Getting Out Of Debt In January 2013! - Page 4

[EmsMom]

Originally Posted by LoveOurBabies 

I hope it's okay to pop in with some questions for the Dave Ramsey followers..

With regard to the 3-6 months worth of expenses, what exactly is that for? Is it for when you are suddenly out of a job?

My questions are:

What if you have $ sitting in your leave pay (for us, this is payable upon being made redundant or leaving on your own accord)?

What if you have salary continuance insurance set up.. Do you still need to save those 3-6 months worth?

TIA!
 

The 3 to 6 months, or 8 months income equivalent if you listen to Suzy Orman, or one full year according to others, is just a general rubric about how much to aim for in cash accounts to help you through an emergency when one should arise.  The emergency could be anything:  a period of unemployment (the average length of which is longer now than it used to be), a major car repair, a large medical bill, a short or longer term disability, funeral expenses, etc.  Homeowners may want a larger cushion than renters.   In the northeast this year, many people missed one or even two weeks of paid work due to the impact of the hurricane.  For many Americans, missing even a couple of days work creates a financial crisis because they don't have a cushion.  On the other hand, too much cash sitting in a bank account isn't working for you in terms of earning interest.  In general, you have to look at your own life to decide what your goal is.  For me, as a single mother with no prospect of any one else to pitch in if I should have an emergency, I am shooting for a solid year of basic expenses before I meet other goals:  that is about 25000 and I am almost half way there.  If I didn't have any children, I wouldn't be so concerned.  I would imagine that if a person knows that their health is questionable, they might go for more as protection against disability.  A single young person living with a parent would have very different concerns and may only need a few months. 

The other part of this equation is insurance, which can protect against many of the same things as an emergency fund.  Disability insurance, life insurance, health insurance, home and property insurance, renter's insurance, ynemployment insurance, etc.  These all cost money but provide different kinds of protection.   I think these things can be factored in to an emergency fund when you are planning, as can banked sick days, etc.  But, really, the whole point of the emergency fund is that you need to keep adding to it as your expenses and your income increase.  The percentage of what you save or invest may change, but you should plan on saving money in some form for all of your life to ensure your security and possibly that of your descendents. 

[LoveOurBabies]

Originally Posted by EmsMom 

The 3 to 6 months, or 8 months income equivalent if you listen to Suzy Orman, or one full year according to others, is just a general rubric about how much to aim for in cash accounts to help you through an emergency when one should arise.  The emergency could be anything:  a period of unemployment (the average length of which is longer now than it used to be), a major car repair, a large medical bill, a short or longer term disability, funeral expenses, etc.  Homeowners may want a larger cushion than renters.   In the northeast this year, many people missed one or even two weeks of paid work due to the impact of the hurricane.  For many Americans, missing even a couple of days work creates a financial crisis because they don't have a cushion.  On the other hand, too much cash sitting in a bank account isn't working for you in terms of earning interest.  In general, you have to look at your own life to decide what your goal is.  For me, as a single mother with no prospect of any one else to pitch in if I should have an emergency, I am shooting for a solid year of basic expenses before I meet other goals:  that is about 25000 and I am almost half way there.  If I didn't have any children, I wouldn't be so concerned.  I would imagine that if a person knows that their health is questionable, they might go for more as protection against disability.  A single young person living with a parent would have very different concerns and may only need a few months. 

The other part of this equation is insurance, which can protect against many of the same things as an emergency fund.  Disability insurance, life insurance, health insurance, home and property insurance, renter's insurance, ynemployment insurance, etc.  These all cost money but provide different kinds of protection.   I think these things can be factored in to an emergency fund when you are planning, as can banked sick days, etc.  But, really, the whole point of the emergency fund is that you need to keep adding to it as your expenses and your income increase.  The percentage of what you save or invest may change, but you should plan on saving money in some form for all of your life to ensure your security and possibly that of your descendents. 

Thank you for such a thorough and well thought out reply EmsMom.

I like the idea of having 12 months worth of expenses covered.

[lilacvioletiris]

Originally Posted by LoveOurBabies 

Thank you for such a thorough and well thought out reply EmsMom.

I like the idea of having 12 months worth of expenses covered.

LoveOurBabies, I agree with the previous poster about having 3-6, or 8 months, or a year of expenses based on your personal situation. Since I own a home, at least 6 months is what I am going to shoot for in case I or my DH lose a job, the roof needs repair, the furnace goes out, some major disaster comes through town and our home is destroyed (need the cash in savings while insurance companies get their adjustors out to assess damage and pay claims). Things like that are important.  I am still back at the get $1000 in the bank since we had some car repair that came up out of the blue, but DH and I are hoping to get that taken care of in the next month or so and get back on our paying off debt snowball.

[meandk0610]

Originally Posted by trekkingirl 

I just realized that since starting my total money makeover I have taken out a $5000 loan to buy an RV, paid off a credit card (actually two but the following week my transmission went out and had to recharge another $4k) and now I'm buying a $269k house by borrowing more money. Despite sounding like I'm actually getting deeper in the hole I actually feel like I am getting somewhere. Weird, huh?

