December 2017 Net Worth Update

We survived round #1 of the Holidays.  But as you will see below, there were some casualties.  In November, we went on a family vacation to Montana.  We managed to keep the expenses on that trip quite low, around $350 or so, which was almost entirely to cover the gas in getting up there.

The main casualty was our emergency fund!  My wife has been looking at a replacement car for her 2005 Toyota Sienna for quite some time.  She finally found the replacement!  … Only a little earlier than we were expecting.  We bought a 2014 Honda Pilot this past Saturday.  You will see below a 20k dip in our cash, and a 21k increase our cars.  This is the net result of selling the van via private party, and purchasing the replacement car from a dealer.  Thankfully, we were able to sell the old car in under a week, for higher than Kelly Blue Book.  A word to the wise, do NOT trade in a $5100 vehicle for $2800 to a dealer.  By selling it ourselves we saved more than $2000, and it only took us a few days to sell it.  Not too shabby.

With out further adieu, our Net Worth is now: $390,778.86.  

November 2017 Net Worth Update

During the month of October, our net worth increased by $21,091.16 to a new net worth of $379,457.  About $4k of that was from an increase in the value of our investments.  Our investments just hit the $100,000 mark!  That is a big day for us, considering our investments were half that value a year ago.  This means that we need to finally start paying some real attention to where our investments are placed.

Here is the breakdown of our investments, as they stand today:

When looking at the above breakdown, the first obvious thing is that I need to roll over my 401k from my previous employer.  Why haven’t I done that yet?  My only excuse is that I have been focused on other parts of my finances.  But even without me doing anything special with it, my previous 401k has grown from 33k to 40k in the last year, an increase of 20%.  The worst part about the above investments is that the Roth IRAs are not invested in anything.  With all this in mind, my plan of action is:

  • Invest the Roth IRAs into SOMETHING, ANYTHING.  I’ll do another post about how I decide what to invest in.
  • Roll over the 401k and 403b from my previous employers
  • Begin to analyze the performance and placement of my other investments

With out further adieu, here is my detailed Net Worth update for the month of October:

2017-10-01 2017-11-01 $ Increase % Change
Assets
Cash $34,108.14 $35,271.25 $1,163.11 3.41%
Investments $96,835.90 $100,703.30 $3,867.40 3.99%
Primary Property $473,766.00 $489,286.00 $15,520.00 3.28%
Investment Property $0.00 $0.00 $0.00 0.00%
Cars $11,617.00 $11,617.00 $0.00 0.00%
Total $616,327.04 $636,877.55 $20,550.51 3.33%
Liabilities
Primary Mortgage $257,960.78 $257,420.13 -$540.65 -0.21%
Investment Mortgage $0.00 $0.00 $0.00 0.00%
Credit $0.00 $0.00 $0.00 0.00%
Total $257,960.78 $257,420.13 -$540.65 -0.21%
Net Worth $358,366.26 $379,457.42 $21,091.16 5.89%
Debt Ratio 0.42 0.40 -0.01 -3.43%

 

October 2017 Net Worth Update

Debt Ratio = Liabilities / Assets

I had never included this calculation as part of my net worth updates in the past.  The reason I find it intriguing, is because it really represents “How much of your lifestyle is financed by debt”?  As Warren Buffet nicely put it:

Only when the tide goes out do you discover who’s been swimming naked.

Those who are “swimming naked” have a high debt ratio.  Obviously if your debt ratio is lower, then you are going to be more financially stable if the markets (housing, stocks, etc.) crash.  I’ll continue to include the debt ratio.  Another nice thing about the debt ratio, is that once it is zero, you are completely debt free!

In September, overall, our Net Worth increased by $8979.06.  But most of this increase is simply from the increase in the value of our home.  Our investments made up for another large chunk of this, at about a 3k increase.  Normally our cash is mostly flat, but this month it went down since we had to replace our water heater, that is about 10 years old.

I’ll continue to post Net Worth updates now as Blog posts, rather than on the Net Worth page.

