Manage Your Money
Whether you have a lot of money or can barely pay the bills, you have to have some strategies around managing money. Did you know that approximately 75% of American’s are in debt? And that 78% couldn’t handle a $700 emergency?
Feeling comfortable with your finances equals better sleep and better relationships, especially your marital one. Taking off the blinders, organizing your records, and putting down in writing your debt, income, and goals is critical. Then making a plan to pay down debt and repair your credit will significantly lower your stress level. Eventually you will see more vacations and less financial emergencies.
Rainy Days and Emergencies Don’t Have to Get You Down
Every money management expert will recommend that you should establish an emergency account for that unexpected expense or worst case scenario, a job loss. How much do you need? Again the experts would say 3-6 months’ worth of expenses to give you a cushion until you find another source of income. About 10 years ago I established a fund that absolutely changed my financial situation and I have been teaching this concept since. After a personal finance workshop this is the strategy I hear about most from participants, I call it my Peace of Mind or POM account and it doubles both for emergency situations and ‘rainy days’ like saving for that vacation or a new couch. Here’s how it works:
- Review with your spending partner the big ticket bills that can throw your budget out of whack. Start with 3 or 4 categories such as car insurance, unexpected medical bills, car repair etc.
- Go back through 6-12 months of last year’s bills for those categories and determine how much you spent for the year and divide by 12 months. Do that for each category, add them together and that is the monthly amount that goes to your emergency/POM account.
- Example: in the last 12 months we have spent $900 on car repair, $300 on medical bills and $800 on car insurance. Added together that is $2000. Divide by 12 months and you have $166 that needs to be put in your emergency account per month divided into $75 for car repair, $25 in the medical column and $66 for car insurance. See example.
- Pay yourself first; this should be the first “bill” you pay. Having it deposited right out of your paycheck helps.
- Set up a separate account for this fund (checking account works well) and use a bank you don’t have easy access to. Don’t attach a credit or debit card to this account, just use checks.
- Add columns to it as you need (or want) to.
- The bank will see that you have XXX amount of money but you will see it as columns with a total for each category.
Once your accounts or columns are fully funded, payment for that particular emergency comes right out of the fund and is subtracted from the appropriate column leaving your day to day checking account for all your regular bills. No more crisis payments that throw your budget off! After a few months of budgeting, paying down debt and using your POM account for emergencies you should be well on your way to adding a fun column like vacation or a massage or that new couch!