Reason #17 to Have an Emergency Fund

Posted on Tuesday 29 July 2008

Creative Commons License photo credit: Ed Yourdon

Last night I came home to a thick envelope from the IRS.  Needless to say, my stomach turned just a little.  It turns out we (really me, since I do our taxes) goofed on our 2006 taxes.  Through some strange turn of events, I input the info from a 2005 W-2 instead of the 2006 W-2.  I don’t know how I did that but it’s a moot point now.  The IRS wants us to send them ~$2000 in the next thirty days.

When I re-ran the numbers, I discovered that their calculations were off.  In actuality, we only owe them ~$1900.  Still quite a chunk of change but I don’t want to send them any more than we have to.  While I’m not pleased over having to part with so much cash, I’m not stressed because we do have it.  We’ll simply transfer the money from one of our savings accounts and send a check to the IRS.  When unexpected events occur, an emergency fund can ensure peace of mind.

savvy @ 10:06 AM
Filed under: General Finances andTaxes
Five Signs That You’re Living Beyond Your Means

Posted on Wednesday 16 July 2008

Yahoo Finance published a good article entitled Five Signs That You’re Living Beyond Your Means.  Here are the five signs as well as measures you can take if you find yourself in any of these situations.

  1. Your credit score is below 600 – If this is the case, the first step is to pull a copy of all three of your credit reports.  If you have accounts in collections, you need to resolve that first.  Many creditors will allow you to go on a payment plan.  However, you MUST pay them according to that plan.  Don’t make promises you can’t keep.  Next, bring any past due bills current.  Those two things will have the greatest impact on your credit score.  After that, only time will improve your score as the negative items fall off.
  2. You are saving less than 5% – I recommend saving 10% for retirement as the bare minimum.  You also need to have an emergency fund of at least three months’ expenses.  If that’s not possible at this time, establish a mini-fund of $1000.  That amount will allow you to stop using credit to cover unplanned expenses.
  3. Your credit card balances are rising – If this is happening, you are spending more than you make and it needs to stop NOW.  Take a long, hard look at your spending and see where you can cut expenses.  Reduce your cable package, lower your cell phone bill, stop buying clothes, stop eating out, etc. until you take control of your debt.  The first step is getting out of a hole is to stop digging.
  4. More than 28% of your income goes to your house – This issue is not as easy to resolve but it still needs to be considered.  First consider increasing your income.  Then consider decreasing your housing costs.  If you’re not renting, that may be hard but you need to evaluate what steps you’re willing to take to improve your financial situation.  The economy will probably get worse before it gets better so why live on the financial edge if you don’t have to?
  5. Your bills are spiraling out of control – Lay out all your bills and start cutting things.  Eliminate the fancy cable, the home phone, any non-essentials.  Get a roommate (if possible) if you have to.  Extreme times call for extreme measures.
savvy @ 11:27 AM
Filed under: Credit andCredit Cards andGeneral Finances andMortgage andSaving
Miscellaneous Money Stuff

Posted on Wednesday 9 July 2008

I’ve been preoccupied with several home improvements projects as of late but I’m still here.  So here are some miscellaneous money tidbits for you.

  • Unit cost and procrastination – I generally look at the unit cost (price per ounce, etc.) when deciding whether to purchase a smaller or larger size of an item.  However, I don’t like being wasteful and try to only buy what I will use.  Sometimes this can backfire.  Several months ago, I bought a half pint of wood stain to use on our garage steps.  I guessed that amount would be enough and passed on purchasing the larger size.   Well, fast forward to a few weeks later when I finally got around to starting the project.  I discovered I needed more stain.  Once again, I delayed going back for more.  When I finally did, that color had been discontinued!  I searched in vain but was not able to locate any.  Therefore, I bought several similar stains in the hopes that one would match.  I never did find an exact match but completed the project last night.  So not buying the larger size early on (and my procrastination) caused to me to have to purchase three additional cans of stain, two of which didn’t match and I threw away.

  • Doing it yourself – I’m not all that handy and I sorta dislike hard work.  But I dislike wasting money even more.  Mr. Savvy and I have been working on a backyard project for at least the past two months.  It’s not easy and not always fun BUT by doing it ourselves, we’ve saved ~50% on the project.

  • The value of your time – Many personal finance articles preach that if your hourly wage is $X, you should hire people to do tasks that cost less than $X/hour.  While I agree that some things are worth hiring out, the traditional logic is flawed.  Most people do not have the capacity or opportunity to earn money 24/7.  Therefore, the time I use working in my yard is not taking away from time that I would be earning money.  It’s taking away from time that I would be laying on my sofa watching HGTV.

Last but not least, this weekend I’ll give my opinion of of the online ‘DIY’ financial planning that I tried out recently.  Until then, stay savvy!

savvy @ 11:30 AM
Filed under: General Finances
Coming Soon – Learning About Munipal Bonds

Posted on Wednesday 2 July 2008

This morning, I was reviewing the monthly report generated by MS Money.  Under the investment section, it had a note that people in high tax brackets (30%+) should consider municipal bonds.  While I’m not in a high tax bracket (yet, God willing), this is something I’d like to research nonetheless.  I’ve heard of muni bonds but don’t know much other than they can be beneficial from a tax perspective.

So my task for this week is to learn more and report back to you guys.   While I’m doing my research, is there anything else you’d like to know more about?  Thanks.

savvy @ 10:13 AM
Filed under: Investing