2017-09-01 2017-10-01 $ Increase % Change
Assets
Cash $35,744.02 $34,108.14 -$1,635.88 -4.58%
Investments $93,682.09 $96,835.90 $3,153.81 3.37%
Primary Property $466,844.00 $473,766.00 $6,922.00 1.48%
Investment Property $0.00 $0.00 $0.00 0.00%
Cars $11,617.00 $11,617.00 $0.00 0.00%
Total $607,887.11 $616,327.04 $8,439.93 1.39%
Liabilities
Primary Mortgage $258,499.91 $257,960.78 -$539.13 -0.21%
Investment Mortgage $0.00 $0.00 $0.00 0.00%
Credit $0.00 $0.00 $0.00 0.00%
Total $258,499.91 $257,960.78 -$539.13 -0.21%
Net Worth $349,387.20 $358,366.26 $8,979.06 2.57%
Debt Ratio 0.43 0.42 -0.01 -0.02

I decided it might be interesting to graph out both Net Worth and Debt Ratio over time:

Interestingly, there is a pretty constant trend upward in Net Worth.  However, the debt ratio shows a stark decrease (which is good), in June of 2017.  That is exactly when we sold our townhome.  Since our townhome had very little equity, it was mostly just a liability on our balance sheet.  That reinforces in my mind, that it really was a good idea to get sell it when we did.  Yet another reason why it is good to analyze many financial metrics, and NOT just your Net Worth.  You could have a Net Worth of 1 million, but still have 10 million in debt.  Looking at Net Worth, along side Debt Ratio is very informative.

Baby Step Four: How do I invest for retirement?

Baby Step Four

We are just now starting baby step four of Dave Ramsey’s Baby Steps.  In this step, you start saving 15% of your income towards retirement.  This highlights one of the things I really like about Dave Ramsey’s plan.  His plan is focused on long-term financial success.  And saving for something that is still 30 years away (for some) definitely requires some patience and planning.  It reminds me of a book I am reading called Grit.  In this book, the author highlights the importance of sticking to a goal or ideal, and ultimately achieving it.  I believe anyone who follows completely through Dave Ramsey’s plan must have some grit (passion and perseverance).  With that said, this blog post goes into detail about how we will start really saving toward retirement.

Household Income

The first step toward working on Baby Step Four is determining your yearly household income.  For most, this should be easy.  This should not include bonuses or other income that is not guaranteed.  If your income fluctuates a lot from month to month, then you could use last year’s income with some percentage added to it if your income increases from year to year.  For us, this number is pretty straightforward:

Household Income = $130,000 / year

Note: This is our actual household income.  We do not buy into the American philosophy that you have to keep your finances private from the world.  I like to learn from what others are doing and do not feel jealous if someone makes more money than we do.

15% of Household Income

Once you know your household income, the next step is simple.  Multiply that number by 15%:

$130,000 / year * 0.15 = $19,500 / year

This number, 15% of your yearly household income, is the most important number in this equation.  This number is the amount you want to put into retirement each year.  Keep in mind that even if your company does an employer match on your 401k, as mine does, that is not part of the equation.  The money your employer contributes is just icing on the cake.  You, yourself still need to contribute a full 15%.

Which type of retirement account should I use?

Now that you know how much money to put toward retirement, the next question is: Where do I put my money?  There are so many choices, between traditional 401k plans, Roth IRAs, traditional IRAs, etc.  If your company offers an employer match, then the question of where to start is easy.  In other words, if your company is offering you free money, then take it!

Generally speaking, Dave suggests that you first contribute enough money to meet the company match, then you max out both you and your spouses Roth IRAs, and then if you still have room to contribute more, then you contribute more to your 401k.  That can all seem pretty confusing at first, so here is an example of what we are going to start doing (today) with our own finances:

  1. 401k contribution to meet company match of 3%: $3,900
  2. Max out Roth IRA: $5,500
  3. Max out spouse Roth IRA: $5,500
  4. 401k additional contribution amount: $4,600

So, how did I come to those exact contribution amounts?  The first 401k contribution amount is simply 3% of my yearly income, since that is what my employer requires that I contribute to get a 3% company mach from them.  The Roth IRA contribution amounts are the maximum amounts you can contribute to a Roth IRA in a single year.  Then, the additional 401k contribution amount was calculated by subtracting the previous contribution amounts from the total amount we are trying to contribute for the year: $19500 – ($3900 + $5500 + $5500) = $4600.

The important part, is that if I now add up all contributions (1-4) above, we reach our 15% goal in a tax effective way:

$3,900 + $5,500 + $5,500 + $4,600 = $19,500 total contributions / year

How to make the contributions?

