Part 1: WHEN THE "RAINY DAY" COMES

We've all heard the phrase "Save for a rainy day". A "Rainy Day" is defined as "A time of need or trouble". Whether you set a percentage of your paycheck aside or wait till tax time to deposit a bigger chunk in savings, we're all forced to think about the unexpected. The so called "rainy day" fund is money you hope you'll never have to spend but preparing for the unknown helps to soften the financial sting for life's unexpected moments. Who wants to spend $1,000 on a new water heater or $2,000 on unexpected car repairs? 

It's just another one of life's unexpected moments. There have been many so called unexpected moments - most have been small but manageable. But have you ever thought of a Rainy Day being bigger than just a broken water heater or random car repairs? The Rainy Day most of us never see coming.....the one that can destroy your finances, wreak havoc on your day-to-day living and it's big enough to possibly turn your world upside down. I'm talking about a Job Loss!!!

There I was on June 14, 2017 sitting across from my boss as he nervously announced that a decision had been made to eliminate my position and my last day will be June 16th. It was clear he felt bad as he fumbled over his words. I was completely caught off guard and in a bit of shock as I've always been the one with a planned exit strategy. Yet there I was experiencing a different set of emotions for the first time ever. After my boss's exit, I sat there thinking about our recent decision to take a 7 day vacation to Italy and whether I should cancel. I called DH right away and broke the news and after his initial reaction of shock his response was "Don't worry about it. You weren't happy there anyway".

That's the truth. I wasn't happy. So immediately after speaking with DH, I felt the freedom I had been silently dreaming of. At some point after the New Year of 2017 I started desiring a "break". I would say out loud to whoever would listen "I wish I could just not work for 3 months".  So in a weird way, my job loss felt like a gift. I got to experience something I've always wanted....MENTAL FREEDOM. So how did DH and I survive 7 months on one income? Here's how.....

HOW TO PREPARE FOR A RAINY DAY?
I truly practice some of the things I wrote about in my earlier posts.....the most critical being "Living Below Your Means". That is the single most IMPORTANT element to smart money management. Most people say "Live within your means" but that only indicates that you spend most of what you make. When you strive to live below your means, your high savings rate will enable you to compound cash at a much faster rate. 

AVOID FINANCIAL DECISIONS THAT REQUIRE 2 INCOMES
When we got the bright idea at the end of 2016 that we wanted to purchase a 1 family home it didn't take very long for me to pull the plug on that idea. The numbers simply didn't add up. The numbers dictated an absolute need to have 2  incomes at ALL times. If one income disappeared our finances would fall in a stress test situation. As a result, we made a decision to remain in our 2 family home and forego the idea of the dream house. Turns out we dodged a bullet and that decision was almost like a premonition as we had no idea a job loss was on our horizon 7 months later. This doesn't mean we'll never buy a one family but if that situation ever presents itself we would approach that decision very methodically.

LIVE ON ONE INCOME
Because we managed to keep our expenses low we can survive on DH's (Dear Husband) income without having to tap our cash reserves as we were experiencing the "rainy" season. If you're in a 2 income household, living below your means can possibly allow you to Live on One Income. I know that's not always feasible and everyone's job and income level varies greatly but we were able to build risk in our finances by living below our means.

DETERMINE HOW MUCH IS ENOUGH
So how much money is enough money for those unforeseen rainy days? I'd say having enough so that when it comes you can still sleep at night. The finance world claims that having 3-6 months expenses saved is sufficient. I think 6 months should be the absolute minimum. I'm a bit more extreme so I manage our finances with a time period much longer than 6 months. That's because I almost always make decisions considering the absolute worst case scenario. We didn't have to touch our emergency fund until the "Rainy Day" became a STORM.  Stayed tuned for Part 2 to hear how Murphy's Law  took over our lives for the last 3 months.

So there you have it....a JOB LOSS....the Rainy Day you never see coming and how we survived those 7 months on a single income.

What was your "Rainy Day" and how did you survive it? Leave me a comment below.

 

HOW I REDUCED MY MONTHLY EXPENSES

My very first post about Financial Freedom talked about spending habits and the importance of creating a budget. Having a budget is really essential to managing your money. Budgeting can seem like it comes with restrictions but it actually helps save money because it identifies areas of overspending. Budgeting creates cash flow visibility and ensures that you have enough funds available to cover your most important bills and help you reach your goals by spending on the things that are most important to you. Creating and sticking to a budget eliminates worry and creates more control over knowing where your dollars are being spent. Ultimately, a budget puts you in control of your money and is the biggest tool to changing your financial future.

