Tiny House, Tiny Living, The Tiny Life.

Posts Tagged savings

Why I Have 7 Savings Accounts

In an effort to not overwhelm my budget every month, I have set up seven (yes, seven) savings accounts. I lovingly refer to these accounts as my sinking funds, and they quickly became my pride and joy (aside from my children of course).

A Sinking fund is where you set money aside for expenses that you know will be coming up, those expenses that would feel like an emergency if you didn’t have anything set aside. Sinking funds allow you to save in smaller, monthly installments so that when the time comes you are prepared with money in the bank (think Christmas or those pesky car repairs).

What should you be setting aside money for?

Think about those larger expenses or special occasions that come up once a year that you wouldn’t likely be able to pay for in one individual month without going into debt. Your sinking funds can also include expenses that you know, eventually will happen.

Our sinking funds include:

  • Car Maintenance
  • Home Maintenance
  • Christmas/Holiday
  • Taxes (my husband is self-employed)
  • Medical Expenses
  • Car Replacement
  • Other yearly fees

How much should you set aside each month?

Luckily this does not involve math that is too complicated. No fancy formulas required. All you simply have to do is consider how much you would like to spend and divide that by the number of months you are going to save up for.

My husband and I decided that we would like our total budget for Christmas to be $1200. That means that since January, I have been setting aside $100 into my Christmas sinking fund.

For something like Car Maintenance, take a look at what you spent on oil changes and repairs last year, divide that number by 12, and that will tell you what you should consider setting aside each month.

If your car is nearing the end of it’s life expectancy, setting aside money into a separate account will give you the ability to pay for that next car with cash. First consider how much you would like to spend on your next vehicle and divide that number by the number of months that you will be saving for. Instead of paying the bank or loan company car payments, plan ahead and pay yourself a car payment. Not only will you be avoiding debt when you have the money in hand, but you’ll be earning interest while you save rather than paying interest if you finance.

There are many ways that you can track the amount you are saving. One method would be to set the money into one savings account and then use a spreadsheet to track how much in that is set aside for each fund. The other option you have is to look into No Fee Online savings accounts where you can easily name and keep track of your sinking funds.

When looking for your savings accounts, you want to be sure that they are no fee. Be sure to avoid those banks that charge you a fee for withdrawing your money from your savings account. The other thing to be on the lookout for are the interest rates that your money will earn while it is in savings. Although the interest will not make you rich from these accounts, you want to look for the most competitive interest rate you can find.

How ever you decide to set aside your savings, you’ll feel great knowing that you’ll be prepared with money in the bank. The holiday season is so much more enjoyable when you know that it’s been paid for with cash.

Your Turn!

  • What are some big-ticket and not-so-big-ticket stuff that you are setting some money aside for?

 

Establishing Your Emergency Fund

Our first step to getting our financial act together was to establish our emergency fund. We had no intention of fully funding it before we paid off our debt, but we knew that we needed a little bit of a cushion between us and life so that we could avoid going further into debt as we paid off what we already had.

Setting up a Starter Emergency Fund

Emergency Fund

Why should I have money in the bank when I’m trying to pay off debt?

Having money set aside in the bank will allow you the chance to continue to work towards your financial goals in case the unforeseen happens. Money in the bank takes the stress away if you face an unexpected car repair or medical expense. You’ll feel relief knowing that you are prepared for a little bit of life to happen while you continue to pay off your debt.

Where should I keep my emergency fund?

You want to make sure that your emergency fund is accessible without being too accessible, that way a take out pizza or a new pair of shoes don’t become an “emergency”. We have ours in a savings account that is accessible online but not with my debit card. Within 24 hours I can have the money transferred to my checking account if an emergency was to occur.

emergency fund

How much should I have set aside?

Keep in mind that your starter emergency fund is not your fully funded emergency fund. While you’re focused on getting out of debt, you want to set aside an amount that would cover most minor emergencies. For our family of four, that meant having $1000 set aside. You may not need that much if you’re single with fewer expenses, while some might feel comfortable with having $2000 or $3000 in savings.

When should I start my emergency fund? garage sale

As soon as you possible, you can never be too prepared. If you already have savings in the bank, it’s as simple as earmarking that money as your emergency savings. No money? No problem. It’s time to look around the house and start selling stuff online or gather up your goods and plan a garage sale. Perhaps you can pick up some extra hours at work or pick up some extra work. Don’t forget to take a look at that budget and see where you can squeeze to save up the money.

With any luck you won’t need to use your emergency fund, but what a feeling of relief it is to know that if life does happen, you’ll feel be for it. Your emergency fund, although just a starter one for now, will bring your one step closer to building your own personal freedom.

 

Your Turn!

  • What does financial freedom mean to you?

 

Tiny House Force Multipliers: Taking Life To The Next Level

I’ve been doing some thinking about tiny houses and my path to them.  A little bit ago I realized that there were some key things I did that I realized may have actually taken the good of my tiny house and brought it to the next level: They acted as a force multiplier.  What is a force multiplier?Untitled-1It’s crazy to think that things could get even better while living in a tiny house! But when we look at tiny house force multipliers we can really take tiny houses to the next level with some tweaks.  Here are five things I’ve come to realize will take your living in a tiny house – or even just those who are living tiny, but not yet in a tiny house – to the next level and change the trajectory of your life so profoundly it will amaze you.