For the 401k contributions at work, I can simply fill out an electronic form at work to modify the percentage of my income that I am contributing.  Then it will be automatically taking out of my paycheck before I even see it.  From above, we know that I need to contribute $3,900 + $4,600 = $8,500, to my 401k.  What percentage of my income is that?  If you remember your algebra, the equation would be: contribution / income * 100 = contribution-percentage.  For us that would be:

$8,500 / $130,000 * 100 = 6.5% 401k contribution

To maximize our Roth IRA contribution, we just need to figure out how much of our monthly budget will go toward the Roth IRA to reach our yearly goal of $11,000 ($5,500 each).  That again is pretty straightforward:

$11,000 / 12 = $916.67 / month to Roth IRAs

Which types of funds to invest in?

Dave suggests investing equally in the following types of funds: “growth, aggressive growth, growth and income, and international”.  Personally, I’m not really sure what this means.  So, I am going to at least start putting the money in the appropriate 401k and Roth IRA accounts.  At that point, I’ll select funds from the 4 categories above.

Summary

In summary, by making these two lifestyle changes 1) increasing our 401k contribution to 6.5% and 2) contributing $916.67 / month toward our Roth IRAs, we will be saving 15% of our income toward retirement.  The best part about this, is that the Roth IRA money will grow tax free for many years, and we will not have to pay taxes on the growth, since we paid taxes on the money before it went into the Roth IRA.  My wife and I already happen to own very small Roth IRA accounts, so there is no need for us to open new accounts.  Time to modify my 401k contribution percentage at work to start making this baby step a reality!

On to the next Baby Step!

Now that I have increased my 401 contribution and updated my Everydollar budget to include the Roth IRA contribution, Baby Step 4 is all set!  The retirement company at my work only allows whole numbers for retirement contribution percentages, so, I increased the 6.5% to 7%.  Keep in mind, baby step 4 is meant to be an on-going contribution that is done concurrently with baby steps 5 and 6.  While we are ready to start baby step 5, we are going to wait a little bit, since my wife has some home projects that she would like to do (laminate flooring and building an outdoor shed).  However, now, in between baby steps 4 and 5, is a great time to do home projects such as these.  It will only delay baby steps 5 and 6 by a couple of months.

Baby Step Three Complete! Fully funded emergency fund

Back in September, I blogged about how to calculate how much you need for your emergency fund.  Back then, we had about $3,000 in our emergency fund and determined that for a fully funded emergency fund we needed a total of $19,362.  Well I am very pleased to say that today we now have a fully funded emergency fund of $20,000!

Screen Shot 2017-02-20 at 7.07.15 AMI can see now why Dave refers to his program as “Financial Peace”.  It seems simple, but after paying off all of our debt besides the house, and stowing away a 6-month emergency fund, we feel a lot more comfortable with our financial situation.  The best part is, there is no going backward from here.  We are not planning on touching the emergency fund unless we absolutely need to.  In that case, we would use the money for the emergency and then rebuild it.  But if it really came down to that, we would be very thankful that we had the money in place to use for such a situation.  What I am really saying is that there is no way we are using that money just to upgrade a car or to go on a nice vacation.  In fact we just got back from our Hawaii Vacation and will soon be headed to Disneyland with the kids.  Who says you can’t enjoy life, while also following Dave Ramsey’s plan.

Next, we are going to be starting with Baby Steps 4, 5, and 6.  I have been putting a lot of thought into how to correctly save towards our retirement, and will be blogging about that soon.

Having a Dream for the Future

The other day, my kids and I went to the public library to pick out some books to read over the Christmas break.  Not having gone to the library to look for books for myself in some 20 odd years, I decided to search for a financial book.  I ended up getting EntreLeadership by Dave Ramsey.  It has inspired me more than I was expecting.  “Strange as it may seem, when you work a daily plan in pursuit of your written goals that flow from your mission statement born of your vision for living your dreams, you are energized after a tough long day.”  I love this quote from the book, because it nicely summarizes the necessary steps to start making your dreams become a reality.

Having a Dream for the FutureAround April of 2010, my wife and I launched a mobile app development business that had a net profit of over $100k.  In fact, the day the Kindle Fire was released, we made over $8k in a single day.  The extra “gravy” was awesome.  Since there was a decent amount of money flowing in, we decided to officially create a sole proprietorship, along with a separate bank account for keeping the money separate from our personal finances.  Our little startup ran fine for a couple of years, but looking back, there was one major problem with our startup.  We never had any long-term vision for the company.  In fact, we did not ever intentionally start a business in the first place.  It all began with a couple of very simple apps and then eventually we created more and more complex apps, until, before we knew it, the money was flowing in.  But just as fast as the business grew, so did our little family.  Before we knew it, we had 5 kids and no extra time for the side business.  Consequently, over the last few years, the revenue flow from the mobile app business has dried up.  When we were at Costco today, we mulled over in our minds if we should buy the “Home & Business” version of TurboTax, or just the regular “Premier” version.  But really what were asking ourselves is: “Do we still have a business?”

