Why You Need An Emergency Fund And How To Get One

At A Glance – An emergency fund is a financial safety net for future mishaps and/or unexpected expenses.

What Is An Emergency Fund?

An Emergency Fund (EF) could also be called a “Rainy Day Fund”. It is a stash of money, usually cash, that is set aside for an unexpected event, such as a medical emergency, a large car repair or a job loss.

Why Do I Need An Emergency Fund?

Life Happens. Things break, accidents happen, or there is, say, a global pandemic! An EF can keep you from taking on debt while you work through your emergency.

And don’t emergencies seem to happen at the worst times! The water heater breaks right after you had to get a new transmission. With an EF you won’t have to take on more debt to keep life going.

Without having some cash set aside, you might have to put your emergency on a credit card or take out a personal loan. Both of these options come with high interest rates that set you back even more than the emergency did.

One of the main reasons Stephen and I had such financial woes in our earlier life was because we did not have an EF. We had just drifted through life with no safety net, and when the BIG unexpected event happened we fell off the financial cliff! It affected our marriage and our family. Life was very unpleasant. Now we have enough cash to handle almost any emergency.

How Much Do I Need?

If you don’t have any cash on hand right now for emergencies, you need to start with a Baby Emergency Fund of $1,000.

Your Baby Emergency Fund is your first line of defense against a dumpster fire event in your life. It keeps you from getting off track and taking on more debt when you have a small to medium-sized emergency. If you have a flat tire or the washing machine quits, you can handle it.

The typical advice about how much to keep in your fully-funded Emergency Fund is 3-6 months expenses. This will handle larger events like a large medical bill or job lay-off. Your fully-funded emergency fund keeps you going without adding additional debt and stress. Having 3-6 months of expenses saved can give you the peace and confidence to face almost anything life can throw at you.

Here’s another advantage of having a fully-funded EF. If you have a large emergency or a job lay-off, you can temporarily cut back on your spending. Three to six months of savings can be stretched to last even longer as you cut back on discretionary spending. Eating out and vacations can wait.

How Do I Build It?

You can build your Emergency Fund by saving, selling something or a part-time job. If you need to build your Baby EF, the fastest way to accumulate that first $1,000 is to sell something. Have a garage sale or sell some stuff on market place. You probably have enough stuff around your house you could sell to stash away that first $1,000.

The rest of your 3-6 months of EF can come from saving money from your monthly paycheck or by taking on a part-time job or side hustle. It will take some time to accumulate 3-6 months of living expenses, so be patient, but be diligent. The more you are willing to sacrifice, the faster this will go.

If you don’t know how to save any extra money from your paycheck, take a look at your budget and see where you can temporarily cut something. If you aren’t using a budget, this is a good time to start. Here is my article, How To Do A Budget. It explains how to set up and use a budget, and includes a spreadsheet you can download. Or you can use an app like YNAB and Mint.

Where Do I Keep My Emergency Fund?

You want your emergency fund to be accessible, but not TOO accessible. In other words, you don’t want to be tempted to use your EF for that new big screen you’ve been wanting.

Since your EF will probably be cash, you could keep it in a savings account or a money market account. These can be held at your bank or a brokerage firm. You might even want to open a separate account at a different bank. This does two things. You know exactly how much you have, and you can’t do an online transfer into your checking account. This will keep you from being tempted to use it for something else.

As you are deciding where to put your cash, you will probably think, “This is boring. It’s just sitting there. I could do better than this piddly amount of interest it’s earning.” And you’ll be right. It is boring. It’s not making anything. But the point is not for it be a great investment, it’s meant to be a safety net. It’s what lets you sleep at night without worrying about Murphy knocking on your door!

When Should I Use My Emergency Fund?

This is an Emergency Fund…use it for emergencies!

What’s an emergency? Let’s start with what is NOT an emergency. A new couch is not an emergency. A vacation is not an emergency. A nicer car is also not an emergency.

