Emergency Financial Habits

I've never been too crazy with spending dumb, but it took a 6 month unemployment spell to kick my ass back down a notch. We made it through that 60% cut to our income without ever being late on a bill, going without a necessity, and we even continued to pay down debt while doing so, but it also made me realize that even though we were able to pull it off, we had been over-extending.

Fast forward 18 months, and I just paid off the last of our revolving debt, have slowly been rebuilding the rainy day fund (and will be doing so faster without the credit cards looming), and have a plan to have everything but the house (one car loan and a bit of student loan debt still left) paid off in another 6-12 months. Once that is done, the mortgage company is going to think we hit the lottery given the vigor that will be used to pay off the house.

Financially, it isn't the best investment. That money would give better returns in a mutual fund. But it's hard to put a price on freedom / piece of mind, and having zero debt will return those in spades.

DILYSI Dave wrote: Financially, it isn't the best investment. That money would give better returns in a mutual fund. But it's hard to put a price on freedom / piece of mind, and having zero debt will return those in spades.

Exactly. I'm looking forward to 2013, when I'll be making the last payment on the '07 MINI (no, the 6 year loan was NOT my idea...) and my house should be paid off.

The_Jed wrote: One of the vehicles is going to get a mild Z.A.V treatment ...maybe it should be F.A.V. (Financial Apocalypse Vehicle).

Quoted for truth. Also, awesome post.

I was once the stupid guy, spending my paycheck as quick as I earned it. Knew all the tricks as to how long before the check I just wrote would take to get to the bank, which bills could be skipped for a month, lies to tell the landlord when I was 2 weeks late, then the lies started..Paycheck lost, car broke and was expensive to fix (out of gas and no credit left) the check is in the mail etc.

Then one day it all hit home! One of my employees came by and asked us to go to the movies with them. I had $7.00 in my pocket, no electricity, no gas and a pile of bills. Gave the money to my girlfriend and told her to go to the movies as I figured out our money problems.

As I crunched the numbers I realized I was paying $485 in interest per month alone. My bounced checks and late fees were another 400 bucks and I owed way too much money on cards that would be paid off in 2042 and the money I owed family and friends was staggering. I was surprised that they still talked to me!! Turns out that talk was all..loan money..NO!

Girlfriend never came back...tired of being trapped all day in a Texas summer with no air conditioning with a financial idiot may have been the deal breaker.

As I walked to work (4 miles) the next day, I formed my plan. Which bills got first attention to stop the freefall I was in. Budgeted spending to free up cash to accelerate the plan. Sold my big stereo, comic books, jewelry and other items to just get back to being normal.

Never got to normal....got much better! 6 months to fully realize which habits were killing me and stop them, 2 years to having enough money left to accelerate my credit card payments. 3 years to the day I had 1 card with $235 dollars owed, 6 more car payments, survived an uninsured broken jaw, trust was being reexamined by my family and friends and I lost my job!

Reshuffled the budget and got a new job (30% pay cut), moved to a much cheaper area and did fine.

5 years and I was debt free, with a lot of frugal habits that were gonna stick forever. My brother was SO tired of hearing my explain the old platitudes to him I thought he was going to hit me.

A penny saved is a penny earned...

Don't count your chickens before they are hatched..

An ounce of prevention is worth a pound of cure..

Me and Ben Frankilins advice got real close as I Learned to apply his teachings to my financial life.

My brother came on board when he noticed that he made 3 times what I did but I could afford (had budgeted for) a few nice vacations, a new car and a paid off house.

He discovered Dave Ramsey and got full tilt into it!

3 years later we have conversations about not buying a helicopter or classic Jaguar even though we could afford it!!

15 years ago I made twice the money I do now, worked 3 times the hours and had a horrible life because I did not play the money game to win...I played the possession game that the people playing the money game wanted me to!

Play to win...or lose!

