Day 25—-Get Smart
(Posting Sara’s (Single Mom’s Ask Sara) journey through the Balance Up program)
Remember SMART? This is important, so we’re going to go over it one more time.
In order to reach the priorities you set, you need a logical (SMART) approach. So what if you find you can’t apply the SMART principles to your goals? No problem. Not being able to apply the SMART elements to your goals, is just a signal that you need to change the goal, or eliminate it in favor of one of the goals you initially removed from your list.
Today’s short lesson gives you time to go back and review some previous lessons. Because it takes a few months to get a feel for managing your money in a new way, reviewing the lessons on working with the paycheck allocation and the “envelopes” are a great idea.
Day 26–Do you have an emergency living expense fund?
Who doesn’t want one of these? Who has one? I have a little one. Because I am focused on eliminating debt, I don’t have a big emergency fund. Both Bryan, and my long term financial planning guy feel this is the next step after you demo the debt.
All I know is that I would love to feel covered in an emergency or a job loss. After having many job losses with no emergency fund, I can say on some pretty good authority that this does not feel good at all!
Bryan suggests you sock away 3 to 6 months of your living expenses, and if you live in a location with greater than 8% unemployment (that would pretty much be the USA these days) you should consider a nest egg of 5-8 months. Sound impossible? It sure did to me.
However, ever the financial ray of hope, Bryan explains that with the joys of compound interest you can truly make this happen.
Needing new tires doesn't need to cause a financial emergency.
Bryan then goes on to explain Sinking Fund Purchases or SFPs (my acronym). You create an SFP to put money away for things you will want or need in the future. Novel concept, huh?
Here’s one of Bryan’s examples. Say you know you will need tires for the car, and those tires cost $400. (I remember when you could get 4 tires for 100 bucks!)
If you need those tires in 6 months, you need to save $67/month.
If you need them in 12 months, that would be $37/month, and if you can wait 24 months, you only need to set aside $17/month.
However, if you buy them at the last minute and charge them, paying over that 24 months, you will pay an extra $111.88 (at 24.9% interest).
Of course it makes far more sense to save for the tires, but we don’t tend to do this. It may take a while to get your thinking and your finances turned around so that you are able to proactively put money away for these purchases, but that’s OK. If you think about it…if you can afford to make the payment after you buy the tires, you can likely make the smaller set aside payment before you buy the tires. Even if you don’t get to the full amount before you have to make your major purchase, in money, every little bit helps.
Day 27: Insurance!
Insurance. We hate to pay for it, we are so thankful to have it when we need it, and we really don’t quite understand it.
Today Bryan shares the ins, outs, and definitions of all those different insurances we need to know about. You will definitely want to print this handout and keep it with all your important paperwork!
So what kind of insurance are we talking about?
Here’s the list:
Just like an emergency fund, insurance saves your behind in a crisis. The only difference is that while your emergency fund is there for day-to-day shortfalls, insurance covers the catastrophic events that could wipe you out financially for a long, long time.
Here are Bryan’s 7 General Principles of Insurance:
1. Understand the purpose of insurance.
2. Know your needs and your coverage.
3. Carry adequate insurance.
4. Understand the real cost of deductibles.
5. Watch your credit score.
6. Avoid filing too many claims.
7. Shop around.
With Bryan’s definitions, coverage details, and tips for decreasing your insurance premiums, you will most certainly have the protection you need should Mr. Mayhem come to visit you!
*Not included in today’s lesson.
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