Upon reading the first few chapters of EntreLeadership, I am again re-antiquating myself with the entrepreneurial spirit that I have always had.  In fact, my original major in college was in Business, with an emphasis in Entrepreneurship.  But then I decided that I did not want my main focus to be “business”, since that is so broad.  So, as Dave has instructed in his book, I am re-thinking my dream.  Succinctly put, my dream is now: “To build a software company which generates enough revenue to allow me to quit my day job.”  I know this sounds very generic and overly optimistic.  Honestly, my wife and I were very close to this dream at one point.  I believe we can get there again.

What is different about this dream from any other dream?  How can I make it a reality?  The next step is to start formulating a vision, from which I can formulate a mission statement, from which I can formulate goals with timelines, from which I can purposefully act upon daily and start seeing some traction.  Stay tuned.

Managing Money During the Holidays

Christmastime can be the most stressful time of the year for many families, both financially and otherwise.  I feel like this year, was one of the first years that my wife and I successfully navigated the Christmas season without going over budget, and still having a wonderful Christmas morning, and Christmas break.  This post is about what worked for us this Holiday season.

managing-money-holidays

Budgeting for Christmas

Our oldest child of five, is now 8-years-old.  In the past, it seems we could more or less wing it on Christmas.  As long as we bought our kids boy’ish toys for the boys, and girl’ish toys for the girls, then everyone was happy.  However, this year, the kids wanted VERY specific gifts.  My son wanted a 4-foot robot.  My 7 and 5-year-old daughters both wanted American girl dolls and Baby Alive dolls.  The younger two weren’t quite as opinionated.

The only problem was, we had already set a firm Christmas budget by the time the kids said they wanted these $200 and $100 toys.  The budget we had established was $50 for each person (including parents), $35 for all of the stockings, and $70 for each of our extended families.  This gave a grand total for the Christmas budget of

($50 * 7) + $35 + $70 + $70 = $525

We budgeted most of this into our November budget, since we wanted to be able to complete a lot of the shopping during Black Friday sales.  We managed to complete a lot of it in November, but also carried some over to December.  The best part about setting a conservative budget for Christmas was… everyone was actually happy.  I have noticed in past years, that if you give too many gifts for Christmas, many of them get lost in all the hype of Christmas morning.  However, when children get a few gifts that they really want, they seem to cherish them more.

How were the kids happy if they didn’t get all the gifts they asked for?  Well, my son got a 2-foot robot, instead of a 4-foot robot.  My wife found the Baby Alive dolls on sale, so was still able to get them the dolls they wanted, just not the American girl dolls as well, which they were perfectly fine with.  The most amazing thing is, we actually stayed on budget for all of December!  It feels great to end the month, not having dipped into next months paychecks.

Having fun without breaking the bank

The other tricky part about the holidays, is managing the time off of work.  Many folks in the workforce take time off during the holidays to spend more time with their children, who are often home from school for Christmas Break.  This year, I took a full 10 days off (between Christmas Eve and just after the New Year).  Most activities cost money, and some of them can cost a LOT of money, when you think about it.  Skiing can be $90+ per ticket.  Movies can be $10+.  Eating out adds up quickly also.  We are nearing the end of the Christmas break, and here are some of the great, low-budget activities that we have been able to do this week, without spending a ton of money:

  • Seven Peaks Fun Center (free, after purchasing pass-of-all-passes)
  • Sledding (free, just find a hill with some snow, maybe up the canyon)
  • Papercraft Rollercoaster ($5.28, needed to but some card stock)
  • Sticky Shoe Dollar Theater ($17.50, 2 buckets of popcorn, 2 large drinks)
  • Arctic Circle ($3, the courtesy cones are free, but we buy some fries too)
  • Bean Museum ($5, entrance free, but bought some toys at the gift shop)
  • Movies at Home ($2, sad to see VidAngel go away, but Redbox is here)
  • Board Games ($15, we bought the Pie Face game, the kids love it)

Getting ready for next year

With the passing of each year, come New Year’s resolutions.  We have a lot of fun activities planned for this next year, and it will take some serious budgeting to stay on track.  In January we are going to Kauai, Hawaii.  In March we are going to Disneyland, California Adventure, and Legoland.  Needless to say, it does not look like we will have our fully funded emergency fund by February 1st, as we were originally hoping.  But that’s okay!  We currently have 4 out of the 6-month emergency fund in place, which is most of the way there.  This will allow us to have a debt-free and worry-free vacation in Hawaii in just a few short weeks.  Before we know it, we will be on to Baby Step 4 of Dave Ramsey’s baby steps!

