Emergency Fund 101

Let’s face it. Life is full of obstacles, emergencies and trying times that require money. If your furnace blows or you lose your job, do you have cash tucked away to help you through? If the answer is no, this article is for you. That’s because, today, we are talking emergency funds.

What Is An Emergency Fund?

It’s exactly what it sounds like. It’s a cash reserve that you set aside for unplanned expenses and emergencies. This might include something minor like a trip to the doctor, a blown tire or an unexpected school expense. It might be for something major like making up for lost income or a catastrophic health diagnosis.

Why Do I Need It?

Even a minor financial shock can set you back and cause debt to accumulate. Debt has a lasting effect and sometimes negative impact on a family or individual’s finances.

How Much Should I Save?

If you’re living paycheck to paycheck or have an erratic pay schedule, setting aside even a few dollars can be challenging. That’s why it’s best to start with your own savings goal. A good aim for that initial goal is $1,000. However, most experts agree that you should ultimately aim for three to six months of expenses. Even if your initial goal is just a couple hundred dollars, having something to fall back on will be helpful.

How Do I Build My Emergency Fund?

There are a few approaches you might take:

  • Save those windfalls. Tax refunds and overtime income make great seed money for an emergency fund.
  • Pay yourself first. Figure out how much you can feasibly save each paycheck and transfer that amount from your checking to savings before you do anything else. Setting up an automatic transfer to take place on payday is a great way to make sure you are saving toward your goal.
  • Take on a side hustle. Cut grass in your neighborhood this summer or deliver pizzas on the weekend, there are a number of ways to pick up a few extra bucks a month.
  • Set aside extras. If the electric bill is lower than you anticipated, save the money – even if it’s just a few bucks!
  • Sell something. A yard sale is a great way to make some money while clearing out clutter. Have an extra car that you don’t need? The proceeds could go a long way toward preparing you for an emergency.

It may take you a while but having some extra money in the bank will help you avoid debt and give you peace of mind. Even if your goals start small, having that savings when you need it will make a difference!

Need more inspiration? We have written about looking for ways to cut costs. Click below to read more on how you can trim expenses to save more money!

Give Gifts That Aren’t Things

What’s on your gift list? If you’re still scrambling to find gifts for people who already own too much stuff, you’re not alone. One recent study revealed that more than twenty percent of Americans will go into debt for Christmas this year while more than $15 billion dollars will be spent on unwanted gifts. Why go into debt for stuff no one really wants when you can give your loved ones experiences they will love?

Plus, you can support small businesses and non-profits in your own community while skipping lines and avoiding shipping mishaps. Read on for some inspiration for all ages!

SPECIAL RESTAURANT – It’s not unusual to give a gift card but it seems more thoughtful when it’s for a really special place. Whether it be their favorite or one they ordinarily wouldn’t treat themselves to, give them an experience they will enjoy.

MUSEUM MEMBERSHIP – Museums can provide hours of entertainment and education. Ohio has a host of memberships geared toward kids, history buffs, art lovers and more. With changing exhibitions and programs, a membership is a great way to say Merry Christmas!

ZOO PASSES – The zoo is fun for all ages but zoo passes make an especially great gift for families with kids. It gives them somewhere to go, an opportunity to learn and lots to talk about later!

CONCERT TICKETS – Who doesn’t like live music? Give them tickets for a musical experience they won’t forget.

MASSAGE – Whether it be an in-home experience or a massage at a business, most people could use some help relaxing.

COOKING CLASS – Have someone on your list who loves to cook? Maybe you’re shopping for a young adult who wants to learn basic skills. A cooking class is a great way for them to hone their skills and be more confident in the kitchen.

ARTS AND CRAFTS GIFT CARD– Does your friend have an artistic streak? Maybe they would enjoy classes for painting or stained glass art. Perhaps they would like spend a morning painting a bowl in one of those places where decorate your own pottery.

MUSIC LESSONS – If you know a budding musician, they might appreciate some one-on-one time with a pro. You often can find lessons at local music stores or even with individuals with a side hustle teaching private lessons.

SUBSCRIPTIONS – A magazine subscription or book-of-the-month membership would delight a reader. If you have a bigger budget, a Masterclass membership would provide access to online lessons provided by experts on everything from writing and cooking to design and history.

WEEKEND GETAWAY – A cabin in the woods sounds like an amazing retreat from this busy season. Many small towns across Ohio and in the region offer cute inns and Ohio’s cities have some fantastic boutique hotels. Give your loved one a break from the everyday and send them somewhere special.

