budgeting

Is Cable Worth $17,000?

/ John / Leave a comment

What do you pay for cable? Do you have Netflix, Hulu, Or Amazon Prime as well? If you were to tally up all your TV subscription based cost how much would it come to?

The national average now for cable is around $100. Here we average spend $o. We do have Amazon Prime which we will consider whether to renew in July when it expires, but we don’t pay for TV service thanks to an brother/uncle who covered Netflix for the year for our kids’ birthdays.

The math of $17,000

100/mo

10 years/120 months

7% compound interest (if you invest that money in your Roth IRA, that is tax free growth)

The total is $17,200 in 10 years. Is cable really worth it?

So what are your options? We have tried a number of different streaming players and found that Roku gives you the most streaming options. We also use Apple TV and I like it as well.

You don’t need cable. 100 channels–80 of which you don’t actually watch. Is it not worth sacrificing your future opportunities to travel, own a house, or give generously? Cut the cable, read a book, learn something new. You have a choice:  sacrifice saving, giving, and learning opportunities or watch the 200th episode of The Biggest Loser. It’s up to you.

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Emergency Funds

/ John / 1 Comment

What is an emergency fund? How much should I have in my emergency fund? Where should I keep it?

What is an emergency fund?

It is simply cash that you have available in an account in case of an emergency. Emergencies can range from a car breakdown, a trip to the ER, a water heater going out, or maybe a water line breaks in the yard. The new iPhone coming out or a new outfit at the store are under no circumstances an emergency. You may feel like they are an emergency but don’t confuse passion and desire with necessity and need.

How much should I have?

This number can vary, but most advisors and bloggers would make the case for 3-6 months income and I would not argue.  I won’t argue with you if you want to have a year. I think you should really look at the next question if you are going to have that much available and maybe have a multi tiered approach. A survey from late 2015 found that over half (56%) of Americans had less than $1,000 in their checking and savings account combined. Nearly 25% have less than $100. That is crazy. No wonder so many people are so close to the edge of the cliff. Think about it:  It is likely that half the people in the restaurant while you are eating out, if they lost their income tonight, they would not have enough money to last a week.

We have an emergency fund of about 3 months at this point. I am pretty comfortable but I could see us moving to 6 month eventually. We have other priorities to accomplish first. The amount you have should be based on your comfort level. If you have never had an emergency fund, $1,000 would make you really comfortable. Job stability, comfort level, expenses, proximity for family support are all things that you should consider when determining how much you should have.

Where should you keep it?

An emergency fund is not an investment. It is a safeguard from disaster. Looking to maximize returns on this money is not the goal. We keep our money in a couple different places and I will explain why we do.

  1. Our checking account– We keep more than a month worth of money in our checking account. This means that unless something crazy happens we now have the money in checking to make all our budgeted purchases all month. No worrying if we can pay that bill before our next paycheck. (we could pay them all on the 1st if we wanted).
  2. HSA– We have about a month of expenses in our HSA. This is only for medical  expenses but for us this makes sense. We have five very active kids and this provides safety if there is an injury.
  3. Savings/Roth IRA– We keep just over a month of expenses in our Roth not invested in the stock market. I know people will scream about never taking money out of retirement but hear me out. We are not to point of maxxing out a Roth every year. This provides us extra retirement saving while still providing security. I will go into much more detail on this eventually but 2 quick points.
    1. Why does this work? All contributions to a Roth IRA are made after-tax. You were already taxed on this money and you will not be taxed if you withdraw it. Again you can withdraw contributions only without penalty or tax.
    2. This is our 3rd line of defense. I hope that the money that is there is there for good.  I hope that I never have to take it out and in time I can invest it more aggressively. It is already there so any interest or earnings are tax free.

We are in the process of moving our accounts to Fidelity. They offer a checking account, Roth IRA, an HSA, and tons more. I like the ability to transfer money within Fidelity in a single day and I am not tempted by seeing a larger balance in various accounts. I spend based on my YNAB categories. I also have no need to go into my personal bank in over 2 years. I am entirely comfortable with an online bank at this point. They also reimburse all ATM fees so if I need cash it won’t cost me anything to get it.

Are you part of the majority of Americans who have less than $1,000 in the bank? Or, you have a year worth of expenses in savings? Wherever you fall in between find a level you are comfortable with. If you are not comfortable with where you are, start saving. Skip eating out the entire month. How much could you save? I bet it is more than you think.

Comment in the notes what the goal is for your emergency fund.

Get Started With a Budget

/ John / 2 Comments

The best way to budget is the way that you will follow through.  We have used a variety of software over the years when it comes to budgeting. We have used Excel, Google Docs, Quicken, Mint, YNAB, and a number of other apps off and on.  There are benefits to many of them but my favorites are YNAB and Google Docs. We will talk about how I use each of them in the coming weeks. Today I just want to give you an overview of each so you can choose the option that fits your needs.

Excel and Google Docs

These are very similar options. Excel has slightly more powerful features but I love how Google Docs syncs seamlessly in the cloud.  I use Google Docs to plan and forecast future months.  It gives me a 10,000 foot view of what I have coming up.  YNAB does this some but this is a different picture of it. I linked to a sample copy of what I use above.

Quicken

I used Quicken a number of years ago. The software has changed significantly since I last used it.  It is the most feature rich of the software I am going to discuss.  For most people, especially if you are on a Single Income, chances are you don’t need the features.  It also take a lot more work to do Zero Based Budgeting (which I’ll explain below).

Mint

This is a free tracking and budgeting program.  Before switching to YNAB this is primarily how I budgeted.  It worked okay for us. There are some good features (it’s free, it automatically categorizes transactions, it also links to almost any account you have, including your bills). What it doesn’t do is force you to look at your transactions or use a zero based budget strategy.

YNAB (You Need A Budget)

As even my daughter will tell you, I am a huge YNAB fan. They do many things really well. YNAB is set up to only allow you to budget for the money you actually have.  At first it took time to get used to this; I still use Google Docs for forecasting months in advance. When I look at YNAB, I can trust that if there is money in that category, I can spend it, which provides a peace of mind.

They have 4 rules which I think make perfect sense.  One rule I love is the idea of aging your money. How much peace of mind would you have if the money you got paid this week was going to pay for expenses at the end of March. That sounds great, doesn’t it?  It took us a little over 4 months to get there but now I am not stressed about what bills I can pay with this paycheck.

Whatever you choose, I would make sure that you are using a zero based budget. A zero based budget means that every dollar that comes in needs to be given a job or a task. A dollar that doesn’t have anything to do is likely to wander off without you even knowing what happened.

EVERY DOLLAR NEEDS A PLACE

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