Resources:  Check Out The Financial Freedom Book Store  < < < <  



  • Budgeting Works!

    To gain financial freedom you must take control of your money, plan for the future and Stop Borrowing Money!
    Two families striving to gain financial freedom share their experiences.
    Blog Author Mona Weathers (monawea)


    Co-author, Manda C.

  • Time To Budget News!

    Manda C. is our new contributing author. Welcome Manda!

Saving, Budgeting, and Cashing in to Financial Peace

Save

I have a young single friend who is in her early twenties. I’ve tried to impress on her the importance of not having credit cards. I’ve deflected every excuse she can give for having credit cards. She has four, all with small balances. She “needs” them to build credit. She “needs” them for emergencies. I almost have her convinced that she does not “need” them for emergencies, and that she [ie. all of America] has got it wrong. What we NEED is an emergency fund for emergencies. We NEED to save for things we wish to purchase and not take out loans.

There are two different kinds of emergency funds in Dave’s Financial Peace. The first is Baby Step 1, which is getting 1k in savings. This fund is where we should go when there are unexpected car problems, the fridge breaks, the air conditioner quites working on the hottest day of the year. The latter happened to us last month. Of course the 1k wasn’t enough to replace the heat pump, but it was enough to keep the experience from being a major crisis. The 2nd emergency fund comes after Baby Step 2, which is paying off all of your debt. After step 2 is completed, all the money that is direct deposited to your bank account every month stays there, making it possible to quickly build a “fully funded emergency fund”, which is 3-6 months of expenses in a bank account. This money does nothing but sit and wait for an emergency.

Step 4 is when you start to have fun with money. I always expected that I’d be one of those people who never owned any stock, and any retirement saving I’d do would be what was available to me from my employer. But with all my debt paid off, I’ll need something to do with all that extra cash.

Step 5 is college funding, but my children are 2 and 6 months old. It makes more sense for me to use the momentum to pay off my home (step 6) first. So, we have plans to invert the steps and save for college AFTER our home is ours and not Countrywide’s.

We feel fortunate to have found and to have embraced this plan in our 30’s, when our children were young and before we’d gathered too much debt. Hopefully, we’ll be able to make an impression on our young friend, and if we can only encourage her to live her wage, then I think we’ll have done her a valuable service.

Budget

While you are saving towards your Baby Emergency Fund, there are other things to be done. Complete a budget. Figure out how long it’ll take to build your emergency fund and budget that. J and I have been threatening for years to use a budget, and now we finally are. have to give the budget at least 90 days before it’s truly a working budget. J and I will need longer because we have been living so frivolously for the past couple of years. We haven’t balanced a check book in 5 years.  My favorite thing about Financial Peace is the envelope system- that is using cash for some aspects of the budget.  Giving up living by the debit card has been an extreme source of savings for us. It is still a work in progress. We began with two envelopes: groceries and gas. We’ve added an envelope titled “household”. We still aren’t balancing our checkbook, because we need to go to the bank and start from scratch with a new account. We’ve tried, unsuccessfully to open an on-line ING account, but for some reason, we’re having difficulty getting the PIN number in the mail. That also means changing the direct deposit, not a lot of difficult steps, but enough little steps that it’s cumbersome.

Cash

How it works in our house is that the days J gets paid, he takes the debit card to the ATM and withdraws the budgeted amount. Then starts the use of the envelope system. This is something that can be done at home, just get 3 envelopes and keep a running total of your cash transactions. When I go grocery shopping, I take out a specific amount of cash. I leave the debit card at home, and I don’t take more cash than I plan to spend. There is no way to know how much money we’ve saved by just using cash. There have been a few bumps, for example, the time I stuck $15 in my bra and got to the cashier to make my purchase and discovered the loss. I can imagine the spectacle of a strange woman frisking herself in the checkout line, but lesson learned:  responsible with cash. I’ve also had to put things back when the total was more than the cash I’d brought along. On really big shopping trips, I use a calculator so that I’ll not have that surprise again.

Part of learning to live on a budget is to live by the budget. The envelope system helps with this. When the envelope is empty, you have to stop spending. We’ll soon have to rework our budget because of the money I’ve “saved” in changing my spending habits. I say saved, but really, I’ve eliminated waste. When you shop, take a list. Don’t jot “milk, toilet paper, and bread down on a piece of paper” and head to the store[with cash], and then wander aimlessly planning the next few meals on the fly. Plan your menu a few days in advance. Make a list, then go to the store and buy what you need. There are loads of menu services available. Check out the “food section” of your local paper. There are also free menu planners online. I use Menus 4 Moms. The meals are super easy, and uses “investment” cooking, which means, using things from the freezer. It saves loads of time in the long run. In freezing cooked ground beef, chicken, rice, and cheese, I’ve been able to literally throw delicious meals together in just a few minutes.

I’ll admit there is a bit of confusion on my part to all the different aspects of Financial Peace, but I’ve come to realize that it’s that the relation of saving and budgeting are so that being divisive is difficult to me. You can’t be successful in one and not the other.

~Manda

August 13, 2008 | Filed Under Financial Freedom Journey Pep Talk, Financial Goals 

Leave a Reply