WINE TASTING – Ohio has a number of wineries that offer tastings and even dinner packages. They will think of you as they watch the sunset over a glass with someone special.

SPORTS TICKETS – Your favorite sports enthusiast would love you even more if you sent them to a game!

PERSONAL CARE – A mani/pedi or hair salon gift certificate would encourage your loved one to enjoy some pampering!

SERVICES – Most of us have a long list of chores that need done around the house. It can be particularly difficult to keep up for those of us who are older, who work a lot, who have small children, or who have a health issue. Instead of a trinket, give them the gift of checking something off their list. This could mean hiring someone to deep clean their home, detail their car, or provide a helping hand with small repairs around the house. Who among us wouldn’t benefit from an oil change and a car wash!

MEAL KIT SUBSCRIPTION – Imagine opening a box to find all the ingredients you need for a tasty dinner without going to the store. If you have a larger budget, this is a nice way to make someone’s life a little easier, at least at dinner time.

YOUR TIME – It may sound cliché but it’s true. There’s nothing better than the gift of your time when it comes to the people who love you. Invite them over for a home cooked meal or a game night. Pick them up and take them out for coffee and a walk or help them run errands. In this busy, overly connected online world, there’s nothing better than spending time with a loved one.

FAMILY GIFTS – Here’s one more idea. Many of us struggle to buy individual gifts for extended families or friends with families. It can be expensive and difficult to know what to buy everyone. Consider a gift that the family can use together. Maybe it’s this year’s hot new board game and a gift card for the local pizza joint. You might do a gift basket with supplies for a perfect family movie night or supplies for a great meal everyone can make together!  

Get creative with your gifts this Christmas and provide your loved ones with an experience or service they will love!

Are You Still Paying For Christmas?

Note with words pay off debt concept.We have a question.

Are you still paying for Christmas?

If you’re like millions of Americans, the answer is yes – you are still paying for the joy and excitement of this last Christmas morning and maybe even a few before it.  Allowing credit card debt to add up is a common mistake and, sadly, reducing debt is always a lot harder than allowing it to accumulate.

If you want to pay off your credit card but aren’t sure where to start, we have some basic steps to get you on the right track.

  1. Face reality – How much do you really owe? Do you have one credit card? More than one? Add up those balances and keep that total in mind.
  2. Make a budget – No one enjoys the ‘B’ word but a budget or a spending plan is the most effective way to get your financial house in order. Not sure how to budget? We wrote this guide a few years ago.
  3. Study up to lower expenses – Study your budget and consider how you spend your money. Are you living within your means? Are you spending too much on impulse shopping or on weekend entertainment? Are there big ticket items like car insurance that you could save on with a little comparison shopping? Save money where you can and apply the savings to your debt. Click here to read about saving money even when you think there’s nowhere to cut. 
  4. Be timely – Each time your credit card payment is late, you face a late charge. Pay at least the minimum payment on time to avoid those charges.
  5. Pay extra – With online payments, it’s easy to make an extra credit card payment. So if you have a windfall –some unexpected overtime, a tax refund or some garage sale earnings – make an extra payment.
  6. Stop adding more debt – This should go without saying but you’ll never pay off that card if you keep adding to the balance. If you must use it, be sure not to charge more than you can pay off that month.
  7. Stay motivated – Staying focused on a budget and debt payoff is hard work. Look for inspiration anywhere you can find it. Hang a debt payoff thermometer on the fridge, read success stories on Pinterest or talk to like-minded friends who are also focused on financial goals. Another great motivation tool? Dream about how good it will feel to not have credit card debt hanging over your head.

 

Five Ways Not to Blow a Financial Windfall

Whether you’ve won the lottery, inherited a fortune or sold your business, landing a financial windfall can drastically improve your financial outlook. But the sudden wealth can also leave you stressed and unsure how to handle the cash.

First, hit the pause button, says Don Hance Jr., founder of LifeSighted, a financial planning company. Take time to create a spending plan to avoid making poor decisions.

“You want to give yourself time to take stock of everything and work through emotions before spending the money,” says Hance.

Here are five smart ways to allocate a financial windfall.

1. Cushion your nest egg
Maximize your 401(k) contributions if you still plan on working, or at least contribute enough to earn the full employer match, which is essentially free money for your retirement. As you put more money toward retirement, the windfall will fill that gap in your cash flow.

This move also carries tax benefits: contributions are taken out of your paycheck pre-tax, lowering your taxable income for the year. Investments grow tax-deferred until withdrawals at retirement.

