Too Much Cash: A Good Problem to Have

The pandemic of 2020 has had many unexpected effects on everyone’s finances. One way or another, I’m guessing your financial life has changed since March of 2020.

Unfortunately, many people lost their jobs, their businesses, and their ability to pay their rent or mortgages. It’s been devastating to hear these stories. Thankfully, there’s been relief over the last year in the form of higher and extended unemployment benefits, moratoriums on evictions and foreclosures, stimulus money from the government in the mail, and help from several charitable organizations. I know there are many people still struggling, for whom I pray and have added more in our personal giving budget to go toward.

For many others, though, this past year has allowed them to reassess their spending habits and make major changes toward saving. It’s allowed many to sell their homes for significant profits and/or finance a home with unprecedented low interest rates. Additionally, after its initial fall, the stock market has left many people with realized gains far beyond what they’d imagined.

Because of these significant changes in 2020 that have carried over into 2021, many Americans are finding themselves with a really good problem to have: too much cash and what to do with all of it. Most personal finance experts believe that keeping extra cash under your mattress or sitting in a simple checking/savings account for a long period of time is equivalent to losing on an investment or burning a percentage of that cash in your fire place.

Due to inflation, your dollars today will be worth significantly less than in the future … and I’m not talking about the distant future. According to the rule of 72, at an average 3% rate of inflation, your cash today will be worth HALF its value in 24 years (72/3 = 24). So, if that money you have lying around isn’t making you more money (at a rate greater than inflation), it’s essentially making you less money. Therefore, you need a plan for that cash.

If you’ve unexpectedly found yourself in this position of holding onto money in excess of your emergency fund (or specifically saving for a large purchase), it’s time to figure out where to put it. My husband and I are in this boat with you, so I’ve done a bit of research to determine our best options for what to do with that surplus in the bank account…

Invest in Index Funds

We have seen over 20% returns in the past couple years on our VTSAX (Vanguard index fund) investment. In addition to our monthly contributions, we often invest our family budget surpluses in this index fund through our joint brokerage account (after our ROTH IRAs have been maxed out). This might be the easiest way to invest, and it’s truly passive. But we still have a large cash cushion that we haven’t dumped into an index fund because we’d prefer to diversify and …

Buy Real Estate

I’m not going to lie to you. Buying real estate in this hot 2021 market is TOUGH. We’ve lost out on 5 deals in one town over the past 3 months. However, we’re determined to keep trying, so we have a significant amount of cash set aside to meet our goal of closing on 3 doors this year. Now that we’re already nearing the end of the first quarter of this year and entering the really busy real estate season, though, we recognize that 3 doors might be a pipe dream. So, maybe we can remain involved in real estate if we …

Become a Hard Money Lender

A return of 7-12% sounds pretty promising. This is what most private money lenders charge investors for doing a financing deal without using a bank or typical lender. The hard/private money lender is responsible for vetting the investor he/she is lending to, doing the underwriting, setting the terms of the contract, providing a large lump sum, and chasing the money if it’s not all paid according to contracted terms. So, although private money lending is considered passive income, it still requires quite a bit of work upfront and the possibility of following up afterward if terms are not met. This option still sounds good to us, and we may move forward with the steps to get started soon, but we’ve also thought that another way to diversify our portfolio might be to…

Back a Business

We know of several businesses who have struggled during the 2020 shut-downs, but the ones that have stayed afloat have incredible ideas for reaching more customers and expanding their online presence. They have the plans, infrastructure, staff, and products, but they may not have the funding. With a loan from a local independent investor, like ourselves, they can hit the ground running and pay a contractually-agreed-upon return on our investment when their business plan pans out. This may be one of the riskier ways to invest our cash surplus, so we’ve also considered that we could …

Turn a Fun Purchase into an Income-Producing Asset

Our family often talks about owning an RV for extended road trips or a temporary homeschooling adventure. However, we will not make a large purchase like this without a plan to rent it out when we’re not using it. We could either park the RV on land and rent it out via Air BnB or we could offer our super cool ride to friends and friends of friends at a reasonable rate so they could experience their own road tripping adventures.

