Why you need an emergency fund

Emergency fund 101KJ: So we had a bit of a real-life experience this past week on the importance of funding your emergency fund. Not only do you never know when you will need to dip into it, but you don’t know how quickly you may need access to it either. Plus, money is the last thing you need to be stressed about when dealing with an emergency. So, how then do you make sure you have enough money in your emergency fund for when you really need it? We’ve written about it quite a bit over the last couple years of our blogs, but this past week really hit home on the WHY we save like we do. Not only was our recent dip into the emergency fund stressful and woefully unexpected, matters would have made the situation worse had we not been prepared financially when it came time to pay the piper. Hey, just because you’ve built up your emergency fund doesn’t mean it’s any less painful to spend it when the time comes! Let’s start with some information on what an emergency fund is, what it isn’t, and what you should do to protect you and your family in an emergency situation.

What is an emergency fund?
Any good emergency fund should have the following characteristics:
It should be highly accessible. Don’t plan on equity in your home to serve as your emergency fund. That’s a terrible idea as people saw firsthand in the 2008-2009 real estate bubble bursting. But, your emergency fund should be invested in highly accessible cash, be it a money market account or a savings account. Once you’ve built up your various buckets, for the first $5,000 of your core-emergency fund, don’t bother trying to do anything fancy with Certificates of Deposit (CDs) or any investment product at a brokerage firm with today’s low interest rates. You NEED it to be highly accessible and penalty free when you’re in a bind, so having the flexibility in just a regular savings account is often preferable.
It should have a minimum of $1,000 quickly. It should be filled with at least $1,000 to get started right away, but it should be built up with enough funds to cover your home, health, and auto deductibles should something crop up unexpectedly (not quite as rare as you may think!). Then, look to build it to that magical 3-6 months of your living expenses, so it can serve that additional purpose in the event of a job loss.
It should be reserved for emergencies ONLY. This one is plain and simple. Don’t use this for when that TV of yours breaks, upgrading appliances, or taking a trip. Hold strong and use it for its intended purpose!
It should protect you and your family. Any good emergency fund should be able to provide your family with the cash you need, so you don’t have to rely on high interest credit cards or lines of credit. Those just add fuel to the fire and make your emergency situation just that much more difficult to dig out of.
It should provide peace-of-mind. Once you’ve saved the proper amount, your emergency fund helps take the added financial stress out of the situation. The last thing you need to stress about when dealing with a health, home, or auto emergency is the financial aftermath, so why make the situation worse. It’s easy to get behind, so dig your heels in and get ahead before it’s too late.
A way to ensure you won’t be a burden to your family. This is particularly important to us in an emergency, as what you need most from family is emotional support and not financial support. An emergency fund protects both you and your loved ones.

What an emergency fund is NOT.
It is not to be used for regular living expenses. As in the above writing, don’t use it for everyday needs. Oh, my checking account is low, or, I need a better pair of shoes. NO! If you find yourself wanting to dip into the account for these purposes, then head on over to our earlier post on finding a surprisingly free (and simple) budgeting tool to give your budget a quick start, so you can quick-stop your reliance on your emergency fund for every day use.
It is not illiquid. Don’t rely on real estate, rental real estate income, or investments to be your core emergency fund. Sure, over a VERY long period of time, you could come out on top if you could eek out a little extra return, but the lack of flexibility when you need the funds most can be a huge issue.
It is not pushed aside and never looked at again. Just because you have built up your emergency fund one year, doesn’t mean it will forever be the same amount your family needs. Periodically check to see if there may be more you need to save up. Maybe your expenses are higher or your risk factors for health issues have increased, meaning you need a higher balance in your emergency fund. Again, start with $1,000, then build to $5,000, then build to 3-6 months of living expenses.
It isn’t a planned expense. An emergency fund is for just that: an emergency. Don’t use it to fund a known expense coming up for a roof replacement, new fence, etc.

So, how then do you plan on using your emergency fund?
Have quick, direct access to your account to transfer funds to a checking account. If it takes multiple days for cash to be available and is at another institution than your checking account, that can be troublesome at times.
Know how and where to go. Don’t bottle this up and keep information from your significant other. Make sure both of you know how and where to go to raise funds as needed. It doesn’t help to have saved the money and have it available if you don’t both know what to do. Think of it as a little at-home cross-training.
Lean on your everyday credit card. This one carries a big caveat, but if you have properly built up your emergency fund, then simply putting the expense on your credit card, and then subsequently transferring cash to your checking account to payoff the bill ASAP can be an a-okay solution. We wouldn’t have been able to do this recently had we just graduated from college, but as we’ve continued to build our credit, we’ve increased our access to credit too (actually quite scary what the credit card companies think is OKAY to have access to!! But, we’re responsible, so we’re not racking up ANY credit card debt in the process that isn’t paid off in full each month).