Bruce

I worked with a woman my age (at the time, we were in our late 20s) who was just having her second house built (she was selling the first one, not keeping it) around the time I was buying my first house (which was 30 years old and in need of some work at the time).

She came back from closing on the second house and said "I've never left a closing with more than $100 in the bank." My jaw hit the floor. I blurted out, "If I hadn't left closing with at least my first 6 mortgage payments in the bank, I wouldn't have bought my damn house."

Her husband was convinced he could make a lot of prize money by sticking crap on his POS B-series pickup and entering car shows.

Yeah.

I worked with another woman who drove her recently-bought-new Toyota Matrix for 6 months with a garbage bag taped over her driver's window because she couldn't afford the deductible. I am amazed at how slim-to-none of a safety margin many people are willing to maintain.

After 15% of our income is deducted for 401Ks, all of our paychecks get deposited directly to savings. We only transfer what we need to checking for covering expenses. We only use the credit card as a convenience, we have 1% cash back card, and it never carries a balance. We double the principal part of our mortgage payment every month. We have a car payment taken out of my wife's check every month and held in her credit union account, even though we haven't had a car payment in a couple years.

It's not always easy, but it's not that hard, either. It just takes a little discipline, and not even all that much. Frankly, I indulge myself quite a bit... in moderation, and sensibly. We easily survived me taking a 25% hit in pay this year (which amounts to about 15% of household income) even though I have a daughter in college and my wife needed surgery.

As others have said, it's all in what you budget for. You may not know if you're going to need dental work or an appendectomy, but you can be damn sure you're going to need something. So prepare for it.

tuna55 wrote: Yup, Eddie, I believe that is the majority, right there.

Yeah, could be. I really don't know. I'm just always shocked when I see some folks I know. But that's all anecdotal. No idea what the deal is with most poor people.

I've often thought that if I really had to, I could get by on minimum wage. It's amazing how inexpensive reasonable housing can be if you don't mind living in a modular home in an unincorporated area.

On a somehow related note, if you want an interesting read, check out this "blog" I found the other day. Talk about getting by on very little. Intersting guy.

http://guide2homelessness.blogspot.com/2004/10/introduction-to-project.html

Read what he has to say about shelters. It's a pretty interesting perspective. I hope it's never useful information.

fast_eddie_72 wrote: No idea what the deal is with most poor people.

In my experience, it varies widely.

As an architect I used to do renovation jobs for HUD, renovating housing projects. I spent a lot of time walking through public housing units. I would say the majority (not overwhelming, but solid) represented people who habitually made bad choices and wound up there through mismanagement. Some were completely uninterested in providing for themselves (one woman had moved into a project when it was brand new, and was still there 30 years later). Some were actively exploiting the system (tons of rental furniture and electronics, multiple game systems, designer clothes). And some were hard workers who just needed a little temporary help (I remember one unit that had hardly any furniture, and minimal, simple clothes in it, but it was way cleaner and better cared for than my house will ever be).

My sister and brother-in-law have never been on assistance, but they have lived at poverty level or below all their lives. It's mostly a matter of bad decisions - having a kid as a teenager (not an accident), followed by 3 more they couldn't afford at about 5-year intervals (also not accidents). They are not motivated and never seem to keep decent jobs. They smoke, but can't afford to put $30 brake pads on the car and so will tear up the entire front end by grinding the calipers through the rotors. They have no safety margin at all, even though they are not flashy consumers. But if there is a cheap, simple solution to a problem, they inevitably choose the weirdo left-field option that wastes tons of time and effort and money, then fails anyway. It's just a lifestyle to them, somehow, and unfortunately they have passed it on to their 4 kids in varying degrees.

madmallard wrote: brainwashed? I reject this because its condescending and patronising, as tho we have no judgement or control over ourselves...

When you hear something over and over and over from childhood and there is no contrary from the people around you you can find your self believing all kinds of nonsense.

Lesley stopped watching TV. I stopped going to church. Same programming.

I actually have a combat-hunger idea that I've been toying with.