Automating payments without having done an actual budget follows the "Set it and Forget it" method.....setting bills on auto-pay and/or paying monthly bills like clockwork. Most people who live without a budget follow the "Set it and Forget it" method and more than likely overpay on expenses where they actually could be saving. When Mr. Mindful Dollar and I created a budget a couple years ago, we soon realized that we spent far too long overpaying on certain bills. There's something to be said about plugging numbers on an excel sheet or writing it on paper. Numbers don't lie and we quickly realized we needed to control our expenses. Below are the areas we successfully reduced our monthly expenses:

Heating Bill -  For the first few years of home ownership DH had a regular thermostat that had to be programmed manually. The claims on programmable thermostats is that they help save money and energy through set programming. But what if you set your thermostat to come on at 4pm but for whatever reason you get home at 9pm? You just wasted 4 hours of heating (considering it may take an hour to heat the space) for which couldn't be changed while you weren't in the house. To remedy this, DH being a tech savvy guy discovered the power of Nest about 3 years ago. Nest Labs is the producer of programmable, self-learning, Wi-Fi enabled thermostats and security systems. We paid roughly $300 for the system and installation and we have the power to control our heat from our iPhones via the app. The Nest Thermostat  gets to know the temperatures you like and when you like them and creates a schedule and automatically creates a schedule for you. Since using Nest, we've realized a savings of at least $20 a month on our heating bill just by making the switch.

Car Insurance - When Geico sent a letter 3 months ago and threatened to increase  DH's rate by 55%, he immediately shopped around and secured a rate from Allstate that was $70 cheaper per month. Never assume that your current rate is the best in the market. Always try to test the market to see what competitors are offering. You can do a quick comparison on Ever Quote which scans databases of several insurance companies and provides suggested quotes. 

Cable Bill - Consumerreports.org state that the average price of your cable bill will increase this year by 3-4% in addition to add-on fees. Our bill in 2014 was roughly $189 for TV an Internet alone. When our contract was up for renewal we reduced our bill to $140. Within the personal finance space, there are a lot of people who make the bold move to cut off their cable bill and only use Netflix or Hulu. While this may feel like a sacrifice, if you're in the midst of aggressively paying off debt, it's an expenditure worth ratcheting back until you  hit some financial goals. If cutting off cable seems too drastic, consider calling your cable carrier once a year to inquire about better priced packages and express your disdain with the current rates you're paying. Competition among cable companies are pretty stiff and they want your business.

Medical Expenses - My health insurance has been relatively good but I realized that in the last 2 years my employer made changes to my benefits plan. After a recent annual checkup, I received bills for laboratory and radiology services. Turns out there's a deductible I have to meet before the insurance company covers any expenses for laboratory and radiology imaging services. The hospital in the area billed me for the lab work and I called and explained that the bill was unexpected and not in my budget and inquired about a discount. They immediately offered me a 25% discount which saved me $37. Never be afraid to call and inquire about paying a lower rate. Your attempt may not always be successful but not trying guarantees no discount. If you're facing financial hardship, they provide assistance to help meet your situation as well.

House Phone - DH had an international phone plan that cost $45 a month. Why did we need to spend $540 a year on a house phone? DH did some research and found a phone company called Ooma that cost $100 a year and that rate includes free calls to Canada and some European countries. DH calls Paris often to chat with his friends and cousin which works out nicely. That's $8.33 a month for home phone service and we have the option of adding additional funds to enable calls to other countries. The company even has an app that enables phone calls from anywhere. If I'm at work and I want to call my uncle in Canada, I simply make the call from my iPhone through the app and I won't incur charges from my cell phone carrier since the call was made through Ooma.

Water Bill - DH and I are landlords with a multi-family house with 2 rental units. Water rates in NYC tend to be a bit higher compared to the suburbs. DH has become a fanatic of logging into the city's website to check the daily water usage to ensure it's within a reasonable range. Average daily water usage costs about $2.95-$4. A couple weeks ago he realized the usage spiked to an average daily rate of $11 and even spiked to $23. This prompted us to contact the tenants to see if they were experiencing a running toilet, since past issues have taught us that this can almost double our quarterly bill if it goes unchecked. We discovered that there was in fact a runny toilet and we quickly scheduled a plumber.