    Do you have a fully-funded emergency fund?
    What amount do you need for your emergency fund?
    Don’t delay, and start an emergency fund today!

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Can one job be better than two?

AJ: Having one job is often more than most of us can handle, but what happens when life throws you a curve ball and you need to find a way to make more? Many families find themselves in situations where they’re forced to choose the function of multiple jobs in order to make ends meet – but is another job really the right answer?

Over the years Kirby and I have come across a varied and fascinating lot of successful people, all of whom have lead very unique lives that took very different paths. I like to think we’ve learned a thing or two from their experiences, so here goes!

Before you get a second job, consider what the cost of that second job will be.
- How much time will it take you to get from your first job to your second job?
- How much gas will it take you to get from your first job to your second job, and then back home?
- How much of your sanity and physical well-being are you sacrificing in the amount of time it takes you to transition from job one to job two?
- And finally, is there a better way?

Opportunities within opportunities
Many companies offer opportunities for a second job within a first job, if you will, by way of overtime. Even individuals who are salaried can sometimes be eligible to work and receive payment for overtime hours without having to commute at all, so before looking outside of your current role, seek additional opportunities to find value in the position you currently hold.

Milk your benefits!
Kirby and I work for fundamentally different companies that offer drastically different benefits, both unique and beneficial in their own ways. Look for additional cost savings in the benefits you already have:

- Does your company offer free or subsidized meals? Kirby’s company provides free fruit, which seems insignificant, but cut my fruit-buying need in half which adds up.
- Does your company offer incentives for carpooling or riding your bike to work? We have several friends who receive ride share and bike-to-work benefits in the form of cash back on their paychecks – that’s an incredible area of free money that most individuals don’t take advantage of.
- Can you drop your outside personal trainer or gym membership in exchange for the at-work facilities?
- Bring your lunch! This seems simple but think about it – when you leave for lunch every day you’re spending more than you would were you to make your lunch and you’re presumably using additional gas to get there. See what happens to your wallet and your waistline if you bring your work to lunch for a month instead of eating out. You’re welcome!

So what if your situation is more about two incomes costing you more by incurring the cost of child care, a costly commute or your health & well being? Few people have sympathy for those dual income families who are faced with the issue of having two jobs but struggle to make ends meet due to circumstance, but this is a huge burden for a lot of families. If you make $35,000 pre-tax and the child care costs for your two children are over $25,000 a year, your job may actually be COSTING you money over staying home with your kids. Of course there are all kinds of considerations in this scenario, but truly put pen to paper with regards to the input and output of dollars when considering whether two incomes really are better than one.

    What career/life balance decisions do you struggle with?
    What do you value most about your job?
    Can you find additional benefits in your job that are currently untapped?

Can one job be better than two? is copyrighted by TheSimpleMoneyBlog.com without consent to republish.

Some of the links in the post above may be affiliate links. This means if you click on the link and purchase the item, we will receive an affiliate commission. We feel strongly about only recommending products or services we use personally and/or believe will add value to you, our readers. Read more about our commitment to providing quality product recommendations.

How to use credit cards to your advantage

KJ: Knowing how to use credit cards to your advantage is a powerful financial skill. With so many credit card rewards programs out there for cash back rewards benefits, airline mileage rewards and travel rewards, we’ll help walk you through how you know what’s right for you.

Six credit cards

Create a list of your goals
As with most other items we talk about, put pen to paper and discuss what the heart of the matter is with your goals. Some considerations are:

  • Are you looking to leverage your favorite airline miles credit card, so you can send your family on trips periodically,
  • Are you yearning for cash back credit card rewards to put some extra money in your pocket?
  • Do you have a go-to hotel chain that you want to earn some hotel credit card points with?
  • Are you paying down debt and need a 0% credit card balance transfer for a period of time to help with your interest payments?

    The answer to each one will help direct you to what type of card may be right for you and your current needs.

    Evaluate your current credit cards periodically
    Our cards of choice have always been cash back credit cards, so I recently did a full analysis of our credit card rewards we earned last year based on what we spent and what cash rewards we actually earned. We use the Chase Freedom & Chase Sapphire cards for various expenses (with one card used exclusively for business expenses), but with rotating 5% categories, miscellaneous promotions, and changing terms, it’s a complicated mess to say the least on what you’re actually earning – thus my desire to calculate the cash back we earned on our credit cards for this last year! It’s been a long time since I actually calculated the figures, but when I calculated it all, I discovered we earned about 1.25% (without including a sign-up bonus of $400 we benefited from on a card we opened last year) when looking across ALL purchases…not too bad, but certainly room for some improvement.