Your EF should be used for things that are truly emergencies. As mentioned above, a large unexpected medical bill or job lay-off are true emergencies. Another example is paying an insurance deductible for something like a hail storm or a car wreck.

Also, keep in mind that not every large expense is an emergency. A new roof or a vehicle will be a large expense, but they are not a surprise. Large purchases or repairs can be planned for. You know they are coming eventually. These large purchases can be handled with a sinking fund. A sinking fund is where you set aside money each month in preparation for a large purchase.

For example, if you need to replace your car in 5 years and you think it will cost about $15,000, set aside $250/month. In 5 years you will have the cash to pay for the car. It won’t be an emergency.

When you need to use your emergency fund, you will need to replace what you spent. Start saving again until your emergency fund is fully funded.

What Does The Bible Say

There is a great example of an EF in the Bible in the book of Genesis. Pharaoh has a dream which Joseph interprets. The dream tells him there will be 7 years of abundance and then 7 years of famine. Pharaoh puts Joseph in charge of building Egypt’s “Emergency Fund” so his people will not starve during the famine. Read about it here.

Let Pharaoh appoint commissioners over the land to take a fifth of the harvest of Egypt during the seven years of abundance. They should collect all the food of these good years that are coming and store up the grain under the authority of Pharaoh, to be kept in the cities for food. This food should be held in reserve for the country, to be used during the seven years of famine that will come upon Egypt, so that the country may not be ruined by the famine.

Genesis 41:34-36

Conclusion

Having an emergency fund keeps life’s mishaps from turning into stress and drama. After you have lived with one for a while, you will discover that you don’t have as many emergencies. If something unexpected happens, you handle it, replace what you spent out of the fund and move on.

Key Takeaway – An emergency fund is a financial safety net for future mishaps and/or unexpected expenses. Having one will keep you from going into debt to handle an emergency.

Assignment 1 – Build your Baby Emergency Fund of $1,000. Sell something or take on a part-time job.

Assignment 2 – Look at your current budget and make adjustments to temporarily save as much as you can to build your fully-funded Emergency Fund.

Assignment 3 – Decide where to put your Emergency Fund.

Coming Soon – My first real retirement trip!

Have there been times in the past when you could have used an EF? Do you have an example of when having an EF kept you out of the ditch? Share your story in the comments below. I love hearing how our members are navigating our “strange new world”!

What Is Compounding And How To Harness Its Power

At A Glance – Harnessing the power of compound interest or compounding is probably THE most important factor in becoming Financially Independent.

What Is Compound Interest or Compounding

Compound Interest is the eighth wonder of the world. He who understands it, earns it…he who doesn’t… pays it.

Compound interest is the most powerful force in the universe.

Compound interest is the greatest mathematical discovery of all time.

Albert Einstein

Those are powerful quotes from a powerful mathematician! Why would Albert Einstein say that about compound interest? Because it can mean the difference between barely having enough money to get by in your retirement or being quite comfortable.

Let’s look at what compounding is and what it can do for you.

Definition of Compounding

Here’s a textbook definition of compounding. Compounding is the process in which an asset’s earnings, from either capital gains or interest, are reinvested to generate additional earnings over time. This growth occurs because the investment will generate earnings from both its initial principal and the accumulated earnings from preceding periods. Compounding, therefore, differs from linear growth (simple interest), where only the principal earns interest each period.

In plain English, compounding is interest on interest which magnifies returns over time.

Here’s an example. Let’s say you deposited $1,000 in a savings account and the bank will pay you 10% interest per year. (I know you can’t get 10% right now, but I’m just using round numbers).

In year One, you would earn $100 in interest (1,000*10%). Your account would then total $1100.

In year Two, your $1100 earns 10% interest or $110. Add that to your principle and you would have $1,210.

In year Three, you would earn 10% on $1210 or $121. This would total $1,331.

Each period that the interest is added to your account, it is calculated on the total amount in the account. Not just the original deposit of $1,000.