Home insurance for appliances - In addition to regular home insurance, DH secured additional insurance for all appliances when he completed the home purchase which covers both boilers, microwaves, refrigerators and toilets for the entire house. The service is a MUST for all homeowners because you grossly reduce your costs for repairs over time. The company charges a monthly premium and if a repair is needed a deductible is charged once service is rendered.  Our home comes equipped with Over-The-Range Microwaves. I  recall shortly after Mr. Mindful Dollar bought the house, the tenant's microwave unit blew a fuse and when GE sent their repair guy, he paid $300 out of pocket for the service. A couple months later, the fuse blew again and that was another $300 out of pocket expense. It was these 2 incidences that lead him to search for home appliance insurance. Our initial company charged $55 for monthly premiums and charged a $75 deductible each time we had an incident. About 7 months ago, DH decided to shop around and we switched to a company called Home Choice Warranty. They charge $45 for monthly premiums and deductible. When we had the runny toilet issue 2 weeks ago, we called the company and they sent out a plumber last week and our out of pocket expense was only $45. Had we called a regular plumbing service, that one time service could've easily been $150-$200.

If you haven't already done a budget, do one TODAY. Looking at your monthly expenses will provide an opportunity to comb through your actual payments and prompt you to shop around to ensure you've secured the most competitive rates in the market.

The $20 Weekly Challenge

We all know saving money should be a priority. But do you actually pay yourself before your pay bills? Practicing frugality by identifying the small unnecessary purchases can amount to large savings over the course of  6 months or a year. Do a careful analysis of your budget and identify those unnecessary purchases or bills that can create an opportunity for savings. We've all heard experts talk about cutting back on the daily coffee purchases. If you're not a daily coffee drinker it could be as simple as downgrading your cable package, switching cell phone carriers, cutting back on lunch purchases, switching car insurance companies or buying one less cocktail every time you go out. The point is to become intentional about saving.  If you're able to reduce spending and save $20 a week, get EXCITED. I know $20 can't buy a lot, but if you apply the principle of time and compounding interest (as discussed HERE) the results can be astounding. If you managed to save $20 over the course of 12 months, that's $1040. If those funds were placed in an investment account with an average annual rate of return of 7%, with continuous weekly deposits of $20 over the course of 10 years, you would have $15,309 as indicated in the graph below. Never underestimate the power of small sums of money and the impact it can create to bring big returns.

  Initial investment of $1040 with $20 weekly deposits, compounded at an average annual rate of 7% annually.

Initial investment of $1040 with $20 weekly deposits, compounded at an average annual rate of 7% annually.

Saving larger sums of money can have exponential impacts on investment returns. This could involve a decision to buy a Honda Accord over a Mercedes or choosing to buy a house that's $100,000 less than your pre-approval rate. Several years ago when I purchased my Accord I had the option of buying the basic V4 engine for $16,000 or the V6 option for $22,000. Guess which one I went with? I went with the cheaper option. I'm not suggesting that more expensive vehicles with upgraded options aren't nice to have. I made a conscious decision that it was more important to save $6,000 on that purchase. During the time I purchased my car I had a friend who was car shopping and I suggested a Honda Accord. His response was, "I wouldn't drive a Honda". Instead he spent about $31,000 and bought a BMW. There was nothing wrong with his decision but if creating wealth was a priority perhaps he would've chosen differently. Actually that goes for both of us. Car purchases can be a major drag on net worth when you're in your 20's and 30's because these are the critical years for jump starting a retirement nest egg and having time and compounding interest on your side. Every big purchase decision you make should have a forethought on the impact of your net worth.

In both instances, making smarter money decisions and choosing to spend less creates an opportunity to save, invest and remain on the path to building wealth. I would love to drive a Mercedes, live in Manhattan, dine out twice a week and frequent random Broadway plays like Hamilton at $3500 a pop. The truth is, we can't have everything. You have to become intentional about creating priorities, setting goals and managing expectations. Decide what's important and what's not. Spend on things that are important and spend less or nothing on the things that aren't. There's a saying that says "Whatever your mindset is your bank account will follow".

Choose today to become INTENTIONAL about creating opportunities to save. Spring into Action. Be Active about your goals. Don't wait for a $10,000 salary increase to start making changes. Start TODAY. Apply the principle of time and compounding interest to every financial decision you make and you will see your net worth start to grow year over year.

Join me in the $20 Weekly Challenge. I've already identified where I can reduce expenses and I'll commit to saving $20 a week. I'll provide updates on my progress every couple of months

 

What are some areas in your finances that can create an opportunity to save $20 weekly? Drop me a line below and let me know if you plan to join the challenge.