Tips to Help Establish Your Emergency Fund

Most personal finance sources recommend that an emergency fund is set up once a decision is made to become financially independent. What is an emergency fund? It is an accessible savings account where you keep cash for true emergencies, like the loss of a job or a medical emergency. Financial advisors usually recommend that they should contain enough cash to cover three to six months of all expenses.

Consumerism Commentary, a great blog for anyone interested in personal finance, listed 50 tips to assist a beginner that may be pressed for money. These are a few that I think are important. The main article will be provided below; I highly recommend it.

1. Open a high-yield online savings account with as little as one dollar.
I chose ING Direct because of its user-friendly website and ease of signing up. It is also known to be amongst the highest with respect to yields.

3. Empty your pocket change into a jar every night.
This adds up and if you understand the power of compounding, every penny counts.

4. Bring your coin jar to the bank every month.
An obvious follow-up to #3.

9. Bring your own lunch to the office.
This is big, especially for you new graduates out there. It is really not necessary to dine out every day. You can save so much money if you made sandwiches and brought to work. $5 minimum a day, $25 a week, $100 a month, $1200 a year. Don’t know where you can get lunch for $5.00 though. So this is really a conservative estimate.

11. Drink soda rather than alcohol when you are dining out.
I am not a regular drinker of alcohol, but it is an expensive activity.

17. Create an automatic deposit to your savings account.
This is a set it and forget it strategy. I recommend this because you learn to do without the money that goes to a savings account that you don’t touch. This is how I am building my Emergency fund. Every month I add $500 to my savings account through an automatic deposit.

19. Don’t consider your emergency fund part of your spending money and keep it hidden.
This is very important. I don’t recommend touching this fund unless for emergency purposes.

46. Don’t be an early adopter of new technology.
I had a professor that said anyone who bought the first iteration of the IPhone were suckers. Why? well it cost them $600. A month or so later, Apple cut the price in half. Now, the new IPhones cost only $199. It always pays to wait when it comes to the new technologies. It is only a matter of time before the prices go down. I am waiting for the Amazon Kindle to go down as I type this article.

49. Consider adopting a frugal philosophy, at least until the emergency fund is in place.
A great way to end it off. A philosophy is a way of life; a way of thinking. Your thoughts eventually become your habits and is then reflected in your lifestyle and personal wealth. This may be the most important of them all, especially if done throughout one’s life.

See full article at Consumerism Commentary>>>

Don’t Buy Stuff You Cannot Afford

This video is humorous, but the advice is irreplaceable. When considering purchasing an item, no matter how trivial it may seem, it’s good practice to think about the following:

1. Do I have enough cash to pay for it fully?

2. Can I buy it without borrowing money?

3. If I waited a month, would I still want to buy it?

4. Does the purchase have no effect on my fixed expenses?

If the answer is yes to all these questions, then it may be affordable (not necessarily needed though). However, the important message here is to develop a habit of not spending money on things that you can’t afford. The limit on your credit card is not your own money. It is important to understand the difference. Cash and credit are two distinct things. Cash is what you own and credit is borrowed money; this is a simple way to view them.

 

Don’t buy things you can do without

We can take this a step further. Do not buy things you can do without. This removes the desire to have a lot of things because you have become detached from the importance of these items in your life. If items are not perceived as important, it is very easy to not want them. Of course, you can buy things that are enjoyable, but the choice now becomes easier and you realize that you ultimately buy less things than you would have under the previous mindset.

No debt

The main objective is to reduce the amount of debt that we have. The majority of Americans are drowning in debt, and the only way to take control of this is to adjust ones way of thinking. The first step is to change ones behavior through thoughts. If I think I do not need something and I adopt a habit of not spending money on things I do not need, then everything else will be taken care of. What will the result of this behavior and thinking be: zero debt and a feeling of more control over ones personal finance.

This is a very simplified illustration, but I believe the point is clear. This is personal finance in its simplest form.

Balance happiness today with the security of tomorrow

The inspiration for this piece comes from a story I read on Get Rich Slowly. The blog post talks about a couple who spent their entire lives saving money only to die without having had the chance to use it.

After reading many of the comments that the readers left, I got a sense as to what the community thought. I must say it varied; it is very intriguing to read. I recommend taking a look at it. The link will be posted below at the end of my reflection on it.

Brief Summary of Story
The husband of an elderly couple passed away and his wife found out through the accountant that she had approximately $4 million in savings; money that she was not aware of. She went on to say that she wanted to do so many things in her life; buy nice clothing etc., but was never able to because of financial reasons. So she then went out and started buying things she always wanted, only to die a week later than her husband.

Reflection
The overarching message in this story is to have BALANCE. Yes, from the perspective of personal finance, it is important to be frugal, and pay specific attention to expenditures, but it should not be at the sacrifice of your happiness. As the title of my blog posting says, we should balance happiness today with the security of tomorrow.

What do I mean
Well I believe it to be a wise choice to prepare for the future, but it should not be at the expense of the present moment. You only get to experience life now, so your present should be given highest priority. Consequently, there is a difference between doing that  and impulsive spending on things you think you want or need that will make you happy. One says that you should really take the time and invest in yourself; things that you really enjoy, you should do it, but it should be done wisely and everything should be taken into consideration; other activities, expenses, education, children, spouse etc. On the other hand, one could merely make impulsive purchases, buy unnecessary things without future considerations, be reckless with money and rack up a lot of debt, and do not save or invest. This normally does not create a condition for future wealth.

I do think that doing things that you love allows you to really connect to Divinity, that creates a condition of fulfillment.

Deeper meaning

“There is no correlation between money and happiness.”

It would otherwise be very difficult to find someone with very little money who is happy. Or, most people with a lot of money will have the highest level of happiness. You can see how idiotic those statements are. Another way to look at this is to really think about where your happiness comes from. Happiness is a state of perception. Dr. Wayne Dyer said it and he was right.

“Everything that I experience in my life is a result of my perception of what’s out there in the world.”

At a certain level you realize that happiness is a state within and is not achieved by striving for things on the outside. There is nothing out there that can bring happiness into your life. Change your perception and change your life; amazing things will happen.

Check out the article and the comments at Get Rich Slowly here >>>