Mending Your #SafetyNet

Edwin Harris – Mending The Nets (Photo credit: Wikipedia)At the end of the season, it’s a good time to mend your nets.

Updated Jan 2019.
Originally posted 2013.
Given today’s lengthy, record-setting US government shutdown and the hashtag #shutdownstories, this post needed an update. As a friend told me when we hit 40; “Exercise is no longer a luxury.” A safety net and emergency funds are no longer a luxury. This shutdown illustrates with stories the numbers about Americans living paycheck to paycheck.



When we reach the financial adult stage (your chronological age may vary); you may wish to mend or create a safety net. Safety nets are different from person to person; so feel free to select the pieces that match your own situation. 

Security Risk management: often solved with insurance products. Car, renters, condo, house, flood, fire and theft, cell phone, jewelry, business continuation etc. Even if you think you don’t have expensive things, you probably do. How much were your electronic gizmos? Can you afford being without [insert category here]? Many rental complexes now require renters to have insurance, which will also shield you from many liabilities (kitchen or electrical fire, water heater or tub overflow, leaky toilet, disposal failure, to name a few.) Check your specific policies for new exclusions based on the sharing economy, such as AirBNB or or using your car for ridesharing.

Savings (also known as cash these days due to barely visible interest). Rates are rising and one can earn more than whisper of interest One person’s emergency fund is $500, another’s is $10,000 and I have met someone whose security needs are met by one year’s income in the bank ($65,000). I like to suggest thinking of this fund in terms of months of income or expenses (whichever is greater). There’s a joke in there, sort of. What should be the minimum? My audiences are well informed and I hear 3-6 months from many when I ask this question. I suggest making the fund real by linking it to your insurance deductibles, the cost of 4 new tires, or even your family OOP, out of pocket limit for annual health care costs.

Residence  Home is where the heart is (and the bills) and your fridge. (see my earlier post called Clean One Refrigerator Shelf at a Time here)

Friends and Family Shoulders to cry on or celebrate with. Who can help you stay accountable to yourself? Who will understand and support your goals? Which of your friends or other loved ones can give you an assist with tangible or intangible help? Do you need to move into someone’s spare bedroom for three months while you save up for XYZ goal? (Tip: set a deadline for being in-residence-the relationship is something you don’t want to lose).

The Future What does your future hold? What’s on your bucket list?

• Encore Career
• Additional or ongoing education or professional development
• Retirement
• Caregiving for family member (s) now or in future
• Travel both domestic and foreign
• Volunteering (Peace Corps, Volunteer Vacations, International Red Cross)

Tools
Education, knowledge or wisdom (not to be confused with advertising, too many data points, endless supply of new products, Squirrel!),
Wisdom comes from mistakes, mistakes come from experience.  Or,

There is only one thing more painful than learning from experience, and that is not learning from experience.  ~Laurence J. Peter

Emotional IQ  Know yourself. Are you a DIY (do it yourself) person? How resilient are you? Can you reframe an experience and move forward? Do you want to bury the memories? What makes you feel shame (if anything) ? What are your money values ? Status or security, self fulfillment or self indulgence? Are you a planner, spontaneous spender, or celebrator?

How do you like to learn new information? Are you a lifelong learner? I have always enjoyed the opportunities I have had in my career to ask other people about their questions, or to consider what the important questions are for me when making a decision. Getting help with the right questions can be better than only searching for the answers.

Before You Quit Your Job-Five Factors to Consider

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Back to School: D’s in Personal Finance

Let’s help you get 3 D’s in personal finance this month. As on Sesame Street, this post is brought to you by the letter D, because we’ve been trained since preschool to get A’s. Are you a personal finance slacker? This post is for you!

Get a D+ here!

Let’s consider these 3 D’s: Decluttering, Disaster and Discussion.

Decluttering

• Three things you can do today! Financial decluttering- included here are things like unsubscribing from shopping site emails, from Groupon to  misleading requests for your bank account number or to “verify” your order from BigBoxCity.com Unsubscribe, delete and mark them as spam until they disappear.
• Spreading the wealth is not always a good thing. Do you have multiple financial accounts spread around town, or the country? Do you still have an old 401(k) account with a former employer? If you had had a life changing event-did you change your beneficiary? Beneficiary choices always trump your will.
• Are you still receiving multiple credit card or insurance offers?                                   You can stop them, you know.