Here are a few other ideas to turn a personal purchase into an investment:

  • If you’re buying a heavy-duty truck for work, hunting, or family use, consider renting it out to others to haul items or complete their own home projects.
  • If you’re buying a cool woodworking tool to build furniture or make unique decor as a hobby, consider offering the tool up for a fee to people nearby to prepare for their own projects. (Or sell extras of your creations.)
  • If you’re buying a fancy snow cone or cotton candy maker for a party, use it in the future to sell goodies at local festivals or near the neighborhood pool (with a permit).
  • If you’ve decided to splurge on a commercial-grade carpet cleaner after too many pet and toddler accidents, rent it out to neighbors for a lower fee than what the stores charge. Make your own non-toxic cleaners to go with it as well.

(For each of these ideas, check with your insurance agent regarding coverage/liability before renting out your assets.)

Sometimes, the idea of someone else using an item that’s special can leave us a little unsure, so another option is to …

Invest in Self-Growth

A great way to spend extra cash is to develop more skills that allow for greater income potential in the future. This might include going back to school, taking unique online adult courses, or paying a mentor to teach how to advance in a specific career. These are exciting options and definitely worthwhile if you know you’ll put the skills learned to use right away. My husband and I would love to learn more about renovating an historic home and doing a remodel mostly ourselves. However, we’re quite overwhelmed with raising four kids and keeping up with our current schedules, so this may not be our best choice currently.

There is one investment option, though, that we’ve both agreed is the best for personal growth, community improvement, and living out truths we take seriously, which is to…

Give Generously

I recently heard an amazing sermon by Mike Todd of Transformation Church. He speaks eloquently and passionately about being a purpose-chaser rather than a paper(money)-chaser. He said in his sermon, “God doesn’t have a problem with paper; he just wants priority!“ Our opportunities, finances, and blessings are the fruit after we’ve given His purposes priority.

Most believe that it’s better to give than to receive, and many also believe that true rewards (whether they be money or something even more valuable) only come after you’ve given from your heart. Therefore, this may be the best use of a cash surplus.

There are dozens of other ways to invest your extra cash, and because personal finance is truly personal, each person will likely have a different idea that resonates with him/her. The main thing to remember, though, is that while it’s a huge accomplishment to have saved a large sum of money, you don’t want it sitting around losing value for too long. Every dollar needs a job, and hopefully your surplus can provide more value to you in the future.

9 Easy Steps to Buying an Index Fund

I’ve been asked several times, “How do I get started in investing?” Usually, my response includes several follow-up questions, such as, “What are your investing goals? What’s your risk tolerance? How much money do you have to invest? Have you started first with your employer’s 401K? Do you have debt? An emergency fund?” and so on. There can be dozens of factors to consider.

Then, I recently came to realize that many of my friends were simply asking how to take the steps to open an investment account and contribute to it. Most had already decided that they wanted to invest a certain amount in the stock market but didn’t know how to actually start a new account (outside of 401K investing). Hopefully, the 9 steps below can be helpful to those who are looking for a literal answer to that initial question.

The guide in this post is specific to opening a Vanguard account because it’s the brokerage firm we use, but the process is likely the same or similar for other firms/banks.

Why do we choose Vanguard? We consider it to be the leader in low-cost index fund investing. After all, John Bogle, the founder of Vanguard, was also the inventor of index funds. Vanguard makes investing easy and has several options for mutual and index fund investing. If you’re more interested in trading stocks, options, and ETFs than taking the simple path to wealth, those trades are commission-free. Vanguard also has great customer service, including agents who will answer even the most amateurish questions and will gladly walk you through every step if you get stuck while navigating the website. For all of these reasons, my husband and I have both our ROTH IRA’s, as well as a joint brokerage account, with Vanguard.

Other highly-recommended brokers include Charles Schwabb and Fidelity, which also carry a wide variety of funds and low fees for many of them. (We have investment accounts in both of these brokerages and a few others due to past employer offerings, but we are slowly transferring balances on accounts with higher fees to Vanguard. We’d like to consolidate and reduce fees as much as possible.)