$1,000 Invested at 10% Comp. Interest per Year GainTotal
Year 1 (1,000*0.10)$100$1,100
Year 2 (1,100*0.10)$110$1,210
Year 3 (1,210*0.10)$121$1,331

Compound Vs Simple Interest

Simple interest can be defined as interest paid only on the original principal, not on the accrued interest. In other words, the interest will be calculated each period on the original deposit.

In our example above, simple interest would only be calculated on the original deposit of $1,000. So, each year the interest paid would be $100. With simple interest, at the end of 3 years, you would have $1,300.

$1,000 Invested at 10% Simple Interest per Year Gain Total
Year 1 (1,000*0.10)$100$1,100
Year 2 (1,000*0.10)$100$1,200
Year 3 (1,000*0.10)$100$1,300

Let’s look at the totals for these two examples side by side for 1, 5, 10, 20 and 40 years.

$1,000 Invested at 10% Simple Interest Compound Interest
Year 1 $1,100$1,100
Year 5$1,500$1,610
Year 10$2,000$2,594
Year 20$3,000$6,727
Year 40$5,000$45,259

You can see why compounding is described as a Mathematical Explosion! The difference is small in the beginning, but as the interest compounds over many years, the difference in your total investment is massive.

The Magic Penny

Here is a fun riddle. Would you rather have a penny that doubles every day or a million dollars? Interesting question. Let’s see…

Start of Day 1$0.01
End of Day 10.02
End of Day 20.04
End of Day 30.08
End of Day 40.16
End of Day 50.32
End of Day 60.64
End of Day 71.28
End of Day 82.56
End of Day 95.12
End of Day 1010.24
End of Day 1120.48
End of Day 1240.96
End of Day 1381.92
End of Day 14163.84
End of Day 15327.68

Which did you choose? Want to change your choice? That penny’s not looking very appealing, but let’s continue.

End of Day 16655.36
End of Day 171,310.72
End of Day 182,621.44
End of Day 195,242.88
End of Day 2010,485.76
End of Day 2120,971.52
End of Day 2241,943.04
End of Day 2383,886.08
End of Day 24167,772.16
End of Day 25335544.32
End of Day 26671,088.64
End of Day 271,342,177.28
End of Day 282,684,354.56
End of Day 295,368,702.12
End of Day 3010, 737418.24

As you can see, the effect of compounding is slow as molasses at first, but then later, takes off like a rocket! Your investments can make more money than you do. The effect of compounding on investments has been described as a perpetual money machine!

What does this mean for you? Invest early and invest often. And leave it alone. Don’t sacrifice your future for something you think you can’t live without today.

A Real-World Example

So far I’ve given you hypothetical examples in order to show you how this works. Let’s look now at a real-world example.

I’m going to use 2 people, Earl the Early Bird and Paul the Procrastinator. Earl starts saving and investing 20% of his $36,000 salary at 22 when he starts his career after college/trade school. This means he has $600/month to invest. He can invest 20% because he has not let his lifestyle creep until it takes all his income. Earl invests his money in low-cost, broad-based index funds that have returned an average of about 8%/year for the last 60 years.

Paul has graduated college with a great starting salary of $90,000/year. He has set up his life to reflect his hard work and good fortune. In other words, he has allowed his lifestyle to creep up to meet his income. He really can’t save much at first because he needs to buy a house and he has a hefty car payment. Ten years later at 32, he decides he should probably start saving for retirement. He saves and invests 10% of his salary which he feels good about. This means he is investing $750/month. Paul is putting his money into the same low-cost index funds as Earl.

Let’s see how they do at age 32, 42, 52 and 62.

EarlPaul
Age 32$111,837$0.00
Age 42358,764139,796
Age 52906,902448,455
Age 622,123,6751,133,627

Earl is only ahead of Paul by a little over $100,000 when Paul starts to invest, but ends up beating him by $1M! Even though Paul is investing more per month and has a much higher salary, the value of time was in favor of Earl.

What Does This Mean For You And What If You’re Starting Late?