You Can Have Your Cake and Eat It Too

The phrase, “you can’t have your cake and eat it too” goes back to the 1500’s.  All it really means is that there are certain decisions in life in which you cannot realistically have the best of both worlds.

eat-cake

I was having a phone conversation with my sister about finances earlier tonight.  While we were talking about the balance between enjoying life, while also being fiscally responsible, I realized, you can have the best of both worlds.  You can enjoy life and spend money, while also planning for the future.

One area of life in which this becomes very important, is in the raising of children.  The fact is, your kids are only at home for (hopefully) 18 years at the most.  During that time, you want to spend as much quality time with them as possible.  I grew up in Northern Montana, where quality time often meant going out hunting, making up games in the backyard, or helping out my Dad at the local dental office.  There really was not many activities that you could pay for to keep everyone entertained.  The closest movie theater was an hour and a half away.  You get the picture.

However, in most places, including where we live now, we are surrounded by activities that cost money.  A movie theater ticket can be almost 10 bucks.  Halloween activities, including corn mazes, haunted houses, carnivals, all cost money.  So, what do you do?  Do you spend the money and enjoy these activities with your kids, or do you save that money?  One of my co-workers recently explained this problem of prioritization like this, “When you wake up in the morning, you know you need to brush your teeth, put your pants on, and put a shirt on.  Do you stop and ask yourself in the mirror, ‘Which of these is the most important to do before going to work?’  NO!  You do all three of them, because they are all important.”  At least I hope you do.

Given that spending quality time with loved ones is important, and planning your finances wisely is also important, how do you balance the two?  I think one of the most important things, is to have a great budget.  You should budget fun things into your budget.  You should have an amusement category, a restaurant category, etc.  One thing my wife and I did recently was to create shopping budgets not only for the kids, but for us individually.  It has been GREAT!  This month, I used my budget to spruce up my church clothes with a new collared shirt, new ties, and shoe polish, all for less than 50 bucks.  When you spend money on yourself, I think it can help give you confidence and enjoyment.  Who doesn’t like shopping for things they love now and then?  The key here, is to have fun spending money responsibly.  I did not go and buy a $500 suit just because I felt like it.  But I did spend enough to feel good about my appearance.

You may have noticed, that in reaching this balance, I mentioned multiple times the words quality time.  I would argue that some common forms of entertainment (going to the movies, haunted houses, etc.) are not quality time.  How much do you really talk to others when you go to the movies?  I read an interesting article the other day that highlighted the fact that spending quality time with your family can be a much better use of your money than buying material items.  But that does not mean you have to break the bank to do it.

This week, we have had to balance these priorities in our own lives.  Fall Break just started here in Utah, which means the kids have five days off from school.  With 5 young kids, 8-years-old and under, you can imagine the stress my wife feels in trying to entertain them all.  But it can be done.  Some examples of things we will be doing over the break that are relatively inexpensive are: The Fun Center (free w/ season pass), Ice Skating (free during October), Dollar Theater (free w/ season pass), board games, outdoor sports, etc.  Okay, I know I said movies were not quality time, but we are still going.

In summary, I feel like often when people hear that you are focused and determined to reach certain financial goals, one of their initial reactions is “Well, that is good for you, but I am going to enjoy my life and my kids, and not be cheapskate.”  I would suggest it is not one way or the other.  You do not have to spend tons of money on your kids to have a great life.  You can have the best of both worlds.  It may just take a little bit of extra effort and creativity.  Now… back to fall break!

The Quarter Million Mark

We did it!  We are finally millionaires! … or not.  We are a quarter of the way there though.  This month when we were doing our net worth update, we were a little surprised to discover that our net worth had exceeded $250k ($250,585).

Okay, I know that this is not very impressive for a couple of 34-year-olds.  But, when you look at what our net worth was 8 months ago, at $146,969, then I am encouraged.  It is awesome to think that our net worth has gone up by more than $100k in the last 8 months.

net-worth-last-8-months

How did our net worth go up by $100k in 8 months?  In looking over the history, $50k of the increase was due to property values increasing ($40k on the primary residence, and $10k on the investment property).  But what about the other half?  Another $27k in net worth increase came by paying off my student loan.  That is the beauty about net worth calculations, is that they take into account paying off debt, which is avery important part of the equation.  Another $11k came from both contributions and other increases in retirement funds.  Lastly, we also paid off $6k in mortgages.

