Over Your Head: living paycheck to paycheck

A friend posted on facebook about trying to save but not being able to because every week there was new "surprise" bill.  She said she has cut every personal thing and still, she can't get above water.  Sadly, many of my friends agreed.  Honestly I was flabbergasted because some of her bills were not surprises, like car insurance.  But, when you are living on edge, I guess they can.  Personal finance bloggers often say, pay your car insurance bill every six month, but if you can't save that little bit every month, how does that save you money?  However, if you can pay your car insurance every month, you CAN pay it every six months.  It just takes a change in attitude and planning.  So, let's be about it. shall we?

Often people are told to make monthly budgets but that sets you up for "surprise" bills that only come every six month or annually.  I recommend everyone make an annual budget and go from there. 
My budget looks like this:
 

Grocery

mortgage

house insurance

car insurance

taxes of house

car

gas

utilities

internet/phone

house repair

fun money

medical

misc.

school cost

cat

life/disability

daycare

baby expenses

Gifts/xmas

hockey

travel

Every bill I could think of is on there, and then under it is a list of things to add to the budget when I get more money including replacement costs of things like computers, large household items like a fridge or stove, everything.  I may not be able to put money in everything but I can start.  That helps me know where to put extra money if I get it or if I get a raise, if that ever happens.  
Can you see something is missing though?  I have no emergency fund on that list.  And I have a very good reason for that, my extra money goes to my emergency fund (EF).  Most of that money is from the rental but also little things like if I use amazon gift cards, that I get from swagbucks, instead of cash, I put the cash in my EF.   Everyone does need an EF, though many young people don't have one.  And that means putting those surprise bills on a credit card.  But even if the EF starts with $5 a month, that is a start.  And for young people starting is the most important thing.  Once you start thing snow ball.  Many of my bills are annual or semi-annual so I have a slush fund every month and except for a few months out of the year the slush fund grows (and throws a little interest into my EF).  So, what are some things you can do TODAY to stop living paycheck to paycheck?
Join swagbucks
Join My Points
Find a cheaper insurance company, my choice is Geico but check EVERYWHERE
Join ebates if you shop online
For that matter, see if shopping online is cheaper
If you pay for electricity, unplug everything!  Don't leave your computer plugged in or put it on a power-strip.

And if you are buy your own groceries check out money saving mom and cut your groceries spending at least for the one month.
By the end of the year you will have enough to change your car insurance to every six month which will save you an additional dollar.  And all of that will add up to a small emergency fund that will keep growing.   Just don't stop, keep the snowball growing and in no time you will not be living paycheck to paycheck.
If you have an idea that will help people stop living paycheck to paycheck, let us know in comments! 

Updated Millionaire Plan July 2014

We have broken $20K!!!!  We now have $20,756 in retirement savings.  Wow, we are so close to our mini-goal of six month's expenses including COBRA ($21,000).  I know we will get there this month but I do wish we had broken $21K as well.  In that theme, I have decided that I feel my retirement savings is too low.  I am moving some of the money I have been putting towards general savings and debt repayment and putting it towards retirement moving our retirement savings to a round 20%.  This means saving $787.50 per month instead of $625 towards our Roth.  I know this hits my EF funding but I need to remember that in a true emergency, I could pull from the Roth IRAs because both my husband's and my Roth IRAs have been opened for over five tax years.   Hey, maybe I should see if I have any extra room in April 2015 and if I do, store my EF cash in the Roth.  What do people think of that?

So, since I am sure I will make our mini-goal of $21,000, I should mention that are next mini-goal after this one is $25,000, my entire gross annual salary and the amount I need to be able to move from target date funds to individual mutual funds.  I can't wait because often individual mutual funds have cheaper fees and I have more control, which makes the control freak part of myself happy. :P

Updated Millionaire plan March 2014

This is my first update after starting my $625 per month retirement savings.  We did very well this month, with a bit of help from the market.  We now are at $17834.  Our next goal is $21,000 which includes all of our expenses for six months plus COBRA.  We are still $3,166 short but are getting close very quickly.  If the market cooperates with us we will be there in about five to six months, well within our goal of having six months by the end of 2014.  

Our goal after $21,000 is $25,000, the amount of my gross income, as well as the amount we need to stop using target date funds, and diversify on our own.  That will lower our investment costs, increasing the money we keep to invest.  If the market does not crash, it looks like we may be able to get up to that goal in eleven to twelve month (March 2015).  But who knows, maybe the market will help us more, and we will beat both of these goals in 2014.

But, right now we are not looking for extra money to up our retirement savings.  I am happy with 15% while I focus on other money goals, like building up an emergency fund.  Within this year my husband graduates with his PhD.  That means our very secure income, won’t be as secure.  Once you graduate, be ready for turbulence.  That is why I am saving a bare minimum for retirement and focusing on here and now.  We are building an emergency fund and paying off debt.  Once those are done, we will start pushing up our retirement savings again.

