it mean breaking my “5 minute activity” rule. Occasionally I would regret it, but there’s no law that says you have to finish the book. If they lost interest half-way through, I’d say, “Hey. I think you are tired of reading. Let’s do something else.” And then it was time for the game.
So while you know rule #1 with older kids, it’s even more important with littles. Have a back-up plan. And a back up plan for your back-up plan. And a … well, you get the picture.
Give yourself time to get it right with preschoolers.
My first class was a nightmare. Really. I dreaded seeing those preschoolers. I tried everything, but it just didn’t seem to work. But I just kept reminding myself that it was, after all, my firstpreschool class. My second group went better. And my third was even better. Obviously, I never became the preschool whisperer, but it got to the place that I actually looked forward to seeing my cute little goofballs. And I think they looked forward to me, too.
So if you don’t get it right away, don’t be surprised. That’s part of the deal. Keep at it. Just keep learning every time you see the little darlings.
Movement, songs, and games are your friends.
This may go without saying, but it’s about the most important advice I can give, so I’m going to say it anyway. The less kids are concentrating on the language and the more they are concentrating on FUN, the better it is for everyone. So when you’re learning to count, count stuffed animals. Or count your jumps as you jump across the room. The less your classes feel like learning and the more they feel like play, the more engagement you’ll have. And – ironically – the more they will learn!
Short, short, short.
My rule when planning was to never count on any activity to last more than 5 minutes. So if we were going to read, I counted on a four-minute activity. (And that doesn’t mean sing one song for three minutes, then sing another song for three more minutes. It means completely change activities.) Then we’d sing. Then we’d do a movement game. Then we’d sing again. More reading. Then moving. Then another book. By that time, it was time for the good-bye song and stickers. As I mentioned above, sometimes I broke this rule if the kids were really engaged in a certain activity. However, I never plannedfor any one activity to keep their attention for longer.
Few words on the page, lots of discussion.
In an upcoming post, we’ll cover some of my all-time favorite books for preschool. But in the mean time, just let me tell you that they will all have something in common: very few words. “But Jill,” you might be thinking, “How are they going to learn if they don’t hear the words?” By responding to questions. For example, with on of my favorite booksEl Canguro tiene mama?there is only one short sentence on a page, but here is an example of the discussion we can have about it, all with very elementary vocabulary.
Teacher: Is the mom big or little?
Kids: Big.
T: Yes, the mom is big. Are the babies big?
K: No. Small.
T: Yes, the babies are small. Is YOUR mom big or small?
This exchange about big and small can be followed on the next page by questions about what the animals are doing, how many babies there are in the picture, how many mommies there are, is it the mommy or the daddy in the picture, where is the mommy (or the daddy), and do you like this animal?
You’ve still got to read your audience and make sure you are not boring them, but in my experience, kids respond a lot better when they are taking part in a conversation about the book than when they are just passively listening.
Praise, when possible.
It’s hard to remember, but kids often do better when you praise the ones who are behaving well instead of reminding the ones who aren’t. Our first instinct is often “Simon, sit down please,” or “Amari, please listen.” Instead, try calling attention to the kids who are sitting and listening already. “Maria, I love how you are using your listening ears,” or “Andy, you are sitting so well and keeping your hands to yourself. Nice job,” reminds the kids how to behave without calling anyone out for having trouble. It won’t work every time, but I found it to be particularly helpful with preschoolers.
Small groups – NO MATTER WHAT.
If you are starting your own business, please do yourself this favor. Keep your groups small no matter what. If that means splitting into two different classes or even starting a waiting list, do it. As you are getting your feet wet with preschoolers, you are going to make mistakes. That’s just a fact. But mistakes are multiplied in large classes. And they can make you really, really miserable! I didn’t let my classes get above eight, and that one thing helped me retain what little sanity I had left.
This applies even to one-offs. If you are doing a free class, don’t let the center persuade you to have a class that’s twice what your comfortable with. You won’t be able to do as much fun stuff, and it may actually hurt your enrollment since kids will think Spanish is boring. (Um, and they might get the idea that the Spanish teacher is grumpy for some strange reason, too.)
Cut your losses.
This doesn’t happen very often, but sometimes you’ve just got to cut your losses and close a class down. The very first class I started seemed promising at first, but the bottom line was that it just wasn’t working out. I had low enrollment, the management was a bit disorganized and completely unhelpful, and the kids didn’t behave well. I tried everything I could think of, but I finally decided that I was done. After thinking up a suitably diplomatic way to phrase it, I quit offering the class, and I was SO much happier. I found another center where the enrollment was higher, kids were amazing and fun, and the management actually had it together. Plus, my life got better just because I didn’t have to deal with that one group of kiddos.
Remember, part of the beauty of owning your own business is that you can make calls like that. So do it. If it just isn’t flying at a certain place, let it go. That location that isn’t working out might be keeping you from one that is amazing.
Good luck, and you got this!
