Why an emergency fund is important

An old post i wrote on the blackberry quite a few years ago, but still relevant today. Wow can’t believe its been this long.

“Eight months ago I did not know what an emergency fund signified. In fact, I was knee deep in debt, without a clue as to what I would do next, happily plodding along and paying my minimum fees, with money left to spend on going out. I mean, I’m 25 and I should be allowed to do what I want to do, right? wrong.. Oh how so wrong I was. Soon, my minimums raised due to the amount of debt I had out, my rent raised only 50 dollars but that was still a significant amount, and my car needed new brakes, badly. This expense was the snowball to my avalanche. Not only did I need new brakes, but a new supporting strut for my axle. I still have no clue what that is, but the mechanic was not happy that I let it go even this long as it could lead to a serious accident. With no money left in my bank account, I pulled out the credit card and paid.
I got home, panting, a tightening in my chest. I just put one thousand dollars on my last card. This sinking feeling was something I determined then that I never wanted to experience again. An emergency fund in such a situation would’ve made my day so much easier. Imagine, instead of worrying how I was going to pay the higher credit card, knowing that I had planned for such a day and that I could easily bounce back from such a setback.
In essence, an emergency fund is a safety net for your wallet and mind. I think more than anything, the psychological effect of an emergency fund is the most crucial to me.
I am more confident as a result. I used to think, what if I lose my job, how am I going to pay all these bills. Now i don’t even think about that anymore. While my emergency fund is no where near where I want it to be, it’s at a point that I can finally relax about my situation. It was the most important battle won in my war on debt.
My first 500 dollars, a feeling of joy overcame me, constantly looking at the balance in my online hsbc account, double checking that it’s all there. Needless to say, the start of an emergency fund gave me the courage to tackle the rest of my debt. I had to make the decision when I first started the fund whether I would pay more towards my debt or fund my emergency fund. I decided to fund quite a bit of my fund initially, and start paying a bit more to the credit cards until I felt comfortable with it. That point was 500 in savings.
I used that as a springboard into action, as I feel I wouldn’t have approached it quite as aggresively without the psychological wins along the way besides just paying down debt. I now knew that I could protect myself in minor situations without derailing my debt payment effort.
Whatever your plan is in tackling debt, an emergency fund is the number one on my list of must haves.”

I can still feel that day, and now with a sizeable fund, i have that memory still in my head, leading me to put away more and more. The time to stop is now though, and i have to start putting the money going forward to loan payment and for opportunity investing. It’s hard to get myself to stop thinking that way, since it provides a certain comfort, but it must be done otherwise i lose money in opportunity cost.

Surprise yourself – take a chance (extra income *$934*)

Just two months ago I made an agreement to help maintain a website and build newsletters part time. The amount I’m charging is $55/hr for the intermittent help, and thus far after two months I’ve made 934 for almost 17 hours of work. This is a fair price for what I’m doing (I did some research online and based it off my current salary as well).

This was not easy work – nor the most glamorous - indeed quite time consuming in general, but I’ve had fun doing it and continue to do so. What I like about it the most is that I get to work on a site that does good for others and I am able to make some side money at the same time. I won’t be able to translate this to a full time occupation, but it gives me new opportunities, such as  meeting interesting people from diverse backgrounds and learning new things. Even though I know some programming, this job has helped me explore frameworks I would’ve not tried otherwise, and I discovered easier ways to do the same thing I thought almost too much just one year ago.

So the next time an opportunity comes-a-knocking, don’t be afraid to take the challenge, you might just surprise yourself!

-1step

Dec 2012 Networth Update

Great strides made since the last updated, including the purchase of a property. I’m counting the mortgage fully, and asset value very closely. I used the mortgaged amount and not the full price I could get for it. I think this is wiser for me as I don’t want to let it get to my head too much in terms of networth :)

I would like to start paying off student loans faster now. Currently, I am paying about $480 in interest per month! Quite a bit of money, and since my income is above the student loan interest deduction I want to make a greater dent.

I didn’t have this much money in the bank before (i.e. I saved quite a big emergency fund and continue to fund it). And now, I feel reluctant to put all that money I have squirreled away toward the loan (even though on paper it makes sense for me to pay off this loan as soon as possible and pay the least amount of money).

Total Assets:       $241,700
Total Liabilities: $210,805
Networth:           +$30,895

Till next time!

-1step

Positive Before 30 Networth Update!

For the first time since I was in high school, I have a positive networth! It’s been a long winding road and hopefully in a positive trajectory as near entering my 30s. Incredible in my mind, as I did not even notice this shift. It’s been a long time since posting, in essence I was able to increase my income by 20% over the past year by finding a new position and leveraging an existing offer. In addition to that, I was able to utilize the bonus money to pay off some student loans as well. Some unexpected expenses did occur, like the passing of my dad, for which I did have to contribute towards the funeral expenses. Thankfully I had a nice emergency fund to back me up.

I still have a long way to go in terms of paying off all of my student loans, but it’s great to enjoy these little moments :)

Total Assets:       $107,337
Total Liabilities: $100,912
Networth:           +$6,425

 

Till next time!

-1step

Monthly Expense and Income Report – Nov 2011

I’ve decided to make myself more accountable for my spending and start sharing to a greater detail. Boy was this the wrong month :)

This month I went over in terms of birthday gifts and gifts in general. I have to include these in my budget for next year. Also, I forgot to pay last month’s family cell phone bill which added up to quite a bit as well. In addition, “someone” on the plan went over the shared minutes and so we ended up with an overage of $240. They’ve been warned and told :) All told, I lost about $1,400 this month, but did make a big payment on my student loans.