The answer to this is simple, but not always easy. It means save everything you can as often as you can. You can see in the examples above that time and interest rate make a big difference in the end result. Compounding works FOR you as you grow your savings. The longer your money is invested, the more effect compounding has. Starting as early as possible will give you more time to save. Also, the rate affects the outcome of compounding. The higher the rate, the more your money will earn. As interest is added on top of interest, your money will grow faster over time.

What if you can’t save 10% or 15% of your salary? You might have money that is not working as hard for you as it should, you just need to find it. If you don’t know where to start, check out my other articles on Calculating Your Net Worth, Tracking Your Spending and Budgeting. These should give you a place to start looking for extra money to save.

What if you’re not 22?!!! I feel your pain. Remember the name of my website…Started At 50. That’s because I was 50 years old when I started saving. Literally, my Net Worth was Zero at age 50. If you are late to the game, first you need to know it’s not TOO late. You have time, just not as much time. Start saving everything you can get your hands on NOW. Don’t wait another day. Everything you can do today will make your future more comfortable and less stressful.

Can Compounding Work Against Me

Compounding can also work AGAINST you. The same power that allows your investments to grow will also cause your debt to march relentlessly upward. Some types of debt like credit card debt are calculated with compounding interest and not simple interest. As your credit card balance grows with purchases, the interest on interest calculation causes the balance to grow even faster.

If you do not pay your credit card bills in full every month, you are paying the bank a huge premium for the privilege of carrying their card. At the time of this writing, interest rates on savings accounts are below 1% per year, whereas credit card rates are anywhere from 16-30%. The first step in boosting your savings rate is to pay off your credit cards!

Credit cards are not the only type of loan that is calculated with compound interest. If you have other types of loans, check to see what kind of interest they carry.

Where Can I Find Compounding?

Compounding happens in several places. The most obvious would be at your bank with a savings account or CD. Usually, the bank guarantees a rate of interest for a period of time. Unfortunately, interest rates are very low right now (March 2021) and have been for a while.

Compounding also happens in the stock market. Investment vehicles such as mutual funds, stocks, bonds, and T-bills are some examples. The compounding happens when interest and dividends are paid and with increases in the share price. (You must remember the stock market will go up and down on any given day, month or year. The point is over time, stocks go up)

The way to ensure you enjoy the effects of compounding is to leave your interest and dividends in the account to compound into the future.

Conclusion

Compounding is a force you want working for you and not against you. This means saving early and often. It also means pay off your credit cards.

Here’s another quote for you. This time from Warren Buffet.

My wealth has come from a combination of living in America, some lucky genes, and compound interest.

Key Takeaway – Harnessing the power of compounding is probably THE most important factor in becoming Financially Independent. Save early and save often.

Assignment 1 – Look at how much you are saving today. Can it be increased?

Assignment 2 – Are you carrying a balance on your credit cards? Look at their current interest rate. Try to reduce the rate or pay it off. (Here is an article about paying your credit cards off)

Coming Soon – How credit card debt can get out of control.

Benefits Of Using a Budget

In a previous post titled How To Do A Budget, I showed you the How of doing a budget. How to identify what categories need to be included, the basic math used and a spreadsheet to start creating your own budget. You can use this spreadsheet, a pencil and paper, or one of several apps for budgeting. Some of the more popular are YNAB, Mint, and Every Dollar.

This post talks about the Why of Budgeting. A budget is just a list of categories with math behind it, but the emotions and decisions that are wrapped up in putting together your first budget can be overwhelming. This post will help you work through your own Why as you wrestle with these concepts.

Budgeting can be a scary word. Many people approach budgets with fear, especially if they don’t have much experience with them. But budgeting does not mean you will have to start scrimping and living like a miser. It just means you understand your finances and have control over them.

It’s stressful not knowing what money is coming in, what’s going out and what our obligations are. No matter how big our checking account is, we can feel stressed.