It would be great if our net worth continued to go up at this rate for the next 10 years, but I know that this is not realistic, given our current portfolio.  Either way, we’ll keep at it and hopefully see our gains continue.  I am very greatful that even with a single income, we are able to support or family of 5 kids comfortably.  We don’t live extravagant lives, but we feel we are never left wanting.  We attribute this to our Faith in Jesus Christ and his commandments.  We always pay our tithing, and trust that the Lord will take care of our needs.

Baby Step Three: How much should I put in my emergency fund?

Baby Step Three

Currently we are in step three of Dave Ramsey’s Baby Steps.  In step three you build up your emergency fund from $1,000 into a full “3 to 6 months of expenses in savings”.  This blog post goes into detail on how we chose to build our emergency fund.

1 month of Expenses

In order to get started with baby step three, the first thing you have to do is figure out how much money is one month of expenses for your family.  If you already have a budget, then this is easy.  I am going to log into EveryDollar right now and take a look.  Here is the breakdown:

    Fast offering 30
    Mortgage 1550
    HOA 140
    Water 113
    Natural gas 22
    Electricity 200
    Mobile phones 70
    Video streaming 22
    Internet 50
    Gas 80
    Groceries 800
    Shopping 150
TOTAL $3,227

In going through the budget, you can see that I did not include everything that could be considered an expense.  For example, I did not include taxes.  One expense that I struggled with a little bit, was should I include tithing in the above list of expenses?  After thinking on it, I decided that the main purpose of the emergency fund is to replace my income if I were to lose my job for whatever reason.  In that case, if I do not have an income, then I would not be paying tithing, so I have chosen not to include it.  Do whatever makes sense for your situation.

Three, Four, Five, or Six Months?

Why does Dave have say 3 “to” 6 months!?  Doesn’t Dave know that we are all mindless drones, and he should give us an exact number?  Well guess what, he does this on purpose.  Again, you have to decide what makes sense for your situation.

I feel as though my line of work (Software Engineering) is quite stable.  I have never gone a day without being employed.  However, in planning for the emergency fund, one thing to keep in mind is whether or not you are in a single income or a dual income household.  Since my wife is a stay at home mother, if I were to lose my job, we would have no other income to fall back on.  Similarly, my family is one of those families that is prone to medical issues.  With that in mind, for our situation, it makes sense to have a full six month emergency fund.

As you can see, the way to really decide if you need a three month fund, or a much larger fund is how much risk does your family carry?  You can think of the emergency fund as insurance against the storms of life.

Our goal

Now that we know that one month worth of expenses for our family is $3,227 and that we need six months of expenses, the rest is easy.  Our total emergency fund should be:

Full Emergency Fund = ($3,227 expenses / month) * (6 months) = $19,362

Dang gina.  That is a lot!  But, Math don’t lie.

How long will it take us to get there?

Currently, we have $3,271 in our emergency fund (~1 month worth of expenses).  We have a long way to go!  We are 17% of the way there and have $16,135 left to be fully funded.  In looking over the budget, I think we can realistically save about $3,400 per month, which puts us at:

Months to be Fully Funded = $16,135 / $3,400 = 5 months

Given that we have already budgeted out September, that means we will be building up the emergency fund for all of October, November, December, January, and February.  So, on February 1st, 2017 we will have a fully funded emergency fund!  It feels like that is forever away, but I am sure it will come before we know it.

Where to put the emergency fund?

It needs to be in a place that is easily accessible.  Dave suggests a money market account or a checking account that comes with a debit card or check-writing capabilities.  We happen to already have a USAA savings account that has both a debit card and checks.  Perfect!  The Annual Percentage Yield on this type of savings account is 0.15%.  Low, right!?  But remember this is not an “investment” account in the traditional sense.  This is insurance.

What counts as an emergency?

Lastly, how do you know if you should spend the money in your emergency account.   Dave suggests asking yourself three questions: Is it unexpected, Is it necessary, Is it urgent?   The more of these that you answer yes to, the more likely it is an emergency.

In Summary

We are glad to be building up a fully funded emergency fund at this time in our lives.  We can build it up faster now that we do not have any student loan debt.  I sm sure it will bring even more peace into our lives.  I just wish we could get through this step faster so that we could be putting more into retirement!  Maybe I will try to earn some side money somehow by getting back into mobile app development.  If you have an idea let me know!  😀