If you’re ready to purchase index funds, here’s your guide on how to do it in 9 steps or less:

1. Have your bank account info available, including routing number.

2. Go to Vanguard.com and select the Personal Investors page.

3. Click on “Open an Account”, then select “Start Your New Account”.

4. Follow the prompts and answer the questions on subsequent pages.

5. Determine the type of account(s) you want to open based on tax advantages, income limits, and contribution maximums.

  • The max contribution for an IRA each year is $6,000 for under age 50 & $7,000 for over age 50.
  • Simple rule of thumb: Traditional IRA‘s give you a tax deduction now, but you will pay taxes on the withdrawals in retirement. ROTH IRA‘s require contributions from earned income and do not give you a tax deduction now. But they allow your money to grow tax-free and allow you to withdraw the earnings tax-free in retirement. Also, you can withdraw ROTH IRA contributions (not earnings) before age 59 1/2 after owning the account for 5 years. (So, if you contribute the max for 5 years, you can withdraw the $30,000 penalty-free as soon as that 5 years ends, but you can keep your interest earnings in the account.)
  • Brokerage Accounts, also called Taxable Accounts, General Investing Accounts, or Non-Retirement Accounts, have no contribution maximums, no income limitations, and also no tax benefits on the interest you earn or the sale of funds. You are subject to taxes on all of it the year you receive the money. These can be joint or solely owned.
  • The other available options are investment accounts for children or small business owners. More on those in a later post.
Types of investment accounts

6. Provide personal and banking info.

7. Complete required paperwork and send it in.

This may take several days for a response.

8. IMPORTANT: When you receive confirmation of funding via email, go back into your Vanguard account to select funds to invest in.

Index funds are recommended very often in the Financial Independence Community. VTSAX is one of the most common ones and allows you to be invested in ALL 500 companies of the S&P 500. Read more about index funds here. Index funds track almost identically over time, so don’t stress too much about which one you choose.

Keep in mind that an index fund is a 100% stock investment. If you’d like to limit your risk a bit and balance out your portfolio, you can invest in a bond index as well, which pays monthly dividends. (We reinvest ours.) Many investors believe that the closer you are to retirement age, the higher percentage of bonds you should hold in your portfolio to minimize risk. (Reminder – lower risk usually means lower return.)

If you’re still not sure how your investment portfolio should be balanced, Vanguard can walk you through a risk assessment quiz to determine asset allocation for your target portfolio before you choose your investment funds. You can also view how different portfolios have performed over the last 94 years.

9. Buy!

Follow the prompts to buy the funds you’ve decided to invest in. You’ll select the desired fund(s), choose the dollar amount you want to invest, and designate where you want the money to come from (likely the bank account you uploaded).

If, at any point, you’re stuck or not sure what step to take next, open a live chat with an agent, read FAQ’S in the margin, or call Vanguard customer service.

Voila! You’re invested in the stock market! Hopefully you’ll watch your money work for you! My husband and I have seen 30%+ returns in the last couple years. These gains are unusual as we’re still in a bull market. Fluctuations are to be expected, but because we plan to keep our money in these funds for over 10 years, we feel good about riding the waves.

For a more in-depth guide to getting started with Vanguard, go here.

Everything written in this blog is based on personal experience. It is not professional advice and should not be taken as such. Personal finance is personal, and decisions should be made based on analysis of individual situations, as well as risk tolerance and financial position. 

Fuel your FIRE

Financial Freedom in 2021! Take Action: Day 30

Wow! We made it to Day 30! I calculated that I’ve written (and you’ve read) over 25,000 words in the last month. That’s enough words to fill 1/3 of a novel, and all of them were about saving money and investing for the purposes of financial freedom.

But why?

In my post titled, What Does Financial Freedom Mean to You?, I summarized what motivated me to jump on board with the FIRE movement:

“Financial freedom allows the ability to let go

of maintaining a specific image; of an addiction to other people’s lives; of the shackles of material goods; of the restrictions placed on me by others; of saying ‘yes’ when I want to say ‘no’; of saying ‘no’ when I want to say ‘yes’; of negative relationships; of working to achieve someone else’s dream.