Update on the millionaire goal-July

We have finally crossed the $10,000 goal. We deposited $1000 in a Roth in ING Direct to get a $76 bonus. However, again the stock market was not nice to us and therefore we have $10,810. My next minigoal is $25,000 but it will take a long time for me to get there.

We deposited $1000 this month, yet only have $420.90 normally to deposit per month. I took the extra out of the EF and I did this because of the bonus. I will have to pay back the extra money. I took all the extra money from the 2% FICA deduction from my job as well as this months deposit. I still have $100.40 to pay back before I can start deposited money into our retirement accounts again.

Normally a hundred dollars would be paid back quickly but our current tenants have given their one month notice and it may be a few months before we get tenants again. Until then all I have is ten dollars per month from the FICA deduction from my DH's job and any extra from my job as well.

It is possible that we will still owe our EF by the end of the year, if we do not get tenants. I am not sure if I will remove the money from the Roth to give it back to the EF or not. Does anyone have an idea what I should do and why?

How to Create a Emergency Fund and Why YOU need one

A emergency fund is a hard thing to build in general, but for students it is harder then the average. Many students are living on student loans, some that charge interest and financial aid penalizes you for any assets, beside money in retirement accounts, a car and a house.
Students often have very little time between school, studying, extra-curricular and work needed to survive and pay for school. But often students need an emergency fund, just like anyone else. Unless mom and dad are paying for everyone of your expenses you need an emergency fund. But how much you need depends on where the income is coming from and what your expenses are.
Do you have a car? Then you need money to fix it, if it breaks and that money comes from your emergency fund.
Often the best way for students to create a EF is work like crazy during the summer. But you might be saying, the summer is almost over, what now? You still have a month and there is so many different things you can do. If you have not signed up for mypoints or swagbucks you are loosing money every month. They are the easiest ways I know to get giftcards and it is not like students are never on the computer. You can sign up for swagbucks at the bottom of this blog and start with extra points. Remember the little things add it, a dollar or two here or there will add up to hundreds. Are any friend's parents or parent's friends going out of town and need someone to pet sit? That is money in your pocket and you get some time away from your parents, too. Are there any older people in the neighborhood that need their lawns mowed? Find side hustles and put that income into your saving. That is the most important thing to do.

While you are doing that, are you working at your main job as much as you can, if you have one? Remember you want to best the employee you can, so when you come back for summer and winter break they want to hire you again.

While you are doing all of this, you need to look at your financial aid. Is it grants and scholarships or is student loans? If the aid is student loans, what kind of student loans, subsidized or unsubsidized? Can you get work study? Work study is the best way to work while you are in college. Your employer understands you are in school and that you need time off to study for midterms and finals and the income does not count against financial aid for your next year.

Wow, so much to do and only a month to do it. Does it feel impossible? It is not, just do as much as you can, that is the important part. As you earn the money put as much as you can aside, try for half but every penny you can save matters. Now it is time to open a high yield savings account. If you have $250 and get referred ING Direct will give you $25. Contact me if you need a referral.

If you have support from parents, you probably only need about $1000 as your emergency fund. Once you have that, if you have unsubsidized student loans pay them down. If you do not, open a Roth IRA at ING Direct and leave your extra money there (up to the amount you earned this year or $5000 whichever is lower). You can pull it out, if you need it without a penalty, just don't pull out the interest. That will keep most of your savings from being counted against you for financial aid.

Another ING Deal

A few months back I opened a Roth IRA with $200 with ING Direct because they offered to add an additional $50 if I did. I received an email with an offer from them yesterday that if I opened a Roth IRA with $1000 they would give me $76. Because I already open one I cannot take advantage of the offer but my DH has not opened one with ING Direct so he can.

Just like the last ING deal, I am pulling the money for the deal out of my emergency fun (EF). However, unlike the last deal I am not sure when I will be able to pay it all back. I put away $420.90 every month, $400 from the rental and $20.90 from the 2% reduction in social security. However, the lease for our rental expires in September and it can take a few months to find another tenant. It is possible that our current tenants have not found a place they want to buy yet, but I like to assume the worse.

If I do not get a tenant by December I still will owe $74.60 to my EF. I hope to find a tenant, within a month or two but I am a new landlord so who knows what will happen. This also means that after next month my millionaire updates will probably be pretty boring and unchanging.

However, I will be making a 7.6% on my money before even putting it in the stock market, and its associated risk. Owing myself, not others, is a risk I am willing to take to make 7.6%.