If you didn't figure it out from that last statement, we did finally get an accepted offer on a house today. We originally wanted a $250k house and we are ending up with a $269k house so I'm pretty happy with that. DH is going to look at it Friday to finalize the deal. He hasn't seen it yet but I think it's a really good property for us.

and now, for some dancing vegetables!

   

that is awesome! congratulations!!!

[meandk0610]

WRT saving the emergency fund, what about using the money that would normally be saved in other envelopes? should we stop saving into clothes, haircuts, car maintenance, etc and put that money into the EF to get to $1000 faster?

[orangemomma]

 I am new to DR -so somebody jump in and correct me but, I would think that you would keep saving for these items; car maintenance etc. These are expenses that you know are going to occur at some point down the road - so budget for them.

Otherwise, if you don't maintain your car, it will break and then you will need to dip into your EF.

But I don't really know, I only have $2 in my EF at the moment. I think DR's goal of getting $500-$1,000 EF in 30 days time is unrealistic. At least for me it is.

[SunRise]

Originally Posted by meandk0610 

WRT saving the emergency fund, what about using the money that would normally be saved in other envelopes? should we stop saving into clothes, haircuts, car maintenance, etc and put that money into the EF to get to $1000 faster?

Personally, if it is a matter of 3-6 mths, I would stop saving money for clothes, haircuts etc. and even car maintenance if your car is running well. I suppose its similar to snow balling; put the majority of extra money towards EF, then spread it out. Perhaps allocate 5%-20% towards a kitty, so you have some cash that can go towards car maintenance, hair etc w/out dipping into EF. 

[CookiePie]

It is official PAID OFF OUR FINAL CREDIT CARD FROM CHRISTMAS EXPENSES!!!! Yahoo! 

I'm so proud of the hard work and dedication that we have put into this!  Let me begin by saying that this is the THIRD time that we have found ourselves into and out of CC debt!  After the 2nd time I never thought it would happen again!  Then we bought a house, and well we had multiple things that cost us!  It has been a daunting task!  At times I wasn't sure we would find our way out!  I have learned so much about myself and my own personal spending habits through this process!  This is the first time that we used DR's method and we have had many bumps along the way. 

Now as we proceed with DR's steps, next in line is to pay off vehicles, right?  We have one that is almost paid off (if I snowball it, it will be paid off in about 2 months) and the other vehicle is on a 0% interest loan.  So do I really have to payoff both vehicles before I start to really save?  I'm inclined to payoff first vehicle and split the snowball amount in half to payoff car faster and to begin save 3-6 months of expenses and start funding Roth IRA's for both of us.  Looking for some guidance on this as I'm feeling a bit torn!

[meandk0610]

Originally Posted by CookiePie 

It is official PAID OFF OUR FINAL CREDIT CARD FROM CHRISTMAS EXPENSES!!!! Yahoo! 

I'm so proud of the hard work and dedication that we have put into this!  Let me begin by saying that this is the THIRD time that we have found ourselves into and out of CC debt!  After the 2nd time I never thought it would happen again!  Then we bought a house, and well we had multiple things that cost us!  It has been a daunting task!  At times I wasn't sure we would find our way out!  I have learned so much about myself and my own personal spending habits through this process!  This is the first time that we used DR's method and we have had many bumps along the way. 

Now as we proceed with DR's steps, next in line is to pay off vehicles, right?  We have one that is almost paid off (if I snowball it, it will be paid off in about 2 months) and the other vehicle is on a 0% interest loan.  So do I really have to payoff both vehicles before I start to really save?  I'm inclined to payoff first vehicle and split the snowball amount in half to payoff car faster and to begin save 3-6 months of expenses and start funding Roth IRA's for both of us.  Looking for some guidance on this as I'm feeling a bit torn!

Congratulations! That is so awesome and really inspiring!!!

[SunRise]

Cookiepie - Congratulations!  I think if a loan is not costing you more $$ then the principle, then its ok to make the monthly payments on it and work at other items on your list (Not sure what DR recommends, but thats how I view 0% interest;))

[Mamma2Addison]

Originally Posted by trekkingirl 

I just realized that since starting my total money makeover I have taken out a $5000 loan to buy an RV, paid off a credit card (actually two but the following week my transmission went out and had to recharge another $4k) and now I'm buying a $269k house by borrowing more money. Despite sounding like I'm actually getting deeper in the hole I actually feel like I am getting somewhere. Weird, huh?

If you didn't figure it out from that last statement, we did finally get an accepted offer on a house today. We originally wanted a $250k house and we are ending up with a $269k house so I'm pretty happy with that. DH is going to look at it Friday to finalize the deal. He hasn't seen it yet but I think it's a really good property for us.

and now, for some dancing vegetables!

   

That is awesome!  Congratulations!

[micah_mae_]

Here's a question for y'all..if you have multiple savings accounts for different things do you count them all as your Efund or do you do it separate? For example our savings, the kids savings and our "Christmas fund" are all separate from our emergency fund but technically we could borrow from those funds any time. So if you had $1000 spread across these accounts would you move on to baby step 2? Or would you wait until you have $1000 in a dedicated Efund account?

