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Posts Tagged Spending

Why you need an emergency budget

Money experts have long recommended emergency funds, a money buffer to allow for the unexpected to happen, as one of the most important keys to a healthy money life. This money practice is important, but you also need an emergency budget, a plan to go along with your savings to be best prepared when a crisis strikes.

What happens to your hard-earned savings when an emergency arises and you need to dip into those funds? How do you know how long your money will last? What should you spend it on and what should you stop spending on?

In the middle of a crisis, no one is the best at managing their money. We spend emotionally. We panic. We don’t have the stability and guidelines that our budgets normally provide us.

The Emergency Budget

– your new favorite tool for peace of mind –

Building one is simple and does something that can’t be bought.  It lets you know exactly how much money you need to live off in an emergency situation.

Our regular monthly budgets account for a lot of things: paying bills, putting money in savings, debt repayment (for some), sinking funds, eating out, etc. In an emergency, many of those things won’t have a place in your budget anymore.

By creating an emergency budget NOW, you’ll know the amount of money you really need to survive the month with a roof over your head, clothes on your back and food in your belly.

saving money for emergency

Creating An Emergency Budget

1. Make a copy of your regular monthly budget.

Go through it line by line and cut anything that isn’t absolutely necessary to survival. Rent, electricity, food, car payments, insurance and gas all get to stay. Savings, restaurants, entertainment and “fun” money should all go. Be ruthless.  Read how to make a budget.

2. Add in lines for emergency expenses

Include things that could come up in an emergency situation. If your job covers your family’s medical insurance, COBRA could be a necessary added expense in the case of a job loss. If the potential emergency issue is medical, an increased child care budget may be a need.

3. Total your budget

Fully total your budget out and save it as “My emergency budget.” Put it somewhere safe and update it annually or as your financial situation changes.


You should now have an approximate number of how much money you need for one month. This “bare bones” budget can be used to see how much money you want to save for your fully funded emergency fund or to see how many months your current savings will last.

That number will also give you an idea of how little you need to be bringing in to survive. It is likely much less than your current income and will give you some peace of mind knowing that number when facing a potentially long-term emergency situation.

Doing this now allows hard decisions to be made with a clear head, versus later when you’re in crisis mode.  Armed with an emergency fund and an emergency budget, you will be much better equipped to weather any financial storm.

Your Turn!

  • Do you have an emergency budget in place?
  • Have you ever had an emergency impact your budget?

Save

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Determining What You Actually Spend

In 2015, when my husband and I decided that enough was enough and we were ready to take control of our finances, one of our first steps was to determine what we were actually spending. I knew this was going to be scary. We had been spending more than we were earning and because of it, our debt had been increasing.”

What we didn’t know was where that money was going and how much we were actually spending. So it was time to do what I refer to as a “Spending Analysis”.

money leaving hand

 

I gathered up 6 months worth of bank, credit card, and line of credit statements, a few different colors of highlighters, a calculator, and a tall glass of wine and got to work.

How to do a Spending Analysis

  1. Pick Your Color: I first had to determine which highlighter color would represent a different category of my spending. For example, yellow was any food related purchases including dining out, groceries, and those quick trips to the store for a snack or coffee. Blue was designated for fuel purchases. Pink was clothing and kid related expenses (since most of the clothes purchased were for our growing girls), and green was for any miscellaneous purchases (a.k.a. Target, where you are never able to leave with just one thing).

highlight budget

 

  1.  Start Coloring: I carefully went through each statement, highlighting the purchases and debit transactions according to the categories that I had selected initially. As you go through, you may find that there are more categories than you anticipated in which case you add another highlighter or two.
  1. Time to Start Adding It Up: Once my statements were categorized, it was time to begin adding up all of the expenses. For this I would total up all of my food costs (yellow) and divide by that number by 6 (since I was looking at 6 months worth of statements) to determine what my monthly average was. I repeated this for all of my spending categories.

calculate expenses

 

  1. Letting Reality Sink In: When I sat back and stared at the numbers, I quickly realized where the leaks were. We were spending nearly $1000 a month on food for a family of four which seemed higher than it needed to be. More surprising (although not really if I was honest with myself), was the amount that was being spent at Target (darn you Target Dollar Spot!).

Determining where our money was going helped me to see just how much was being wasted by spending $10 here or $20 there. Although they those smaller purchases don’t feel like much at the time, when you add it all up and see in fact how much money is slipping through your fingers, it is an eye-opening experience.

money slipping through fingers

 

This whole process allowed me to see that we really needed to look for ways to cut our spending and consumption.

Your Turn!

  • What are some of your spending weaknesses?
  • What areas of your spending could you cut back on?

 

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

Infographic of US Government Budget 2010

Here is a graphical representation on how US tax dollars will be spent in 2010.  Notably is that money to green energy has been increased 92% while nuclear has decreased by 10%.  The largest portion of the budget (62% or 901 Billion), not surprisingly, is going to Defense, this is pretty standard for US spending trends.  National Parks revived a boost of 5%.  Interestingly The Department of State, has also a brand new line item called “Clean Technology Fund” at a half a billion.

Take some time and check it out.  What would you change?  What are your reactions?

Spending Around The World

So I found the article below this post and wrote up the post, then as I ventured out to find tomorrow’s post, I discovered everyone and their brother also had posted it!  Being that I hate to post what the other guys post, don’t get me wrong the other Tiny House bloggers rock,  I felt that I should always have original stuff.   So today you get two posts!map

See a Larger Version HERE

I have this obsession with infographics.  What are infographics, for those of you who might not know, its pretty simple.  It is a graphic that presents information in an interesting and visually stimulating way.  I love it.  While me being a nerd and I love a good data matrix, sometimes the columns bleed together till you want to tear out your eyes.

This infographic is about how people around the world spend on common goods.  It is really interesting to see how much and of what proportion of money we spend on things like clothing, entertainment, alcohol and electronics.  It also serves as a humble reminder that there is much we could do without like people in other countries do.

See a Larger Version HERE

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