Budgeting is creating a plan to help you get your finances where you want them to be. A budget is the ideal way to get an understanding of the way you spend, the way you save and then identify ways to improve. A budget also helps define your values. Look at where you spend your money. Does that align with your goals and values? If not, changes can be made.

9 Benefits of Budgeting

(1) Gives You a Framework for Money Conversations:

There was a time in my marriage when money conversations almost always fell off the cliff into the abyss of arguing, pain, and indecision. We couldn’t agree and the conversations led us nowhere. I talk about this in the post Being on the Same Page With Your Spouse.

If you’re married, don’t start the conversation by talking about money. Start by talking about your WHY. Talk about your wants, dreams, and goals. Why are you saving , why would you care about how much you’re spending? Will it relieve stress in you life and your relationship? Will it allow you to go on that vacations you’ve been dreaming of? What’s your WHY?

After you’ve had a few of these conversations, THEN you can talk about money. Working on your budget together can become the basis for many interesting and productive money conversations. Make the decisions together. Compromise together. No matter where you are starting…have patience with each other.

(2) Provides Control Over Your Money:

You have total control over where you spend your money. If you choose to spend money on A, then you may not have as much for B. If you want a latte three times a week, put it in the budget. If getting a babysitter once a month is important, put it in the budget. If there’s not room for those discretionary items, cut back somewhere else.

What if there’s not room for any of those things? If your finances are a dumpster fire, cut everything you can! Just remember, it won’t be like this forever. There was a time when I told my kids, “If you can’t eat it, we’re not buying it.” These times were not pleasant, but they were temporary. We dug ourselves out and you can, too!

(3) Let’s You Track Your Financial Goals – Saving, Long-Term Spending, and The Emergency Fund:

A budget will not only help you plan for this week and this month, but it will also help you with long-term goals. Do you want to take a big vacation in five years? Will you need a roof or major car repair next year? Do you need to beef up your Emergency Fund? A budget can help you find and accumulate cash for these kinds of issues.

(4) Budgeting Will Open Your Eyes. It Helps Shed Light on Bad Spending Habits:

Do you get to the end of the month and think, “Where did all my paycheck go?!” Does it feels like it disappeared? Once you really start looking at your spending, you will be able to identify where it’s going.

You may have large medical bills that you just have to gut through till they’re paid. Or you may find that you’ve got some bad spending habits that need to be reigned in, like going to the drive-thru too often or all those Amazon boxes! How about bank fees? If you are paying the bank for overdraft fees, this needs to stop now!

(5) Helps Create a Cushion for Unexpected Expenses – Emergency Fund:

Do you have an emergency fund? If not, you need to start working on that today. We all have emergencies! No one is exempt. For some people, a flat tire or car repair is a real emergency. An illness or a broken heater can be financially devastating.

The lack of an emergency fund is what caused most of mine and Stephen’s financial hardships earlier in life. “Stuff” happened and we had no safety net.

Could you cover a $500 emergency without going into debt? $1000? $5000? How about a job layoff? You need 3-6 months of living expenses in an emergency fund. This needs to be kept in an easily accessible place. But not too easy. A savings account or money market fund will do nicely for now. Remember, this is not a new couch fund!

(6) Helps Identify Money for Paying Down Debt:

If you are paying down debt like credit card or student loan debt, a budget will help you identify cash you can send toward that debt. Any extra cash you can use to pay down debt will get rid of it sooner and save you money in interest payments. If you’re having trouble making your minimum payments…see dumpster fire above!

(7) Helps Identify Money for Investing:

If your Emergency Fund is in place and you are paying on your debt, you may be able to identify some extra cash to start investing. If you can identify money to invest, I would start with your employer’s 401k and get the match. I will talk more about investing in a future blog post, but for now, do everything you can to get your employer’s match if you have one. Don’t turn down free money!

(8) Helps Ensure You Don’t Spend Money You Don’t Have:

You may be in a place where you are spending more money than you make. Stephen and I did that for a while when he had no income. It felt terrible! We were living on credit cards and digging a bigger hole with our debt every day. Again, this is a dumpster fire. You may not realize you are doing this. One reason would be because this is “normal” in our culture. A budget can help you identify the problem when more money is going out than coming in.