So you have a soup kitchen. Normal, cafeteria style, lady gives you a bowl and a ladle full of slop type soup kitchen. The difference is that you pay for it, like $5 bucks per bowl minimum. This part isn't for homeless, it's for charitable folks. You could even sell T-shirts with clever slogans on them and stuff for the fund raising section.

In the back of the restaurant lies a swanky Panera Bread style bistro. Hot Gourmet coffee, hot sandwiches, real soup. This is the real soup kitchen for homeless. Order whatever you want, it's free. The one side funds the other. It's totally an experiment. If people are charitable, it works, greedy, it does not.

I hate laziness and can't stand people who don't plan but I really really hate to see people starve and I don't think the government is/can/should do anything about it.

I feel like the world is going to end if I don't have a $2k cushion in my primary checking account.

I teetered on the edge of financial ruin for a number of years. I'm doing much better now (I could come up with $1000 easily, although not $1500) and I'm making big steps on my credit card debt, although I still have a long slog ahead of me to get to where I want to be (at least I have it planned now!)

I know people at both of extremes of this. A co-worker has $50,000 in various accounts earning interest, while another is heading towards his 3rd bankruptcy with great enthusiasm.

Just over three years ago my family of 4 lived on just under $27K. 18K of that went to mortgage. It took 17 hour work days, for 4 weeks, to get me qualified for the job that saved us.
My employer at the time had issued me insurance cards and I had racked up decent sized bills before they all came back as declined. Apparently I wasn't actually covered despite the payroll deductions. The insurance commissioner was very interested in my case right up until he realized the total assets of the company was not enough to pay his legal team.

If it weren't for the state assistance we would have never made it. If it weren't for the insurance debacle we would have no debt now.

Just got paid today.... Gots me a pocket full 'o change...

So after paying the bills, I put some of the extra in the virtual piggy bank.

Duke wrote: We have a car payment taken out of my wife's check every month and held in her credit union account, even though we haven't had a car payment in a couple years.

This was a good one for us. Probably got my first car loan from the credit union 8 years ago. The way they did things was they took automatically pushed the payment portion of the direct deposit into savings, and then paid the car loan out of the savings account. After 2 years when it was paid off, we just kept putting that $250 or whatever it was into savings. Another car loan, do it again. Once that one was paid off, it was now $500 or so going into savings automatically. FF a few years and a few repeats of the above and when my wife wanted a $10k car, I no longer needed the car loan because I was now depositing over a grand a month into savings. I withdrew $10k and paid cash. Felt good.

Even if you don't pay 100% cash, it's nice to walk in with 50% or more in down payment. Never being upside down on a car, and only having a short term loan, is almost as good a feeling as buying outright.

Duke wrote: Never being upside down on a car, and only having a short term loan, is *almost* as good a feeling as buying outright.

I heard some wisdom on car loans that I have followed, and that has served me well. "If you can't afford a 36 month loan, you can't afford the car."

It's arguable that you could replace "36 month loan" with "cash", but that's a bridge too far for many people. A 36 month loan though will get nearly anyone a decent car, and you are almost never upside down in one.

I may be too hard core on the car thing, but I've never had a car loan. I kind of have a rule not to pay interest on anything that doesn't make me money. So you can guess how many loans of any kind I've had. Even when I didn't have much income, I bought cars for cash.

Guess my take on it is "if you can't afford to pay cash for a car, you can't afford the car."

Yeah, I go both ways. Some cars I've bought cash, some I've financed. However, I've always made sure that financing never added more than 500-600 dollars to the total cost of the car, and I've never been upside down.

Yeah, I go both ways. Some cars I've bought cash, some I've financed. However, I've always made sure that financing never added more than 500-600 dollars to the total cost of the car, and I've never been upside down.