Also, look into funding a Roth IRA if you’re eligible, says Mark McCarron, a financial planner and principal at Bond Wealth Management, LLC. Contributions to Roth retirement accounts are made after-tax, and your investments grow tax-free. Unlike a 401(k), there’s no income tax on withdrawals made in retirement.

“It is one of the only free lunches the IRS gives us,” McCarron says.

2. Pay off toxic debt
If you’ve been trying to pay off debt, this is an opportune moment. Pay off toxic debt with the highest interest rates first, such as credit cards, payday loans, title loans and installment loans.

For example, a credit card with a $10,000 balance at 20% interest would cost $11,680 in total interest if you made $200 monthly payments. It would take more than nine years to repay the debt.

Use your windfall to pay the balance in full, and you’ll save interest.

3. Build an emergency fund
An emergency fund is money set aside to cover unplanned expenses, such as car repairs or a job loss, so you don’t have to rely on credit cards or high-interest loans.

A good rule of thumb is to have three to six months of expenses saved, says McCarron.

The amount to save depends on factors such as job security and how much debt you owe. Keep the money in a high-yield savings account, where it earns some interest and is readily accessible.

4. Invest in yourself or a loved one
Investing isn’t limited to your retirement; you can also use some of the windfall toward self-development. Go back to school, hire a career coach, travel or learn a new skill.

Consider starting a 529 savings plan to support a child, relative or friend through college, says Levi Sanchez, financial planner and co-founder of Millennial Wealth, based in Seattle.

The plan provides tax-free investment growth and withdrawals for qualified education expenses, such as tuition, fees and books. Most states also offer a tax break for residents.

Under the current tax law, 529 withdrawals up to $10,000 per year can be used for tuition costs at elementary or secondary public, private and religious schools. Check with your state’s plan before making withdrawals for this purpose; not all states have adopted the changes.

5. Give back
Consider making charitable donations to an organization or social cause you support.

Your gift can positively impact the organization, but unless it’s a sizable donation, it may not help your taxes. That’s because you need to itemize your taxes to get a deduction, and itemizing only makes sense if your deductions add up to more than the standard deduction.

For 2018, the standard deduction is $24,000 for married individuals filing jointly or $12,000 for single individuals. Maintain records of your contributions if you donate.

Giving money to family and close friends doesn’t carry tax benefits. But if you’re feeling generous, you can give up to $15,000 per individual in 2018 without having to file a gift tax return, says Sanchez.
A financial planner or tax professional can provide further guidance on managing a windfall.

Steve Nicastro is a writer at NerdWallet. Email: steven.n@nerdwallet.com. Twitter: @StevenNicastro.

The article 5 Ways Not to Blow a Financial Windfall originally appeared on NerdWallet.

How I Ditched Debt: ‘Born Spender’ Goes on a Spending Fast

In this series, NerdWallet interviews people who have triumphed over debt using a combination of commitment, budgeting and smart financial choices. Responses have been edited for length and clarity.
and then we saved

And Then We Saved

Who: Anna Newell Jones
How much: $23,605 in 15 months

Anna Newell Jones considers herself a “born spender” whose desire for the latest fashions and gadgets landed her in debt.

When she got married in May 2009, she had a big secret — she owed nearly $24,000 in credit card debt, student loans and money that her parents borrowed for her. She was living paycheck to paycheck and felt like she had hit a bottom financially. So she shared with her husband, Aaron, a plan to cut her expenses to the bone, pay off debt and become a financial adult. And she decided to blog about her efforts to keep herself motivated and accountable.

First up was making a list of wants and needs customized to herself. Do-it-yourself hair color in a box made the “needs” list, but salon services did not. Then she did what she calls a reverse budget — she analyzed the previous three months’ spending to see where her money was going so she could determine what could be cut.

Newell Jones declared a “spending fast” in 2010: spending the bare minimum and only on necessities. The Denver resident found it freed up time previously spent shopping, returning items and worrying about the financial hole she was digging. That extra time helped her figure out how to increase her income, including photographing weddings on weekends, writing a book and creating her website at andthenwesaved.com.

» SIGN UP: Set and track your own goal to ditch debt

What was your total debt when you started? What is your debt today?

At the tail end of 2009, I [had] $23,605.10 in debt, and I managed to eliminate all of it in only 15 months! I have a mortgage now. Apart from that, I’ve been able to remain completely debt-free.

How did you end up in debt?

I’m a natural spender. I like new things. I used to live for finding that perfect shirt or decoration for my house. … Even though I owed money to others (like my parents for school), I was always able to find money when I wanted something. I was completely overwhelmed by my debt and thought I’d die with it, so in a lot of ways I decided, “Ah, screw it! Might as well at least enjoy myself!” Basically, I spent money I didn’t have on things I didn’t really need. I was reckless.

