My Five Best Money Decisions
It would be a total disservice for me to tell you my worst five money decisions without telling you the best money moves I've made. One thing about money it's one of the most important yet least important things in our lives. What does that mean? Money doesn't define you nor should material things. But money and what it means from a socioeconomic standpoint can be life changing.
My mom always says 'Money isn't everything but it's right up there with oxygen.' Isn't that ironic. Out of every painful money lesson I've learned I can say that I'm financially evolving everyday and constantly putting these top five money lessons in my back pocket.
Build an emergency fund. When I got married in 2013 both my husband and I had low incomes and I was being garnished from the 'lovely' Sallie Mae. So we were basically living on the edge--paycheck to paycheck. My first version of an 'emergency fund' was putting $50 aside each time I got paid because the only consistent emergency I had was having a flat tire. And on a 2004 Ford Focus about $100 should cover the repair. Fast forward to today my perspective on what a true emergency fund should be has totally changed. In my opinion, building an emergency fund shouldn't even be $1000 according to some of the most popular finance gurus. It should be a full month of expenses. Then after that has been saved, take that amount and multiply it times three for a full three month emergency goal.
Build sinking funds. 'Sinking funds?!?!' 'What's that!?!?' Do you remember your your grandparents having a Christmas savings club account? They knew how much money they wanted to spend on Christmas gifts so they would save a certain amount each month to make sure they met that goal. It's the same concept but for different categories within your budget that may require longterm saving. Things such as insurance premiums, back to school shopping, car repairs, standard medical expenses like glasses and contacts, etc. These are the things we typically consider emergencies but they really aren't. They are the same expenses that roll around each year but we're never prepared for. Wouldn't be easier to set up separate online accounts (or one savings account with the capability of categorizing the funds) where you can save for your items and when the event occurs your ready and you don't have to swipe a credit card to pay for them?
Budget for incidentals and accidentals. After I became a mom I realized that I constantly ran into the issue of something always coming up that required me to go over budget. Ugh. How frustrating. Until a friend of mine told me about building in an incidentals category in my budget. Clever huh? So now I have an incidentals sinking fund account. I reevaluated my unexpected purchases throughout my first year as a mommy and realized that we were spending on average of $136 each month on things I had to just had to 'run and get' because the baby needed something. So now I have $70 from each paycheck automatically transferred into my incidentals account. I act like its not even there. If something comes up we have cash that we can access but it keeps us from reaching into the emergency fund and from swiping a credit card. After a few paychecks I will transfer that money into another sinking fund if we don't reach for it!
Build and maintain your credit. This is HUGE! If you're one of the lucky ones that never had to build or rebuild your credit then this isn't for you. But if you're like me and your credit tanked due to a mountain of student loans that were sold hundreds of times during the 2008 recession and you've had credit card debt, rebuilding is a process that takes years of diligence. Rebuilding my credit was an extremely emotional process. It meant that I not only had to face my debt and collectors talking to me like I was a dog and also deal with the fact that I felt like I was cheated into believing the lie that I was told as a child about my education being paid for. In addition, I had to actually print my credit report and go through it line by line to determine what was active and what wasn't. Some stuff I didn't even recognize. My lowest credit score during that time was 496. That credit report didn't even reflect the person I was. I hated that it made people (employers, creditors, etc) look at me as if I wasn't worthy of building a good life for myself. I hated it. That realization and that work took a whole decade to correct. Now my 30s are much much brighter.
Build assets not liabilities. When I started my first 'big girl' job after college, I didn't understand the value in starting a 401k. It wasn't until I worked my job for about a year that I realized that a 401k is not just money for retirement but its free money from your employer and the beginning of your portfolio of investments. After that, I realized the other benefits of having a 401k. Although, not recommended, a 401k is there for extreme QUALIFYING hardship withdrawals and even for accessing cash when you purchase a home. Of course there are fees and penalties associated if you're younger than 59 1/2 but these options are there for who needs them. But the first step is to establish the account first. The younger you do it, the better!
These are just a few of my best money decisions. Stay tuned for the next post. I might have a few bonuses!