(9) Helps Keep Your Eyes on the Prize (Motivation):

After Stephen and I put out our dumpster fire and got on track with a budget, it helped to keep us motivated. If you’re paying down debt or just starting to invest, the numbers don’t seem to change very quickly. It takes some time to get traction. The budget helped us to “Keep Our Eyes on the Prize!”

Assignment 1 – Evaluate your budget WHY. Where do you find yourself with your money right now? Are you in a dumpster fire or are you ready to start investing?

Assignment 2 – If you haven’t done a budget yet, start working on you first draft. There is a spreadsheet template in Personal Finance Basics Part 3: Let’s Do A Budget.

Key Takeaway – A budget is the ideal way to get an understanding of the way you spend, the way you save, and then identify ways to improve. A budget also helps define your values. Look at where you spend your money. Does that align with your goals and values?

How to Do a Budget

Do you get to the end of the month and say, “Where did all my money go!”? Are you living paycheck-to-paycheck. If you are, you’re not alone. Around 70% of Americans live paycheck-to-paycheck. I did for a long time. In fact, I not only didn’t save anything, but I didn’t have an emergency fund. I was one emergency away from disaster financially. And then disaster hit! That’s when my husband and I sank into the darkest days of our marriage. I never want to be there again. And, I don’t want you to be there, either! I’d like to help you get out of that pit or never fall into it.

Is the “B” word a dirty word for you?!

This post is going to show you how to do a budget. I know, the “B” word is a dirty word for some folks. Like the assignment to add up all your debt in the post How Do I Get a Handle on My Money, putting together your budget will take some time and effort. It may bring some heartache and frustration. It’s like starting to exercise. It’s not pleasant at first, but it will be worth it if you stick to it!

How do you start?

The first step to putting together your own Monthly Budget is to look at your monthly inflows and outflows of money or your Monthly Income and Monthly Expenses.

Gather Your Income Data

First, you will need to gather all your monthly income sources. This will be your monthly paycheck (take home) and any other income source you have, such as side jobs, dividends or even alimony.

Gather Your Expense Data

Next let’s look at your expenses. This will take some time, so be patient with yourself! Write down everything you spend throughout the month. There will be lots of categories.

As with the Net Worth Statement, you can track these categories and their corresponding numbers with pencil and paper, or I have created a Monthly Budget Spreadsheet. The spreadsheet has columns for 6 months, and you can expand that as needed. You may want to change the headings from Month 1 to Jan 2020 and so on. The picture of the spreadsheet can be found below, and the link to the actual sheet is below that. Again, the spreadsheet is protected and you will need to make your own copy.

Giving and Savings First

Let’s look at those expense categories. For me and my family, Tithing/Giving is always at the top of the list. We believe in the Biblical principle of “first fruits” giving. This just means we give first and budget what’s left. For us, right behind giving is saving. Have you heard the term “Pay Yourself First”? This is a basic concept in saving for the future. (unfortunately, one I did not do for a long time!) Again, it is the idea of do your saving first and live on the rest. Or Pay Yourself First and then pay everyone else!

You may not be Tithing/Giving and Saving yet. Don’t worry. Both of these concepts are VERY important, but they can be addressed when you have a clear picture of where you’re money is going every month. Saving and Giving are like a muscle…they can be developed with exercise.

Other Expense Categories

Next, let’s look at the other categories. Start with the big ones like mortgage/rent payments, food and car expenses. You will also need categories like insurance payments, cell phone, utilities, cable and internet. Anything that you pay monthly needs to go on this list. And don’t forget those pesky subscriptions. Netflix, Pandora or anything that is automatically paid on your credit card.

The next step is to add categories for things that happen seldom or once a year like birthday and Christmas presents. How about printer cartridges and school pictures. There’s also car repairs, vacation and property taxes. These are not spent monthly, but they need to be considered. Take some time to think about how much money you normally spend in these types of categories in a year’s time, divide it by 12 and add that amount to your list of expenses.