[Ragana]

Originally Posted by LoveOurBabies 

I hope it's okay to pop in with some questions for the Dave Ramsey followers..

With regard to the 3-6 months worth of expenses, what exactly is that for? Is it for when you are suddenly out of a job?

My questions are:

What if you have $ sitting in your leave pay (for us, this is payable upon being made redundant or leaving on your own accord)?

What if you have salary continuance insurance set up.. Do you still need to save those 3-6 months worth?

TIA!
 

Hi, have been following this thread, but haven't posted yet. I am not sure exactly how leave pay and the insurance you mention works, but it sounds like if your concern was being laid off, that would take care of it. We keep a larger amount in an "untouchable" savings account for emergencies like major illness (although we do have health insurance, I work freelance, so a longer illness would cut our income; knock on wood, DH has a pretty secure job), car dying completely and needing to be replaced quickly, etc. We keep a smaller amount in a savings account attached to our checking for low months and non-regular but more frequent expenses like vacation, some medical stuff (downpayment on braces), car repairs, etc.

[dziejen]

Originally Posted by micah_mae_ 

Here's a question for y'all..if you have multiple savings accounts for different things do you count them all as your Efund or do you do it separate? For example our savings, the kids savings and our "Christmas fund" are all separate from our emergency fund but technically we could borrow from those funds any time. So if you had $1000 spread across these accounts would you move on to baby step 2? Or would you wait until you have $1000 in a dedicated Efund account?

l
If you had an emergency such as needing 2 new tires immediately would you borrow from the kids or your Christmas fund? Maybe not a big deall on January 16 since you have time to build it back up but what if it was December 13th? Personally, I would put $1000 in a separate account and not touch it. You will probably never regret having that cushion when something happens.

[veganmama44]

i agree that EF should be kept separate and used ONLY for emergencies. otherwise you may find yourself dipping into EF for xmas etc. i have personally been trying to budget car expenses, gifts etc into monthly budget so there is always som e cash available when something like that sneaks up on me

[lilacvioletiris]

Originally Posted by orangemomma 

 I am new to DR -so somebody jump in and correct me but, I would think that you would keep saving for these items; car maintenance etc. These are expenses that you know are going to occur at some point down the road - so budget for them.

Otherwise, if you don't maintain your car, it will break and then you will need to dip into your EF.

But I don't really know, I only have $2 in my EF at the moment. I think DR's goal of getting $500-$1,000 EF in 30 days time is unrealistic. At least for me it is.

Orangemomma, I know the only way we got our $1000 was from our tax return last year and we were 7 weeks into DR.  Unlike many people, we didn't have an "toys" to amputate, no coffee habit or eating out habit to break, or some other "easy money" way to save for our EF that so many "financial gurus" suggest.  Keep plugging away at your 50 cents a week and build up your EF over time. Every little bit will help, even it if it is small, to get you to your goal.

[lilacvioletiris]

Originally Posted by CookiePie 

It is official PAID OFF OUR FINAL CREDIT CARD FROM CHRISTMAS EXPENSES!!!! Yahoo! 

That is awesome, CookiePie!

[lilacvioletiris]

Originally Posted by micah_mae_ 

Here's a question for y'all..if you have multiple savings accounts for different things do you count them all as your Efund or do you do it separate? For example our savings, the kids savings and our "Christmas fund" are all separate from our emergency fund but technically we could borrow from those funds any time. So if you had $1000 spread across these accounts would you move on to baby step 2? Or would you wait until you have $1000 in a dedicated Efund account?

I have it as a separate savings account for the $1000 part of my EF and then my other line item saving accounts for my other "know their coming and better save a little along the way" kind of bills.

[SunRise]

I have my EF fund as a separate account. It has grown and I still add to it but  I do not want to ever touch it, so I have a second account that I am working on. Its for predictable "emergencies" and wants - car maintenance, travel, big ticket items for myself&home (new camera, furniture, etc); although I have an idea of how much I need for each item / year, the money is grouped together and can easily be used for what ever comes up. (I got tired of micro managing every penny); I have another account for home maintenance and renos. I also wont mind drawing from this to cover a different expense if that happens. But the EF, I dont want to touch.

[orangemomma]

Congratulations Cookie Pie! What a great feeling!

lilacvioletiris - how did the first session go of the DR group  that you attended last week?

I am going to have to go slow and steady wins the race with the EF because that's all I can do! This is my 4th month doing DR and I have $2 in my fund. (I am keeping track of the 50 cents per week and will deposit the whole month's worth next time I am paid)  I've had more at various times over the past few months but had to drain it to keep current on my bills. My tax return will be taken to pay back taxes. We have one toy - a car with an upside down loan on it. It's not in my name though and I can't convince my SO to sell it. I am still waiting to hear from my boss about whether or not I can get a few more hours each week.

Sometime in the next few days, I am going to drop one line off my cell phone plan - it's no longer under contract and it's not needed. That should save another $10-12 per month.