What triggered your decision to get out of debt?

I wanted my financial life to be about more than just covering my minimum balance each month or not bouncing a check. I got to the point where I was tired of feeling like crap about myself and the situation I had created for myself. I had, in a lot of ways, hit my “financial bottom.” I was desperate enough to make sacrifices and do whatever I had to to get out of debt.

What steps did you take to reduce your debt?

I made some very serious lifestyle choices … meaning I only spent money on necessities (rent, basic food, etc.) and nothing extra. I started my blog as a way to hold myself accountable. I thought that maybe if I went public about my debt and about how much it weighed on me, I’d be more likely to not immediately ditch the entire idea once things got difficult.

How has your life changed for the better since you got out of debt?

Oh man, it’s so much better! Life without debt, shame, worry and anxiety centered around money is so freeing. Before, I was stressed and worried all the time, and it showed. Now I own several businesses, have money to save for my family’s future, and have the freedom to spend more time with my husband and son.

How do you remain debt-free today?

I’m very mindful of my money and my spending. I regularly do reverse budgets [to watch for overspending issues that could crop up]. I also run a Spending Fast Bootcamp and connect with members of the bootcamp each week in Facebook Live videos. Helping them helps me stay aware and present, rather than mindlessly slipping back into my old “spender” ways.

How to tackle your own debt

Jones, who says her blog kept her accountable, wishes she had known about other people who were also battling debt and also felt ashamed and isolated. She created just such a community on her website. Support and accountability can help, she says.

  • Analyze your current spending, to see where money has been going and pinpoint expenses that can be reduced or eliminated
  • Identify your own wants and needs. Needs are non-negotiable, while wants can wait. But every person’s list will vary.
  • Save for an emergency fund. When you are trying to repay debt, watching balances go up can be discouraging. But emergencies will happen. Be prepared with money designated for just such occasions. An amount as low as $500 in reserve can insulate you from an unexpected expense and running your credit cards back up.

More From NerdWallet

Bev O’Shea is a writer at NerdWallet. Email: boshea@nerdwallet.com. Twitter: @BeverlyOShea.

The article How I Ditched Debt: ‘Born Spender’ Goes on a Spending Fast originally appeared on NerdWallet.

Declare Your Independence From Credit Card Debt

Independence Day is just around the corner bringing with it cookouts, fireworks and community celebrations to honor this important day in American history.

But what about your own independence? Your financial independence?

Every day is a good day to consider the health of your finances, especially if you have a large amount of consumer debt. If you are looking to reduce some of that debt this year, here are four simple tips to help you get started.

  1. Put away the card – If you already have credit card debt, you don’t need to accumulate more. Stop using your card and focus on paying down the balance. It may be painful at first but it will be worth the victory of seeing a zero balance. If you do use your card, be sure to pay off those charges each month.
  2. Cut expenses – Look for ways to trim your budget and apply the savings to your debt pay-off. Shop around for a better phone deal, reassess your insurance rates and look for ways to save on your utilities. For some, eliminating a meal out each week is a painless way to save a few dollars. Remember, when it comes to debt, every dollar counts.
  3. Budget – Make a budget that accounts for every dollar in and every dollar out. It doesn’t have to be fancy. You can use a pen and paper or an app on your phone. Just be sure to list every expense, including those that occur irregularly like property taxes and car maintenance. Be realistic in your planning but be sure to give every dollar a job. Each dollar should be committed to an expense or a savings goal. As you create your budget, if you find that you have more expenses than income, see step three above. It’s time to work on reducing expenses. Also, review your budget regularly to remind yourself of how much money you have available and why you are cutting expenses. Keeping a log of daily expenses may open your eyes to small expenses that add up quick like morning coffee, magazines and other nonessentials.
  4. Prioritize – If you have a balance on more than one card, prioritize the payment schedule. Some people like to focus on the card with the smallest balance. In doing so, you will celebrate an accomplishment of paying off a debt quickly. Others like to choose the card with the highest interest rate and focus extra payments there. Whatever you do, remember to always pay the minimum balance on every bill. Also remember that once you pay off one debt, you need to apply the funds you were spending there to the next bill on your list. This “snowball effect” will help you pick up momentum and pay off debt faster.

If you have a large amount of credit card debt, it probably didn’t accumulate overnight so you can’t expect to pay off everything overnight either. However, making a few changes, and even some sacrifices here and there will go a long way toward helping you achieve your financial goals.