Disaster Planning

• What to have in the house in case you are stuck for 3-7 days, and what to take with you for an evacuation (say, for a wildfire or a hurricane)
• You might think of your children first, or maybe not….Quick, what are the first three things or people you are going to grab? Start there and then add to the list throughout September, which is National Preparedness Month. #NatlPrep on Twitter
• Practical digital tasks you can accomplish quickly. Load up an 8G flash drive on a lanyard with scanned important documents and photos-I got this tip from a friend who is a trained Urban Disaster Responder. Place in your disaster box or backpack.
• Upload these same documents into your regular cloud storage.
• Complete this handy document created by the Consumer Financial Protection Bureau of the US.
• Actual cash somewhere ($10 in quarters, in case you find a working washing machine) and small denominated dollar bills. Remember the comedian David Brenner’s last wish here-“Bury me with $100 in dollar bills in case tipping is suggested at my final destination”.

Handling Your Financial Monsters

Join me behind the reinforced walls of Office Nomads for
a glass-in-hand look at financial monsters and how to OUTSMART them.

We all know that tackling our finances can take lots of preparation, and sometimes, a little wine to grease the wheels. So does the Zombie Apocalypse. That’s why I’m hosting a tax-season recovery event to turn you into a Financial Apocalypse Prepper – Zombies and Zinfandel.

Zombies and Zinfandel is Thursday, April 21, 2016

Come at 6:45 to mingle with other Zombie Fighters. Art courtesy of Michael Adrada

Together, we’ll talk about survival through planning (for your tax refund), creating strong safety nets (like managing credit), and the allies you’ll need (just as much as those fences) to preserve your resources.

Although this is a fun excuse to hop on the zombie zeitgeist bandwagon, it also strikes at the heart of my mission at Twight Financial Education – to empower clients to break through money taboos and meet your financial goals on your own terms. This is the third class in my wine series, after Mutual Funds and Merlot and Riesling and Retirement. Please pre-register here through Brown Paper Tickets.

Don’t like zinfandel? No problem – there will be some alternative beverages on hand.

This just in! Office Nomads is now accessible via light rail. The entrance to the Capitol Hill Station is 3-4 blocks from Office Nomads. Additional parking details at the event site.  Reserve your spot in the shelter before it’s too late!

Shoutouts

Thank you to my main collaborators Christopher Mathias, Andrea Carey, along with Casey Middaugh.  Seattle artist Michael Andrada designed the really cool poster you can see here.  Also to Chateau Diana (creator of Zombie Zin), who gave us some giveaways.

Getting to know a ‘Bank of Inconvenience’

In a recent article, I suggested a “bank of inconvenience” for one’s emergency fund. I thought I might elaborate a little more on what I meant by that phrase. It’s going “old school” with a part of your money.

Bank of Inconvenience

In today’s world, the emphasis is on connection and access, 24/7. I’d like you to take a step back and consider having a pot of money that is not linked to anything. No transfers, no apps and no money going out unless you go there in person.

Here is a way to grow and keep your emergency fund in five steps:

1. Choose a financial institution (this means bank or credit union) that you may not have a current relationship with. You don’t have to break up with your other bank.  This bank might need to be beyond walking distance from your favorite haunts. Hence the term ‘inconvenience’. Note: An online bank would work, if you follow step 3, below.
2. Open a savings or money market account. Deposit the least that it takes to open the account, or one month’s rent/mortgage, whichever is possible now.  Get your account routing numbers for Step 4.
3. Do NOT  link this account to any other accounts. Do NOT order checks or a debit card. You may end up collecting $200 this way! Later on…
4. Consult your HR or Benefits department about setting up another Direct Deposit account destination. Give them the information from Step 2 and an amount. $5/$50/$500 per pay period is fine to begin with. Sign up! Or if self-employed, argue with yourself and eventually agree to choose a deposit scheme at a different bank.  Money only flows one way.
5. Watch your funds add up. Not from interest right now-that is not part of the goal. This money is set aside (or sequestered) so that you can have cash on hand for a true emergency (new brakes, trip to a family funeral, stolen cell phone, trip to the ER). It’s ok to use the money, but keep the deposits going. You can get to your own goal for emergency savings ( I usually recommend a minimum of three months income or expenses-whichever is higher, as a first goal). This will also help reduce any reliance on a credit card for this type of expense.

All done and on your way to collecting hundreds, even thousands of dollars for your emergency fund.

Park it Here!

America Saves Week Begins February 25th

“WE ARE SAVING THROUGH PAYROLL SAVINGS” – NARA – 516067 (Photo credit: Wikipedia)

In Washington state, there are multiple activities this week to help citizens “Build Wealth, Not Debt”.

From our Governor’s Office:

“Understanding that having emergency savings, retirement funds and being able to manage one’s debt are crucial to Washington residents’ personal financial security, Governor Jay Inslee has proclaimed Feb. 25-March 2, 2013 Washington Saves Week.” www.dfi.wa.gov/financial-education/wa-saves/pdf/2013-proclamation.pdf

“The campaign theme “Set a Goal. Make a Plan. Save Automatically.” is aimed at reminding consumers to utilize the automatic payroll deduction options at their place of employment to begin building an emergency fund, create a retirement fund or develop a targeted savings fund for their future.”