It provides the option to linger

with a baby in my arms; in bed all morning with my husband; on the floor in my kids’ playroom as they set up a tea party; at church after service or maybe on a Wednesday; on a restaurant patio with a friend; at a beautiful beach all day; in my sister’s living room catching up on a favorite TV show; at my mom’s house sipping coffee; at my children’s favorite museum; on the hiking trail or in the river at a state park.

It affords the privilege of indecisiveness

on whether to build a forever home, buy an investment property… or both; on whether to volunteer in local church ministries, start the business I’ve always dreamed of… or both; on whether to do travel homeschooling, keep my kids in public school… or both; on learning to play golf, participating in an over-40 soccer league… or both; on whether to write a book, start or podcast… or both.

It commands the responsibility to give

financial literacy lessons to my children; personal finance advice to the young and old; donations to charitable organizations; more time to important projects; opportunities to the underprivileged so that they can break the cycle of poverty; gifts to my church; more of me to those I love.”

It’s this final paragraph that makes the FIRE movement especially appealing, not just for myself, but for the entire community too. I recently heard that while others might see an individual’s push toward financial independence and early retirement as a selfish, greedy move, the truth is that most people in the community want to use their freedom for greater good.

Those who’ve reached FIRE write blogs to help others improve their money situations. They host podcasts and share the best tips available. They write books to make investing easier. They teach classes for free to the under-privileged, under-educated, and under-represented. They run fix-it clinics, start buy-nothing sites, and inspire minimalist movements. FIRE people don’t keep this to themselves; they share what they know and encourage others to make the best use of their money as well.

Consider the type of people who truly subscribe to the Financial Independence Retire Early life. These people are often intelligent, motivated, educated, persistent, goal-driven, risk-tolerant, and innovative. When people with these qualities are freed from the daily grind, their talents can then be put toward philanthropy and changing the world we live in.

Take action today on Day 30 by determining what fuels your FIRE and decide what good you could do in the world if earning a regular paycheck was no longer a top priority.

Thank you so much for going on this 30-day journey of action steps toward financial freedom with me! I truly hope it’s been helpful and that you’d be willing to share these tips with others.

I invite you to subscribe to this blog and follow Frugal_with_Four on Instagram. I’m looking forward to sharing so much more on living this frugal yet wonderful life with you.

Thanks for reading!!

Travel Well on a Budget, Part 2

Financial Freedom in 2021! Take Action: Day 26

There are so many options on where to stay while on vacation these days… from luxury hotels to extended-stay motels to RV resorts to cabins to vacation home rentals to tent-camping. Even with a large family, many hotel rooms can now accommodate everyone. It can be really hard to narrow down the choices and make a decision.

The good news is that when there are various options and abundant supply, the buyer often benefits from all that competition. You just have to be prepared to do the research.

Once you’ve settled on which type of accommodations will provide the best value and experience for your trip, the following list can help you save money on them …

Check Rewards First

Just like shopping for airfare, check with your credit card rewards and/or your hotel chain membership to determine whether you have enough points to book a night or two at a hotel. If you don’t have a hotel card or rewards membership, but your trip is several months away, consider applying for a card with a great bonus offer so you can collect and redeem miles at least a month before your travel dates.

We recently applied for the Hilton Honors AMEX, thinking ahead to two destinations this year with excellent (but expensive) family-friendly Hilton resorts. Because of the bonus offers and by using the card to pay for part of the stay (thus maximizing the points per purchase), we should be able to get 4 nights covered with points this year.

Get the App

Hotel apps can also help you earn free nights faster or offer upgrades and discounts. I like the hotels.com app. I’ve earned two free nights (1 free after 10 nights) and taken advantage of significant savings due to “secret prices”. Also, if you access hotels.com through the Ibotta app, you can earn cash back for your hotel purchases.

Map It

When searching for a hotel or vacation home, I always use the map function to make sure I understand where a hotel is located before clicking to find out more info. The maps on the search sites often show tourist attractions, the airport, and parks in the area so it’s easy to determine how close the hotels are to everything.

If your goal is to minimize transportation costs, stay close to it all. If your goal is to minimize lodging costs, stay a bit outside the city or in a small town nearby.