Let’s Do the Math

At this point, if you’re doing this on paper, add up all your Monthly Expenses and then subtract that from the Total Monthly Income. If you’re using the spreadsheet it will do the math for you.

Look at the number at the bottom or Total Monthly Income minus Total Monthly Expenses. Is that number positive or negative? Are the Expenses greater than the Income or are they less? If they are less, great! The difference between Income and Expenses can be called the Gap, and we will talk in a future post about how to grow that gap. This is what will allow you to save for the future.

Are your Expenses greater than the Income (or the number at the bottom is negative)? This is what some would call a “Dumpster Fire”! This requires some immediate action. Look at your expenses and see what you can trim TODAY! See where you can cut in order to get the bottom number to zero.

Having Zero at the Bottom

Speaking of the bottom number being zero, my instructions on the Monthly Budget Spreadsheet say the bottom line number should equal zero. The reason for this is if you have trimmed your spending down to be less than your Income, there is excess or what I called earlier, the Gap. This Gap is where you can start saving! If you have a Gap now, great! This amount can go in the Saving Category at the top of the list of Monthly Expenses. This should bring your bottom line to zero. This method of budgeting is called a “Zero-Based Budget”

Give Yourself A Break!

This is NOT an easy task if you’ve never done a budget. In fact, it takes most people about 3 months to get the hang of it. You’ll forget categories, you’ll over or under estimate what you spend. One month will have a minor disaster that has to be handled. It’s OK. Give yourself a break. Just DON’T GIVE UP!

What Does Your Spending Say?

Now that you have done your first Budget, what do you see in it about yourself. Remember the “10 Things That Make Me Happy” list? How does your spending align with what makes you happy? Or stated another way…How does your spending align with your priorities and what you value? There may need to be some changes made to your spending to align it with your values.

Wrapping It Up

If you’ve never done a budget or it’s been a while, spend some time this week gathering your data. Use that data to create a current budget for yourself and your family and then see what it’s telling you. Let it guide you to evaluate what areas of your life might need some tweaks. Don’t be overwhelmed by thinking LOTS of major changed have to happen all at once. There’s a phrase coined by Brad and Jonathan at ChooseFI. It’s called the “aggregation of marginal gains”. That means if you continue to stack small changes, eventually you’ve made Big changes. Think about what small changes can be made over the next 7-10 days.

What Does God Say?

But he who listens to me (wisdom) shall live securely, and shall be at ease from the dread of evil

Proverbs 1:33

Looking Ahead

In the next post, I’ll talk about why do a budget and some tips on how to use it.

Monthly Budget Spreadsheet

Link To Monthly Budget Spreadsheet

Click Here for the Monthly Budget Spreadsheet. Be sure to make a copy before making changes.

Assigmnent and Key Takeaway

Assignment – Download the Monthly Budget Spreadsheet (or get a pencil and paper). Gather all your income and expense numbers and fill in all the categories with YOUR numbers. Add or delete categories as needed.

Assignment 1 – Evaluate the bottom line. Is it positive? Great! Is it negative? See what you can change today to bring that back to zero.

Assignment 2 – What can you improve over the next 7-10 days to help your GAP.

Key Takeaway – Evaluate your budget in light of your “10 Things That Make Me Happy” list. Your spending should reflect your values and priorities. If it doesn’t, what needs to change to bring those into alignment?

Being On The Same Page With Your Spouse

Getting a reluctant spouse on board may be difficult, but being on the same page with your spouse is crucial to your success.

Have you wondered, “Will my spouse and I ever agree about money?! Can we possibly work together to create the life we want or will we always be at odds?” The bad news is…money issues are the primary reason for divorce in America. Good news…there’s hope.

I can’t stress enough how important it is to be on the same page with your spouse financially. When you’re not, it’s like being in the same boat, but rowing in opposite directions. You’re together, but you spend a lot of energy and go nowhere.