This ties in with my business philosophy, and using the automatic options available to you is a refrain my clients hear often. We all need a little boost to get the money in the right place, whether you call it a jar, an envelope or a savings or retirement account. In the past, many people were encouraged to use payroll savings to buy US Savings or War bonds.

Right now, your choices can include:

• your savings account linked to a checking account,
• a savings account at the  “First National Bank of Inconvenience” * [location varies],
• a stock mutual fund
• or even a charitable destination.

One well-known financial writer [and former wealth manager] David Bach trademarked the phrase “The Automatic Millionaire”.

Here is one way to begin: Set up an automatic transfer to from your paycheck to an account. It can be a savings account and the transfer can begin at $5 per paycheck. The habit is the first priority. After you have saved some emergency funds (everyone’s number is different), from $100 to $500 to a minimum of three months expenses, then you can set a new goal.

You might be surprised at how accommodating your HR department can be. One company that I work with will send funds to as many as ten different destinations on your behalf.

America Saves has programs on homeownership, surviving a financial crisis, and free tax assistance offered this week in our state. For an event near you, check this calendar.

*No disrespect for banks here, just a label created for keeping your funds in the bank or credit union.

Related articles

• A 50-Something’s Guide to Starting to Save for Retirement (community.ally.com)
• America Saves Week (unionstatebank.wordpress.com)

Your Emergency Fund-Breathing Life Into It

I recently backed into a post. It was a 2 by 4 mounted at exactly the right height to merge with my car’s driver side tail light. I’ve never bashed out a tail light before, but there is always a first time. Is there ever a right time for this cost?     No.

Total cost to replace said tail light $250. How to pay    for  it-cash or credit? Here is the argument for credit .   There really isn’t one, unless I had no cash. Have you ever noticed how sometimes expenses exactly match up to your cash on hand? $250-paid in full. So the cash went directly to the car expense without stopping in my emergency fund.

One of the first questions that I ask my clients is how much is in your emergency fund? When I began working with clients in the 1980’s, the conventional wisdom was to have three months income as your emergency fund. When I began to teach, and answered the question wittily (I thought) :

“Three months income or expenses, whichever is greater”.

Then the number crept up to six months of income in the financial planning world. Suze Orman began to say eight months. In a recent column published by the Wall Street Journal, Rachel Louise Ensign made a good case for nine months. She explained that the “average duration of unemployment is nearly 40 weeks”. That is ten months!

If you have no emergency fund, not only can you not invest, but a simple car expense, apartment deposit, or unexpected dental bill can mess with your carefully laid out budget. What to do? Hopefully there are a few dollars that you can divert to an emergency savings account. Even $5/week is a good start. $20 times 12 is $240 that you didn’t have before. $40 times 12 is $480. How to generate that?

1. Take your lunch to work
2. Brew coffee or tea at home
3. Walk to work one day a week instead of driving or taking the bus (not possible for everyone – I know)
4. Investigate a carpool to cut gas expenses in half each month-save $50 or more this way
5. Switch a monthly prescription to a generic instead or order by mail
6. Extend the time between haircuts
7. Get your movies from the library or the Internet-cancel Netflix!
8. Stop paying for downloaded music (I get mine from the public library)
9. Switch brands on a regular grocery item
10. Quit smoking ( Someone I know saved $150/month with this one)
11. Do I even need to mention the cable bill? Tip: ask for Limited Basic…

And here is the vital next step-hide that money somewhere where it can’t be spent! In an envelope, an online savings account or ask your HR department to send it directly to your savings account each payday. They’ll be happy you asked!

Right now, as you are building this up, the most important step is to create the habit of saving. Maybe the dollars only stay in the account for 2 weeks at first. But you have to do this part to get to the part where you can worry about how to get some interest on it. After you get to $500, go to $1000. And so on. Think of the account this way. Funds deposited there keep you from paying 13-22% on a credit card or installment balance.

If you are participating in your firm’s 401(k) plan and earning the company match, but have no emergency fund, consider backing the 401(k) deferral off 1% until you set up an emergency fund.

When the inevitable happens and you need a new tire, a replacement for the cell phone dropped in the bathtub, or to fix the stove, that’s ok. That is what the money is there for. Take a deep breath, go back to step number one and replace the funds ASAP.

You can’t save three, six or ten months of income for an emergency without putting down that first $5 bill.

The front side of a US $5 Hawaii Emergency Note (Photo credit: Wikipedia)