Take Advantage of Filters

When it comes to a hotel, I look for at least 3 stars, a very high review rating, and amenities that will save us more money, such as free breakfast, free wifi, free parking, in-room kitchen/ette, free airport shuttle, etc. Bonus if there’s a nice pool, water park, playground, and/or hiking trails onsite… something that can entertain kids between other planned activities.

Keep Your Options Open

When I find a great hotel at a decent price, I book… but only at the free-cancellation rate. Then, I set an alert/reminder in my phone to go back and check hotels again just before the final cancellation date. I re-do my hotel search then to see if the hotel we booked has a better deal or if another one has dropped in price.

Alternatives to AirBnB/VRBO

Looking for a vacation home rental but don’t want to pay the excessive fees? Ask your friends or put up a post in Facebook groups. Often times, a vacation home owner will be willing to rent it out without going through these sites (especially if you’re a friend or acquaintance).

You can also try local property management companies or Vacasa to find the same homes listed on AirBnB or VRBO at slightly cheaper rates (and fewer fees).

Another tip is to find a few homes you like in the area on the major rental sites, then reach out to the owners directly to negotiate a lower rate, especially if the homes are still available less than a week before your travel dates. Send an email to 4-5 owners offering the price you’re willing to pay. Chances are, at least one will agree to take less than their listed rate rather than make nothing on a vacant home.

In summary, finding great deals on vacation lodging requires a bit of time, research, comparison shopping, and possibly some negotiation. It’s worth it, though, to save that money to put toward activities while on your trip or to have enough left in the budget to book your next vacation!

Today’s action step is to continue to do research on the places you’re interested in traveling to this year. Add estimates for accommodations to your travel budget spreadsheets.

Cover Your Ass-ets: Choose the Right Insurance Coverage

Financial Freedom in 2021! Take Action: Day 22

Let’s talk insurance. No one wants to pay for it, but no one wants to live without it either. All the hard work we’ve put into planning ahead for the betterment of our family could be completely wiped out with one disaster, diagnosis, disability, or death. This is why having an emergency fund as well as the right amount and right types of insurance are so important.

Life Insurance

Choosing the right type and amount of life insurance can be very tricky. Those who sell it have gotten creative in marketing the different types, not only as insurance but also as an investment. I prefer to look at insurance for what it actually is: protection of my assets. It is separate from my investments.

When doing an assessment of life insurance, a good question to ask is, “If I die, will a loved one need my income replaced to be able to survive or will a loved one need to pay another to take on my familial duties?” If you are a working parent or spouse, and your family depends on your income, life insurance is a must. If you are a stay at home parent, and your family depends on the work that you do at home, then life insurance is also a must. (The working parent would need to pay a caregiver to take on your responsibilities.)

I’ve heard that a good rule of thumb for deciding on the amount of life insurance to buy is to double your annual expenses, and then add a -0-. So, if you’re able to live on $50,000/year, double that and add a -0-. That would equate to a $1,000,000 policy.

Life insurance plans offered by employers may not provide enough coverage for your family. It is likely that a supplemental plan will be required to reach the benefit amounts mentioned above.

There are also many other considerations regarding which type of life insurance is the best choice. When in doubt, many personal finance experts recommend sticking with term insurance. Keep in mind that you only need to carry life insurance until you no longer have people dependent on your income and/or until you’ve reached a level of wealth allowing you to self-insure.

With all this being said, we know that any dollar amount will not take away the extreme emotional loss of a family member. Life insurance can also allow for some peace of mind and money for grief support during such a devastating time for a family.

Health Insurance

It’s outrageous, I know! We spend $15,800 per year on premiums to cover our family… and that’s on a high deductible group healthcare plan. If we had chosen the lower deductible plan, we’d be out an additional $2,000. We’re covered through my husband’s employer, but what we pay on premiums each month is nearly what I net from my part time job. But because our family’s health is an incredible asset, we pay to protect it.

I’d prefer to pay a lot less to protect this asset, but we haven’t found a way to qualify for less costly options. If anyone has any advice in this area, I’m all ears!