Bank Fees are going up, whether you like it or not

It’s true, people as a group were able to dissuade the large banks from imposing upfront fees for using debit cards. What many don’t realize is that banks operate for profit and at the responsibility of providing returns to their shareholders. This means that is you stop the banks one way, they will find another way to load you with fees.. and they’ve done just that.

In a recent New York Times article, select banks upped wire transfer fees and depositing online via your phone. The reasoning behind this is the loss of income from overdraft fees and the lowering of the per swipe fee they could charge merchants. I feel bad for any business that is forced to endure such loss, and I’m sure that people are feeling the pinch in these times. So the question remains, is it better for banks to up these “hidden” fees or to just be upfront about the true cost of running a business, turning a decent profit, and giving you the transparency required? The article mentioned tries to answer some of these questions, which is great for everyone to make an informed decision. But I would still like my bank to be in touch with me about this, rather than having to read it in an article.. I am currently still a customer at BofA, but that may soon change.

Mint has cash transactions via Android App!

Finally Mint.com has listened to it’s customers and have released an update to their Android application that allows one to enter cash transactions on the go!

The forum on mint.com requesting this feature was huge, and I’m so glad they finally got around to updating the application. I think this month will be my first detailed spending month thanks to this. I will provide a cool mint.com chart at the end of this month to see how I’ve done.

See, free promotion event for Mint.com :) Amazing what happens when you deliver for your customers..

Leverage in Job Promotion

I wanted to share a story of how I’ve used leverage in my job promotion. In this down market, one can take the view that they must accept things as they are or that one can choose to make things as one wants them to be. I chose the latter.

I know that my work speaks for itself, unfortunately I’ve not done a good enough job of promoting it. Great work without promotion goes unnoticed. So this time (6 months ago) I decided that I wanted to be noticed, especially after graduating with my MBA. This conscious decision, made about 6 months ago has led me to a series of interactions that have put me in a place where I can leverage my work to get a promotion. Not only have I spoken with senior management about it, but to outside companies that I’ve interviewed with.

The leverage comes from two places:

  1. My work and how I’ve promoted it
  2. The business need for my work to influence

You can’t have one without the other as your work must fill some role. If not, then most likely you should try and gain new skills or a job that does fit your current skill set.

I saw the need that needed filling and I voiced my reasoning behind why I was the best person for that job in an organized and clear manner. This included salary surveys from graduating members of my MBA class, competing offer letters that I chose to decline showing what salary I wanted at the least, and skill sets that I’ve developed and where they applied in the new role.

I still haven’t been put in this position, as there are some organizational issues that need to be resolved. But I put myself in the best possible position, I believe, to achieve that goal. If you don’t use a finite window of opportunity for the leverage that you may have at work, you will lose it. That’s not to say you won’t gain leverage again at some point, but why waste it :)

Wish me luck! I’ll keep you posted.

Home Repair Costs and Insurance

Recently a part of my parents’ roof was damaged in a heavy rainstorm. The insurance company is willing to pay for only $772 of the damaged little portion of the roof. However, further investigation by a few contractors revealed that much more of the roof needed fixing including replacing a main beam because of rot and damage. Estimate from contractor = $6,000 . Now that’s a $5,000 difference that the insurance company should pay, and hopefully they will, but this still needs to be completed regardless. With a proper emergency fund, which my parents don’t have funded currently, would have taken care of this issue without headaches. They now need to figure out how to deal with this at the last moment if the insurance company does not compensate..

Contractors
The insurance company sent them some contractors that they could work with and she also received some estimates from Home Depot. They seemed nice enough, but after much deliberation and checking of reviews online on contractors and the large box store, they decided to go with a local neighborhood licensed contractor that had completed several other neighbors’ roofs already. The only difference is that he came with an estimate slightly higher than the others, but with the peace of mind that he will get the work done fast and on time, with no headaches as experienced by the hundreds of people that left reviews on contractors online. Besides, they can go pester him if he’s not on the job site :)

Fingers-crossed, this will be the desired outcome.

Insurance Payment
With such a big gap in estimates between the insurance company and the contractors, a detailed list will be submitted by the contractor as to what exactly needs to be completed. This should makeup for the gap. However, if they don’t, that will mean they will need to finance it somehow out through a home equity loan (if they can get one) or borrowing from me and others. I don’t really want it to go this route as I’ve warned them that they need to start funding that emergency account, but I guess I will do what is necessary to have a roof. I’m helping as much as I can to properly request the additional funding from the insurance company until this is completed. My negotiation skills will get some additional use :) Wish me good luck!

Networth Update – 10/25/2011

-Updated Networth-

Total Assets:       $80,724
Total Liabilities: $106,188
Networth:           -$25,464

I shifted to contributing to the future home/other goal downpayment fund from the emergency fund. Currently, with 17,000 in cash for the emergency fund, I feel comfortable enough to contribute to the other goal fund. The swings in the market seem to have made losses as I add more money, hopefully the index fund will perform over the long run :)

Targeting a new mix of income, including the current business plans I’m working on. Also, there’s a possibility of co-founding a start up with a few people from business school. An interesting, but daunting task. Slowly but surely moving up the right direction in Networth.


Cheers!

-1step