We're trying to do better. Somehow, over the course of years, we've managed to elevate our level of poverty along with the incremental increases in income that come along. I got a great raise changing jobs a few months back, and we're still scrambling, but it's maybe starting to get better. Now we're scrambling because we're paying hundreds and hundreds a month in dumb revolving debt that was generated here and there over the last several years, but that doesn't really make the feeling of having to struggle suck any less. I'm considering hitting my IRA to wipe that debt out. I think the cash flow changes would be worth the penalties in early withdrawal and taxes, but we're still talking about it. I'm not really seeing the market making huge moves anywhere good in the near future. I guess I could be wrong. I just want to de-leverage us as much as I can. I could probably pay it over time, but I'd rather get it done and move on.

Jake wrote: We're trying to do better. Somehow, over the course of years, we've managed to elevate our level of poverty along with the incremental increases in income that come along. I got a great raise changing jobs a few months back, and we're still scrambling, but it's maybe starting to get better. Now we're scrambling because we're paying hundreds and hundreds a month in dumb revolving debt that was generated here and there over the last several years, but that doesn't really make the feeling of having to struggle suck any less. I'm considering hitting my IRA to wipe that debt out. I think the cash flow changes would be worth the penalties in early withdrawal and taxes, but we're still talking about it. I'm not really seeing the market making huge moves anywhere good in the near future. I guess I could be wrong. I just want to de-leverage us as much as I can. I could probably pay it over time, but I'd rather get it done and move on.

As tempting as that is, I wouldn't. Keep eating Ramen, keep driving a POS, and keep paying a lot on the debt. It will suck, right up until it doesn't. But man o man is it rad once it's done sucking.

egnorant wrote: Notice that the "emergencies" they used were dental work and car repairs. Those are budgeted items in my household.

Depends on how serious the repair or work is. I mean, we figure a certain amount for that sort of stuff in a year. But as it's not necessarily predictable, the budgeting may or may not be sufficient.

keethrax wrote:

egnorant wrote: Notice that the "emergencies" they used were dental work and car repairs. Those are budgeted items in my household.

Depends on how serious the repair or work is. I mean, we figure a certain amount for that sort of stuff in a year. But as it's not necessarily predictable, the budgeting may or may not be sufficient.

Budgets are adjustable to meet changing conditions. But if you're close you can build it up over time to cover bigger expenses! Start a budget and have fun! Having 50% of the funds ready for an unexpected repair is much better than needing all the funds because you pooh-poohed a reasonable plan and rationalized why you didn't do it!

Bruce

egnorant wrote:

keethrax wrote:

egnorant wrote: Notice that the "emergencies" they used were dental work and car repairs. Those are budgeted items in my household.

Depends on how serious the repair or work is. I mean, we figure a certain amount for that sort of stuff in a year. But as it's not necessarily predictable, the budgeting may or may not be sufficient.

Budgets are adjustable to meet changing conditions. But if you're close you can build it up over time to cover bigger expenses! Start a budget and have fun! Having 50% of the funds ready for an unexpected repair is much better than needing all the funds because you pooh-poohed a reasonable plan and rationalized why you didn't do it! Bruce

Right. Cause that's exactly what I said... Oh wait. I do budget for that stuff. And that is what I said as opposed to "pooh-poohing it and rationalizing why I didn't do it"

Nevertheless a big hit is still potentially a big hit, even if your budgeting covers half of it.

In any case. Forget it. You're playing made up, oversimplified, bullE36 M3 straw man games to allow you to play the smug, pseudo-superior card. A game not worth playing, so have fun.

Duke wrote: Yeah, I go both ways. Some cars I've bought cash, some I've financed. However, I've always made sure that financing never added more than 500-600 dollars to the total cost of the car, and I've never been upside down.

My brother sold a car to a man about a month ago. He chose to finance it. On the sheet to fill out, you have to enter your monthly income. $300,000. My brother assumed it was a typo and checked to make sure. Nope, it was right the first time. Guy figured he could do better in the market than the 4% interest rate.

Oh, car he was buying? Camry.