However, if you meet certain income qualifications, there are great options on the health insurance marketplace (healthcare.gov). Unfortunately, open enrollment has closed for the year, but if you have experienced a life-changing event, such as marriage, having a baby, or losing your job, you can still purchase a plan, hopefully with significant discounts.I am probably not the best person to be offering advice in this area because we spend an arm and a leg on this type of insurance, but I do believe that keeping an up-to-date health profile on your family can help you determine which plan is the best choice for you. If you rarely go to the doctor and each family member has good health overall, you can opt for the higher deductible plan and save a few thousand dollars per year. My husband and I have to reassess each year which plan might be best due to the health issues our family is currently facing. A couple years ago, we calculated that we spent well over $23,000 on premiums and medical care due to a baby with asthma and a new Crohn’s diagnosis for our eldest child. Thankfully, we have been able to get both conditions under control, so we are able to go back to the less expensive, higher deductible plan. So, be sure to review the options offered by your employer each year rather than just renewing what you’ve always had.

One more tip – be sure to look into whether you’re eligible for an HSA. This is one of the best ways that you can get a little bit further ahead in investing for retirement.

Disability Insurance

As mentioned in the post, Take Action: Day 1, your ability to earn an income is one of your greatest assets, and you buy insurance protects assets. Therefore, it would make sense to cover yourself in case of disability.

According to statistics, you have a 1 in 4 chance of becoming disabled during your working career. Employer benefits usually only pay 40-60% of salary, on which you still have to pay taxes and high insurance premiums. These policies are often short-term, meaning that you’d have to apply for government assistance after that term ends, and Social Security disability claims often take years to process and to be awarded. (Minimum time is 3 months for processing claim and then many end up in court.)

Many people choose to supplement their company disability coverage with another plan to cover at least half of their annual income (or the amount NOT covered by the company plan benefit).

Homeowner’s/Renter’s Insurance

Here we are with another asset that needs protection: your home and/or rental property. Thankfully, you can really shop around to find discounts and opt for higher deductible plans to lower your premiums. I’d recommend using a broker who can shop around for you.

Car Insurance

Again, you can find a broker to shop around for you and get you the maximum discounts. Consider a higher deductible, less comprehensive coverage for older vehicles, and reduced rates for safe driver record, career/company affiliations, and bundled insurance packages.

Umbrella Insurance

This is pretty much insurance for your insurance. Yep, that’s a thing. Also called Liability Insurance, it’s a relatively affordable way to protect you from the “extras” that your insurance policy may not cover, including lawsuits for additional damages.

This list of types of insurance includes all of the ones highly recommended. There are many other types not mentioned here that may protect some of your personal or professional assets.

However, some insurance options I tend to steer clear of are:

  • Rental Car Coverage: My own car insurance and travel credit cards have sufficient coverage.
  • Mortgage Life Insurance: This is life insurance for the purposes of paying off your mortgage if you die. Instead of paying for a rider or additional policy, just make sure you have adequate life insurance coverage as mentioned above.
  • Identity Theft Insurance: Keep tabs on your accounts and set security alerts for each of your cards and accounts to protect yourself without buying an insurance policy.
  • Credit Card Payment Protection: Your disability or life insurance policies should help to cover credit card payments in case of an emergency. Also, don’t forget that emergency fund you’ve had saved up.
  • Long-Term Care: This one is a toughie! I’m currently of the mindset that my husband and I will be able to self-insure for future long-term care (think assisted living or nursing home), but I have been debating buying a policy for my father. Long-term care insurance is often recommended for people who have too much money to qualify for Medicaid (which is only used toward nursing home care) yet not enough money to pay all expenses out of pocket. And the expenses are HIGH! I’m honestly still on the fence about what to do, but for now, we’re considering other investment options to accumulate cash toward long-term care if/when it becomes necessary.
  • Travel Insurance: With the current liberal cancellation policies for airfare and hotel stays, it’s not necessary. When cancellation policies are a bit stricter, I take each trip case by case. More expensive travel or further-away destinations sometimes warrant a travel insurance policy, especially when kids are involved. The risk of illness goes up when traveling with a large family.

