Thursday, October 9, 2008

Getting Nine Hundred AND Building an Emergency Fund

Yesterday I spent some time writing about how I feel about my financial situation. As I said, I am not angry about how things have ended up, but I am missing a key component of happiness - namely, security. As I wrote in the post, I don't believe that money buys happiness, but I do believe that it can buy you freedom; freedom from worry and the freedom of time. Every day, every month, I worry about making my goals. I realize that this is the price that I chose to pay when I decided to keep both properties and not have roommates. At the time I made this decision, (and I still feel this way,) I knew that roommates would make me very, very unhappy. I'm a solitary person, a woman who needs her space, and I have a very hard time sharing it with others. It is just the way I am wired. What can I say? I am proud of my hermit label! But, by making these choices I knew that my only solution would be to figure out other ways to pay my bills, which is what this blog is all about. What I don't write about very often is how very aware I am that this whole thing is incredibly fragile. A friend of mine recently used the analogy of a house of cards - and it is so true. I'm making it all work, but I am so very aware that the slightest thing could go wrong and blow the whole thing down. I have a dear friend of mine that just got laid off - completely out of the blue. What would I do if that happened to me? Every time something breaks, every time something goes wrong, I become aware that this could be "it." The thing that knocks the whole house down. I try not to think about it too much. Worrying about things you can't control is bad for the blood pressure, but I would be lying if I didn't say there was a tiny voice reminding me of it every hour of every day - and that right there is what is eating away at my long term happiness.

When I wrote the post yesterday I ended it by saying that it was all just temporary after all. "This too shall pass." But then I got thinking, what if instead of passively waiting for security to find me, I set about going after it? What would that be like?

I wondered exactly how much would I need in emergency funds, income, savings, etc. to make me feel comfortable? How much safety net do I need? Finally I just sat down with pencil, paper and a calculator to try and figure it out.

As far as income goes, I decided that I would feel secure if I was bringing in at least $200 more each month that I was spending. (I know this might seem low, but coming from a place of $900 in the hole each month, $200 over sounds like a very nice starting point.) That would give me enough that if there was a larger purchase I wanted to make or investment opportunity that came up, I could save up for it.

For long term savings, I want to be able to max out my company matching on my 401K. I am taking advantage of it, but not as much as I would like to. I would also like to start and maintain a Roth IRA.

For middle term savings - namely, making sure I have salary set aside in case of emergency - I decided that three months salary sounded about right. I know some people go as far out as six months, but I wanted to pick numbers that felt good to me. This was mainly an exercise in figuring out what exactly I meant by wanting "security."

In short term savings I wanted a $1,000 cushion in my checking account. (My checking account pays 5% which is pretty good for a secure investment.) I also wanted another $1,000 in savings - $250 in immediate ATM access savings account and $750 in an online account. These would be household emergency funds - car repairs or home repairs. Again, I could debate these numbers all day long - everyone has different views on what is the best thing to do with their money. What I was trying to do here is just throw out some figures that made sense to me, that could help me start getting my arms around this big idea of financial security. I also realize that my own thoughts could change tomorrow. I'm not setting things in stone here and I know this is only a start - not a plan for long term. But, if I had at least these things going, a lot of my every day worry would be alleviated.

Then I crunched the numbers the best I could, considering all the variables and making some estimations. The number I came up with? $10,654.52. That is what I would need to get my plans for security moving along.

Okay, know that I know that - what do I do with it? Well, I am a planner so my next thought was, how do I go about getting that kind of money? Obviously I can't do that in a year, so what is a reasonable time frame? How about 5 years? How much would I have to get each month to make this happen over the course of 60 months - or better yet, since we are at the beginning of October, how much over 63 months? The answer was $169.12. (And that's without any interest growth or anything like that.) That doesn't seem too bad. Sure, I know I have just raised my $900 a month goal to $1,069.12, but the number is at least one I can wrap my brain around. Maybe I could get a few more things going, maybe I can build it little by little. It might take me far more than five years, but then again, I could have a windfall or two and it could take less. It least it is worth a shot.

So now, when I do my monthly round up post, I am going to start including numbers on my emergency funds as well. Getting my nine hundred comes first, of course (bills must be paid,) but after that I am going to work on this. At least I will feel like I am taking an active effort in making my life better - rather than waiting on happiness to stumble on me.

Photo by: dtqotr


Catie said...

Do you find that you feel reassured to know a number, even though it is daunting? Does it make you feel a little excited or a little exhausted? Or both!

Hey, money may not buy happiness, but it can alleviate a whole lot of unhappiness! ;)

Dawn said...


The 10K is scary - I have never had that much in liquid (Or semi-liquid) assets in my life! But when I broke it down to the $169 number, well, that didn't seem so bad.

I think I feel better just knowing the number, even if the math that put it together was based on a lot of assumptions, it makes puts it into my control rather than just hopin' and wishin' and waitin' for life to bring it to me.