1.  Become Totally Debt Free

This seems obvious and its easier said than done, but living debt free does a lot to for you in terms of financial freedom, reducing stress, and opening up opportunities for yourself.  What is more, when you’re not paying off debt, not only do you not have that money sink, but you can then leverage those funds in better ways.  The opportunity cost here is huge, check out this post.

I also feel the need to clarify that when I say debt free, I mean totally debt free; too often I hear people say “we’re debt free” only to later her about a car payment or student loan. No!  That’s not debt free!  All forms of debt are essentially shackles placed upon you and thus inhibit your ability to live life on your own terms.  For those of you who do have debt, of any kind, make a plan and get rid of it; the only thing that’s worse than debt is being convinced that there is “good debt” or doing nothing about it.

2. Shift To A Location Independent Career

Having a location independent career is essentially having a way to earn a living without having to be physically in one spot all the time.  Basically you can earn a living working remotely, not having to be cooped up in a cubical 9-5 five days a week.  This has been something that from day one I have always wanted to incorporate into my tiny life and since starting this journey have only recently (early 2013) been able to achieve.

Untitled-1I knew that not having to be in an office would make a huge difference, but now that I have been living this life (see this post), I am beginning to think that it actually has had a larger impact than even moving into a tiny house.

Earning a living in this manner has done two main things for me: 1) I can work from interesting places that best for me  2) Since I don’t have to be in an office, my income is not tied to time spent in a chair, but to how productive I am.  This means that I can travel and work from wherever and when I do work, I work as long as it takes to get my tasks done.  This often means that I can buckle down, be efficient, then be done and since I can work from awesome places I can then get up and go explore the places I travel to for the rest of the time.

3.  Built In Resiliency

Resiliency is the ability to respond to changes and shocks to your life and bounce back quickly.  Today in America we are very reliant upon external systems to handle a lot of what we need to do; Things like our food system, our power grid, how most people weather tough times via credit cards, etc.  I will try not to go too deep into this because how large of a topic it is, but read this post to learn more about it.  Suffice to say, I feel like its important for us to plan to stand on our own two feet and to be able to weather the ups and downs in life.  If we plan for those rainy days we extricate ourselves from putting out fires or living crisis to crisis and enter into a place of stability where we can be our best selves.

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There is a good part of the world that lives crisis to crisis and for those who are well off, they typically live big purchase to big purchase. It is no wonder that things are like this because 75% of Americans live pay check to pay check.  Try to understand what that must do on your health, your relationships, your quality of life, your well being when most people barley can come up for air.

Some examples of this for me have been having money set aside for a rainy day.  Opting to have solar panels and a generator.  Having a garden and extra seeds.  Living in a tiny house that I can move to different locations easily.

4. Diversified Income

This is the next major step I’m trying to incorporate into my life.   It’s one that I think will help me boost my resiliency and bring a lot of positives into my life.  Basically my goal is to develop a way to earn a living in addition to the one I already make.  I want this income to be in a different sector, a different way of making money, and have its strong points be the weak points of my other income.  The idea here is if I can earn an additional income unique from my first, they are less likely to both fail or slump at the same time.  Basically when it comes to earning a living, I don’t want all my eggs in one basket.  I have some ideas on how I’m going to do this and am looking forward to pulling the trigger soon.

5. Building A Rainy Day Plan

Here’s the truth, in life, there are going to be bad days and even a few horrible days.  Some will be annoying, but a good night sleep will fix it, others will be catastrophic: illness, job loss, death of loved one, divorce, etc.  In either case you really only need two things: the support of loved ones and time to work through it.  So we know these things are going to happen, so why don’t we plan for it?

SaveforRainyDayFund.EmergencyFund

For me a rainy day plan means: have money in the bank so I can live without working for at least a year, have food tucked away for 3 months, have health insurance and I am moving quickly to being debt free.  What this means is if something really bad happens I can just take the time to work through it, do what is best for me at that moment.  I don’t have to worry about work, how I’m going to put food on the table, or pay my bills; I can just deal with that situation, with that grief, with that problem.  In these times you’re best hope is to minimize what you have to worry about and maintain or boost what is most comforting to you.

 

Your Turn!

  • How can you take the good in your life and take it up a notch?
  • What do you do to weather the bad times and not worry in the good times?

The Average American

A while ago I wrote a post on being “weird” which was a huge hit and you can check it out here.  I was thinking about what it means to be an average American and started researching some of the numbers.  In particular I was thinking about how a typical American would compare to someone who lived in a Tiny House.   Tomorrow I will write a post on what the average Tiny House person is like to compare.

Average-American-Family-Infographic

how-much-american-save-thumb

The Renter’s Manifesto

One of my favorite new websites is called Mint.com.  Basically it is a financial website that allows you to manage your money, but it also has this amazing blog.  I have now vowed to never rent if can avoid it.  I have been there, done that and found it that the outcome was less than desirable especially compared to that of living in a Tiny House.

The bloggers over at Mint have put out an interesting article about renting, they propose that they are in fact better off renting.  The big assertion they make is that if you are modest renter, who can manage your budget, that it is actually better at building equity.  By paying less than a mortgage, saving the difference and not assuming the risks, you can do better.

What do you all think?

Full Article

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