Today’s action step is to review your insurance plans and policies. Consider whether you really need each policy you have or if you need to add more. Determine whether you have adequate coverage based on your family’s financial situation. Then, shop around for the best rates

Start a New Monthly Budget

Financial Freedom in 2021! Take Action: Day 5

After completing your annual budget yesterday, you should have an amount remaining between your net income and your fixed/priority expenses. If there is not a livable amount (for the year) leftover, some of those priorities may have to have deadlines that extend into later years or may need to be removed temporarily.

In the example shown yesterday, there was $20,420 remaining for monthly spending. That comes out to approximately $1,700/month, which may seem minimal if you are raising a family. However, keep in mind that this does not include major living and transportation expenses, monthly savings, investment contributions, or amounts budgeted for other top priorities. Therefore, the amount *leftover* is for variable expenses of food, gas, utilities, entertainment, electronics, clothing, gifts, and extracurriculars. It may still present a challenge, but that’s what we’re here for, right?

You can use the same “Personal Budget” spreadsheet or any budgeting app to set up your monthly budget with the amount you’ve calculated from your annual budget cash balance. Divide the total by 12 and set that as your “income” for the month in your budget. Then, estimate how much you will spend in each of the categories listed in the paragraph above. Practice zero-based budgeting to the best of your abilities.

After establishing your monthly budget, plan to track your spending via your bank app or receipts and then give yourself some grace. It may take a few months to get the estimates correct, and you may encounter some setbacks. The good news is that setbacks don’t actually set you back financially if you’ve been saving for emergencies and if you are committed to getting on track the following month. Once you have a system for monthly budgeting, you can become an expert in a matter of a few months, and this process will take less and less time.

One thing we try to do with regards to monthly budgeting is to start the following month indebted to the previous one IF we over-spent in variable spending categories, but we also pay ourselves the surplus (in the next month’s planning) if we come in under-budget for a month.

This budgeting process has become a fun ritual for my husband and me because we turn our discussions into monthly money dates! It can actually be fun. 😉

Identify Savings and Investing Goals

Financial Freedom in 2021! Take Action: Day 3

You’ve set your priorities, but how much money will each require? And how much more must you set aside for emergencies and retirement on top of amounts saved for the fun stuff?

According to the top names in personal finance, setting up an emergency fund is first on the list. What’s that number for you? Research shows that nearly half of Americans would not be able to cover a $400 emergency without using credit cards. Because of this data, many experts recommend having cash saved up and accessible in the amount of 3-6 months of expenses. During these uncertain economic times, many are saying to double that number.

However, in episode #153 of the How To Money Podcast (pre-pandemic), hosts Joel and Matt revealed that $2,467 is the specific number to shoot for according to some economists. Only you can determine what your emergency fund comfort level is. Take into consideration the following personal situations that may have an additional effect on it: family member in declining health, an older vehicle, an unimproved home around 15-20 years old, and/or desire for a career change or business start-up.

Whatever your number is, strive to reach it as quickly as possible. Priorities, goals, and dreams may become distant memories if a financial emergency thwarts your personal progress.

After identifying your target for an emergency fund, decide how much money to set aside for your other top priorities this year. Here’s an example of how to determine what to budget for a specific purpose:

  • Priority: Early Retirement (by age 50)
  • Goal: Contribute $24,000 to investment accounts in addition to 401K investing
  • Deadline: Dec 31, 2021
  • Frequency of Contributions: Max out Roth IRA’s by Feb 28th and then contribute monthly to brokerage account
  • Necessary funds: $6000 in Jan, $6000 in Feb, and then $12,000 from March through Dec ($12,000/10 = $1,000/month)

Take some time today to place a total dollar amount and a deadline next to each of the top priorities you listed yesterday. (If you don’t already have a sufficient emergency fund, you might want to determine an amount that’s comfortable for you and add that to the list.) Prepare to include these totals in an annual budget, and as the month goes on, I’ll share a few ways I was able to increase our family’s savings rate from a negative percentage to about 30%, in addition to what we budget for travel, family traditions, tithing, tuition, and gifting.