    Consider changing credit cards if the results are disappointing or below your expectations
    There are definitely some better cards out there, so we’re currently looking to find what we can tweak to maximize these benefits even further for 2014 and beyond. One thing I’m considering is finding some of the specialty cards where you consistently earn 5% in a specific category (one for gas, one for groceries, etc.) to see if those might make sense for our spending. Plus, we have a couple cards now that served their purpose for a sign-up bonus and are now ready to be closed.

    Try to keep your oldest account active
    I have a tendency to get a little overzealous with new accounts sometimes, so it’s important to do a double take to ask yourself if the *potential* benefit is worth the extra time and energy spent in opening a new account, linking it to your Quicken or Mint.com logins, etc. It’s not great on your credit score overall to constantly open and close accounts, but there’s a certain amount that can make sense. Particularly once you attain a certain level of your credit score, these changes make little overall impact (in my opinion).

    One good rule of thumb to keep in mind is to always look to keep your longest held credit card(s) open despite all the changes you’re making. Since your average credit length is a component of your credit score, the older cards help benefit your scores. However, it’s important to weigh the benefit against any annual fees and in light of your overall goals. It’s probably not worth the annual fee just to keep it open, so try to find a card without an annual fee or minimum purchase throughout the year. But, if you do need to keep the card active, consider just charging something as simple as toothpaste or an essential grocery from time-to-time to keep the card active/open.

    Avoid carrying any balance
    Despite all of this analysis, it’s important to avoid carrying a credit card balance at all. Use a cash flow system to help you track your expenses, so you can be empowered to really control your expenses from month to month and can avoid having a balance on any cards that is carried over. If you do end up carrying a credit card balance, say “goodbye” to the enticing sign-up rewards and the ongoing mileage/cash back/travel rewards as the interest payments are sure to eat up all benefits and more!

      Have you ever analyzed your credit card rewards?
      Do you have a preference for a rewards credit card?
      Tell us what you have done that works for your spending style and goals!

    Image courtesy of vectorolie / FreeDigitalPhotos.net.

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    Weekend rewind: planting future savings

    AJ: We spent the back half of 2013 weekend warrioring our brains out and 2014 has started off much the same! Our new year’s resolutions have stayed top of mind and we conquered some major projects this weekend as a result.

    KJ: We now have a beautiful fence, Angela made and mastered her first pizza dough (turns out yeast isn’t so scary after all), we planted an awesome vegetable and herb garden and started the Advocare cleanse (for the second time for AJ).

    Making some dough to save some dough
    KJ: Angela tested out a family recipe for pizza dough thanks to her talented sister-in-law, and started the process of learning how to bake some great, homemade food. She started with a crowd favorite of pecorino romano, artichokes, tomatoes, mushrooms, garlic tomato sauce, and onions. Not too shabby for the first time using yeast! Plus, all the ingredients added up to about $10 for two nights of pizza – and we still have leftovers for future lunches that we froze! Adding that savings up over the course of a year by just substituting every-other pizza for this home-made version could rack up $50-$100 in a year (yes, we love our pizza!).

    AJ: It was also super delicious, and next time I’ll test out whole wheat flour to improve it’s overall health benefits. Kirby already hates this idea but he’ll survive whole wheat, I just feel sure.

    Scratch made pizza dough with artichokes, pepperoni, mushrooms, cheese, and onions

    Planting a vegetable garden
    KJ: With my father-in-law’s help (providing the lumber and expertise – thank you very much by the way!), we planted our first ever vegetable garden and started a nice little herb garden. Some items were a bit too early to begin planting the seeds, but Angela got most of it in picking order to go for our future fresh food needs.

    AJ: I mentioned before that my father is a gardening god but the man just straight up knows his stuff. We’ll have potatoes in no time and pending my ability to be patient (alongside constant encouragement to “Grow! Grow! Grow!” We can’t wait to see what comes out of our backyard. In a gardening book I read a story about a town who competed annually to see who could grow the first perfectly ripe tomato and the man who won had planted heat coils under his plants and I’m definitely not above being creative for the sake of perfect tomatoes!

    KJ: We’re by no means master gardeners, and we’ve only just completed about 1/4 of the whole battle – with keeping them fresh and alive with water and sustenance being the real feat – but a great first step it does seem like. Tom Thumb had a HUGE sale on the exact seeds we were looking for just a few weeks back coupled with a hefty 25% off our entire purchase at our local plant store meant our break-even point for home grown herbs and veggies would come just that much sooner. A big commitment with an estimated cost all-in of $250, but that got us enough for ALL of the items below, something we hope to reap the savings of for years to come.