Why We Can’t Get On The Same Page

One of the reasons Stephen and I spent so many years drifting in our finances is because We Didn’t Pay Attention. I kept thinking it would somehow magically all work out. But the more difficulty we faced, the more our lack of unity was a problem. We needed to make some hard decisions and we couldn’t agree.

Getting on the same page with your spouse is possible. Not easy, but possible. Stephen and I struggled with not agreeing on spending, saving or even how to do Christmas! There were many reasons for our divergent ideas.

  • Background – Everyone grows up with different money experiences in their childhood.
  • Personality – Are you a natural spender or a natural saver. There are lots of times when a spender is married to a saver. (That’s not all bad, by the way.)
  • Gender Differences – Men look at money as a measure of achievement or a “scorecard”. Women look at money as part of their security system. When it is not stable, fear can set in. (I experience this!)
  • Divergent Goals – Each partner may have a different idea of what’s important to them.
  • Lack of Goals – You may not have thought about goals or what you’d like your future to look like.

All these issues can be overcome.

Money Represents Your Values

Your money and the way you handle it represents your family’s value system. You may not have thought much about that, but now is a great time to start.

For where your treasure is, there will your heart be also.

Matthew 6:21

Dream With Your Spouse

Get a cup of coffee, sit on the deck or take a walk in the park and have a conversation. Just dream. Talk about your dreams and your desires for your future. What do YOU want it to look like? What does YOUR SPOUSE want it to look like? Share your desires for your future with each other. Write them down to reference later. If you made your list of 10 Things That Make Me Happy from the previous post, Where Do I Start With My Money? now is a good time to pull that out.

While you’re having this conversation, REALLY LISTEN to your spouse. What do you hear from them that maybe you weren’t aware of? What pain might you be hearing from their childhood? Many of the items I shared above may surface during this conversation. The differences in your upbringing, differences is personality or goals. Have grace and patience with each other. Remember, the end-game is to walk into your future together, hand-in-hand.

I entreat you to walk in a manner worthy of the calling with which you have been called, with all humility and gentleness, with patience, showing forbearance to one another in love, being diligent to preserve the unity of the Spirit in the bond of peace.

Ephesians 4:1-3

Budgeting With Your Spouse

Working on the budget is where the rubber meets the road. If you don’t have a budget yet, you’ll need to start working on one. Find instructions and spreadsheet templates for a budget in How To Do A Budget. If you have one prepared or you’ve been using a budget for a while, it may be time to revisit and revise.

Usually, one partner is a money person or a spreadsheet nerd. Most times the other is not. The one with the talent and penchant for spreadsheets can prepare the preliminary budget. But BOTH partners need to make the final decisions. This will require some give and take, some negotiation over categories and amounts. But in the end, you should be able to determine a budget that reflects your goals and your values.

The Board Meeting Is a Great Way To Get On the Same Page With Your Spouse

One way Stephen and I softened the harshness of talking money was to schedule “Board Meetings”. Arrange a time and place where you can be away from the kids and other distractions to talk money. We would often have our Board Meetings at our favorite “hole in the wall” Mexican food restaurant. If spending money for this is not in the budget, go to the park or someplace that is meaningful to you.

Being away from distractions and normal surroundings can sometimes make these conversations easier. Have these Board Meetings as often as you need. Later on, they will become something you look forward to.

Side Note: We found this was also a good way to have a “calendar meeting”. Coordinating schedules can also eliminate stress on your emotions and your budget. If you know that 3 nights next week you will be at school functions or games, you can plan ahead for meals and not “run through the drive-through”.

Key Takeaway – Getting a reluctant spouse on board may be difficult, but it is crucial to your success. Show them why you want to implement changes. Show them how much better your future can be if you don’t just follow the norm.

Assignment – Have a few conversations with your spouse. Dream and talk about your 10 Things list. Paint them a picture of what you would like your future to look like. If you can, set up a “Board Meeting” to do this.