Oct 6, 2018 | Dave Ramsey Baby Steps, Financial Foundation, Personal Finance, Uncategorized
Whew! This is the point where you are really getting a handle on this whole personal finance thing. You have paid off all debt except your house, so you should have some significant wiggle room between your income and your expenses. You are starting to see yourself as a winner in the money game, and it’s true! Now it’s time for the final step of your financial foundation: 3-6 months worth of expenses in a safe savings account.
Why do you need that much in savings?
Now that you have extra money every month, isn’t it enough to just avoid debt and pay cash for your splurges? Well, having 0 debt does put you miles ahead of the average American, you’re right. But you’re still a few hundred yards away from the short-term financial stability finish-line. So don’t stop running quite yet.
The next and final step for short-term stability is having 3-6 months of expenses in an easily accessible savings account. This is your emergency savings in case life suddenly gets a little too real. I hope that this step is a complete waste of your time. And for a lot of you, it will be. But the truth is that some of us will face an unexpected job loss, a short-term disability, a seriously ill child, or any of a hundred other things that can turn your life upside down. And for those, this will be one of the most important things you can do to make the hardest time of your life a tiny bit easier.
Three to six months’ savings won’t protect you from every tragedy that exists, but it will cover the vast majority of them. And even more important, if the tragedy is even worse, it will give you some time to get your sanity back after the initial shock. It gives you breathing space while you grieve. It allows you to concentrate on the people who need you, instead of “How on earth am I going to pay the bills next week?” Having that buffer savings is a favor that you will NEVER regret doing for yourself if the unthinkable happens.
How do I get my savings to that level?
This should be pretty easy. You have been paying off debt at a rapid rate by really throwing every extra penny at the debt you have. Well, now you can splurge a little to celebrate that accomplishment. (And by splurge, I mean a weekend get-away or a special but smallish new shiny thing – NOT a cruise around the world or a Ferrari!) And after the splurge, that extra money in your budget that you used to send to the credit card company or whatever creditor you were paying off should immediately head toward the nearest savings account. Just take the money that you were already putting toward debt repayment and send it to savings.
Where do I keep my savings?
The big thing here is that this is an EMERGENCY fund. In case of emergency, you don’t want to have to do something super complicated to get your money. So just put it in a money market account or a savings account. “But Jill,” you say, “This is gonna be a chunk of cash. Wouldn’t it be better to earn a little something on it?”
NO. No it wouldn’t.
And this is why. That’s not its purpose This is not money that is intended to earn interest. It’s money that is going to save your butt if something bad happens. You will invest in the next step. You will invest for the rest of your life. The money you invest will make you rich. But this emergency savings is not investment money. It’s “in case of emergency” money.
Don’t be penny wise and pound foolish with this money. Just put it somewhere safe!
What if I’m a spender and don’t trust myself to keep it?
Ahhh, great question. If you are afraid that you will lack discpline to keep that money sacrosanct for a true emergency, then put it at a separate bank from where you keep your checking account. Maybe a bank where you don’t have your electronic login info memorized, so it’s a hassle to use it for an impulse buy. You just want to be able to get to it without TOO much trouble if you you should really need it.
How much savings?
Three months’ expenses? Six months’? Or somewhere in between?
And the answer: it depends. This is based on several parts of your personal situation.
The first issue to get an actual number for your monthly expenses. How much do you realistically spend on non-negotiable in a month? Include housing, utilities, gas, car maintenance, food, and other essentials. However, you can probably skip any frills like lunches out. Just add up what it would cost you to stay afloat for one month, bare bones. Once you have that number, we’ll figure where in the 3-6 month range you should aim.
How much stability do you need?
When I was single and childless, I was a risk-taker. I figured the worst that would happen is that I would move back in with family for a few months. Now that I have a family and live in a different city, I need more stability. It would be a tremendous disruption to pull my kids out of school. That not only means we couldn’t relocate on a whim. It also means I wouldn’t want them to know that we were having financial trouble. My kids are worriers, and it would be important for them to see our lifestyle going on more or less as they were used to before. So stability is a huge need for us at this point in our lives. We wouldn’t even want to cut too far into the extras unless it got pretty bad. This points us to the upper end of the range.
Next question: How stable is your income?
If your income is strongly commission based, or your company has a history of layoffs, you will want to shoot for six months of savings, maybe even more if you have a family. On the other hand, my husband and I are both in incredibly stable jobs. I’m a teacher with great evaluations and many years experience in this district. My husband is a lawyer for the state in which we live. Plus, we could live on either one of our incomes if we absolutely had to. This points us to a lower savings amount.
Last (and most important) question: What is your comfort level?
Don’t discount your own emotions. If having six months’ worth of expenses in savings just makes you feel better, then by all means do it. If the other two questions indicate that you could go with less, and you don’t lie awake at night worrying about it, cut it down to three.
For us, even though our jobs are so stable and we have extra in the budget, I grew up on a farm in the 1980’s. And even though we made it through, losing the only home I had ever known was a very realistic fear for me. So we stick with the 6 months plan.
Ok, so now you’ve got the final step in your foundation. Next week: building on that foundation to create financial independence.