    Amazing how fast some of this stuff grows. We’re supposed to have some good old potatoes here in the next week already, so place your order today! :)

    Newly planted vegetable and herb garden

    Finished the last of our major home purchases
    We finished the installation of our fence on Friday (we weren’t ready for that one to be DIY, so we hired it out), so we can can finally enjoy our backyard just that much more and let our dog get a little bit more exercise. Looking into your neighbors’ yard from your gorgeous deck really takes the wind out of your sail.

    We started a cleanse
    Clean body, mind, and soul? We started the AdvoCare cleanse to help get our bodies back on track. It’s been a long time since I’ve done any type of cleanse (actually, my ENTIRE life, so this is a first for me). It’s been a rough two days with no caffeine, but I hope the benefits of getting on the right footing for our weight loss goals this year will mean we’ll be better about our eating habits. This coupled with our new vegetable and herb garden should be the kick-start that we need.

    AJ: This is a very tomato, tomato situation. I feel AWESOME. I woke up feeling good, I felt good all day, and even while I was preparing breakfasts, lunches and snacks for tomorrow hours after I finished working a full day I feel great! Kirby will get there, I’m sure, but a cleanse is definitely a commitment, so be better than us at exerting self control and you might not need to do one :).

      Did you have a productive weekend?
      What did you accomplish to get on the right financial footing?
      How do you share the load of your financial goals?
      Share with us your experiences in how you start a vegetable garden to feed your family.

    Weekend rewind: planting future savings is copyrighted by TheSimpleMoneyBlog.com without consent to republish.

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    Our approach to Valentine’s day: built on love, but not on “stuff”

    Valentine's Day heartAJ & KJ: One of the key themes that we’re always searching for in a gift is for experiences and not stuff. We have been very fortunate to have enough stuff, and over the years, we have learned that it’s the experiences we spend together that will last us a lifetime. And thus was born our Valentine’s day tradition that’s been going strong since our college years. Some people loathe this Hallmark holiday, and others cherish the opportunity to build their collection of *stuff,* but we’re more middle-ground when it comes to our tradition for this particular holiday.

    Keeping it simple
    We don’t buy one another gifts or have really complicated plans for what we want to do on Valentine’s day to share in the special moments, but we do have a long-standing tradition of a nice, relaxing couple’s massage and then an all-you-can-eat churascaria extravaganza (read, lots of high quality beef on skewers at our disposal! – Texas de Brazil and Boi Na Braza among our favorites). It certainly isn’t one of the cheapest Valentine’s dates we could have, but it’s what we do each year to spend the day together and treat ourselves to a great experience that really matters. The exact day itself doesn’t really matter to us – as we often don’t celebrate on the actual day since our go-to restaurants can be quite crowded, but we always celebrate Valentine’s day and relax from our busy lives either the weekend before or the weekend after. We’re going for simple, and we feel that we’ve kind of found a sweet spot.

    Building a tradition
    Traditions are great and they help you build a nice foundation. You’re not trying to continuously compete against your prior gift and constantly do more, and more, and more (as chances are, you’ll never get to the point where you’ve done the *most* you can), so you learn to really sit back and appreciate the hours, the minutes, and the seconds – those special moments to reflect on your years together and to be excited for the years to come. In this fast-paced world, we have little down-time to truly relax and catch-up, and we’ve found that our nice little tradition has not only lasted years, but it’s something we look forward to.

    Find value where you can
    Just because it’s fancy doesn’t mean you can’t find value, so find value where you can (sorry for all the double negatives…)! Even though it sounds quite luxurious to have a couple’s massage and an expensive restaurant, we’ve always managed to keep it reasonable and find ways to stretch our dollars. For most years, we went to Massage Envy for a great, discounted rate, since as a non-member, you can enjoy a discounted massage once every year (at least that’s how it was when we last went), and we timed it with a special pricing at one of our churascaria go-to restaurants (as it always seems at least one of them is offering discounted dinner AND dessert!).

    Set expectations
    My favorite thing about how we do Valentine’s day is that the expectations are known. Give a thoughtful card, show appreciation, and settle in for a nice day together.

    This year’s plan
    This year, we’re changing our tune just a little bit since we purchased an all-in-one massage and lunch package from a silent auction at an annual gala of an organization we support each year, but the gist is the same. Massage and lots of food! Sure, there are probably feng shui reasons for not doing these back-to-back, but hey, it works for us and it serves a dual purpose – donating to an organization we’re passionate about and indulging in our favorite things. We also agreed to make cards for each other this year. Arts and crafts 101! I think it speaks to our overall priorities – showing each other appreciation and enjoying being together.

      What traditions do you have for Valentine’s Day?
      Do you hate Valentine’s Day or love Valentine’s Day?
      What holiday traditions have you built for you and your loved one for other occasions?

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