My Plan for Emergencies

Depending on where you are at life, an emergency may have a different definition. As a student it may be student loans not coming through or parents not paying the amount they said they would. To some students a job lose is not an emergency because student loans and/or parents are paying for their expenses. However, some students are working and going to school and may rely on their wage, I know I did. But when I was working outside the school loosing my job did not affect my schooling and vise versa. For my fiance who had a scholarship in undergraduate and a fellowship now school and income are intertwined. That makes emergencies a different beast. It does mean he has a more secure job but if something goes wrong it will be worse for him than it was for me. Both now and then I had an emergency fund but honestly it does not feel like enough. Do you really want to worry about the money slipping through yours fingers when you are trying to find another job? What happens when multiple emergencies happen? It just eats away at the emergency fund and your three months of savings is now a month. I do not think house repair, car repair or any replacement funds should be included in your EF. They should have their own fund. My EF is for loss of income, nothing else. This way if you need to replace a car battery when unemployed your EF will not be drained down.

Even as a student, people should have multiple streams of income. Maybe it will be scholarship and work or maybe you would consider student loans in that mix but never rely on one stream. I think this is going to be the biggest change about our generation compared to the previous generation. We know our jobs are not stable so we will have more than one income source. By having more than one income source, if one disappears it is not as life changing.

However, as you start out you will have one main source of income and you will need something to rely on when that source fails. Note, I did not say if, I said when. There is no stable income, state and federal employees were taking furloughs and private sector employees get laid off all the time. So what can you do?

Personally, I am working on getting my alternative sources of income up. When we purchased our home, we bought a duplex. We looked at duplexes where the rent would cover our mortgage, property taxes and insurance. Now that we have a renter, even if my fiance looses his job our home is secure. But what about everything else, food, clothes and most importantly health insurance? Do you know how much you (or your parents) are paying for health insurance? Does that amount cover the full cost or just a part?

When I aged out of my mother's insurance I could not find any health insurance that would cover me, even with a huge deductible. I had to COBRA my mother's health insurance at over $500 per month. On the other hand, my fiance was able to get a high deductible plan for under $150 per month. Now to COBRA our current coverage it would be almost $600 for both of us. This cost must be added into your emergency plan because you cannot guarantee that you can find health insurance other than COBRAing your current health insurance.

So at this point if I lost all income I would need $2147 per month, if I cut away the fat from my budget. For a minimum emergency fund I would need $6441 (3 months). Because my tenants could leave at the same time that my fiance loses his job I keep my EF at least this high. However, that extra $525 a month could help stretch my EF to almost 4 months. I personally would not be comfortable with such a small EF without the extra income and his very secure job. He has a contract with his PI (primary investigator) as well as the department and the college.

Also, I work as a server, it took me less than two months to find a job, maybe not exactly what I wanted but one advantage to a low skill job is it is easy to find another. We do not count my income in our budget, last year it went towards the wedding and this year I am taking classes so may not have the time to work. In addition we have two extra rooms we could rent out, though we do not want to. The best time to rent room is August (for students) or April/May for summer school. We do not depend on that in our EF planning though it is an option.

What else can we do as part of our EF plan? I am looking into mystery shopping for when I am not taking classes. We are saving like crazy for our next move in three years. We have a car fund, a house fund and a replacement fund. Those funds should deal with any minor "emergencies" so we can work on a plan for the major ones. We are going to buy another duplex but that will probably be some time from now. I have started being an occasional research subject at the university for a little extra money for our EF. We also plant a garden to stretch our food budget, this will help if we cannot afford groceries. At some point I hope to also get some income from the blog but that has not happened yet. Anyone else have ideas for other sources of income?

For students time is the greatest hurdle in making multiple streams of income. Students need flexible jobs that allow time for studying and classes. I found that combining serving with an on-campus job was the best. Over the summer is the best time to juggle multiple streams on income and make the most income. You will notice an increase in my work on this blog during the summer as well. I do have one guest post coming out in June and will be trying to get another guest post for both July and August. Work will pay for my classes next semester, the other streams will add to my EF as well as my retirement fund.

Emergency Funds

Everyone should have an emergency fund (EF) but most financial advice is for you to save three to six months of your salary, how does that work with students? Honestly it does not work. For a young student who is living on loans and side income the best thing is to have a small EF and ways to access money. For example, if you are receive subsidized loans for school but have $5000 each semester of unsubsidized loans available to you, figure out how long it will be till you would able to access them and what bills you would need to pay in that time.

When I was an undergraduate I had a small subsidized loan as well work study, a waitress job and access to another $3000 each semester from unsubsidized loans. My school also would loan (in a emergency) an additional $500 to be repaid in a month, however it would take about two or three weeks to get the money. So my emergency plan was put what ever problem on the credit card (fixed rate of 9.9% from my credit union), apply for the $500 no interest loan from school and then apply for the unsubsidized loan of 6.8% (it took about two months because the loans went to the school and then the school cashed the check out to me).

This allowed me to know that if I lost my waitress job I had a plan which is in sometimes better than just cash. I did however put away as much as I could to use in case of a smaller emergency, such as car repair, and rarely had to use it.

Next article will go into where to put that extra cash you can manage to squirrel away.