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10 Tactics for Building an Emergency Fund from Scratch

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In the unpredictable whirlwind of life, an emergency fund isn’t just a financial buffer, it’s peace of mind. Whether it’s a sudden job loss, an unexpected car repair, or a medical emergency, having a stash of cash set aside can transform a potential crisis into a manageable situation. Starting an emergency fund can seem daunting, especially if you’re beginning from scratch, but it’s entirely achievable with the right strategies. Here are ten practical tactics to help you build a robust emergency fund, ensuring you’re prepared for whatever life throws your way.

1. Set a Clear Goal

Set a Clear Goal

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Starting with a clear goal is crucial in building your emergency fund. Experts recommend saving enough to cover three to six months of living expenses. Calculate your monthly expenses, and set a target that makes you feel secure. Having a specific number in mind will help you stay focused and motivated. Remember, this isn’t about reaching your goal overnight but making steady progress.

2. Start Small

Start Small

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The journey of a thousand miles begins with a single step and so does your emergency fund. If the thought of saving several months’ worth of expenses seems overwhelming, start small. Aim to save $100, then $500, and gradually increase your target as you get more comfortable. This method makes the task less intimidating and helps build the saving habit. Every little bit adds up, so even small contributions are a victory.

3. Automate Your Savings

Automate Your Savings

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Automation is the secret weapon of effective saving. Set up a direct deposit from your paycheck into a dedicated emergency fund account. This way, you save without having to think about it, and it eliminates the temptation to spend the money elsewhere. Automating ensures consistent growth of your fund, and over time, these automatic transfers add up significantly. Think of it as putting your savings on autopilot.

4. Cut Unnecessary Expenses

Cut Unnecessary Expenses

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Take a hard look at your spending and identify areas where you can cut back. Maybe it’s dining out less, canceling unused subscriptions, or opting for more affordable entertainment options. Redirect the money you save into your emergency fund. This doesn’t mean living a joyless life; rather, it’s about prioritizing your financial security. Small spending cuts can lead to substantial savings over time.

5. Use Windfalls Wisely

Use Windfalls Wisely

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Occasionally, you might receive unexpected windfalls, such as tax refunds, bonuses, or gifts. While it’s tempting to spend this “found money,” allocating at least a portion of it to your emergency fund can boost your savings dramatically. Consider diverting 50% of any windfalls directly to your emergency savings. This tactic provides a healthy balance between enjoying your current lifestyle and building financial security.

6. Increase Your Income

Increase Your Income

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If cutting expenses isn’t enough, look for ways to increase your income. This could be by asking for a raise, taking on a part-time job, or starting a side hustle. Extra income can be directed straight into your emergency fund. More money coming in means more opportunities to save without compromising your current standard of living. Think creatively and leverage your skills to boost your earning potential.

7. Sell Unused Items

Sell Unused Items

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Most households have items that are rarely used, think old electronics, books, or clothes. Selling these items can provide a quick cash influx to bolster your emergency fund. Platforms like eBay, Craigslist, or Facebook Marketplace make it easy to sell goods you no longer need. Not only does this declutter your space, but it also turns your unused belongings into valuable savings.

8. Review and Adjust Regularly

Review and Adjust Regularly

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Building an emergency fund is not a set-it-and-forget-it deal. Regularly review your progress and adjust your saving strategies as needed. If you receive a raise or decrease in expenses, consider increasing your monthly savings rate. This keeps your savings goal in line with your financial situation. Staying proactive with your finances can help you reach your target faster.

9. Reward Yourself

Reward Yourself

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Setting milestones and rewarding yourself for reaching them can make the saving process more enjoyable. For example, once you save your first $1,000, treat yourself to a small reward. This keeps motivation high and makes the process of building an emergency fund less of a chore. Choose rewards that don’t undermine your savings goal, a nice meal out, for instance, rather than a lavish vacation.

10. Educate Yourself on Financial Management

Educate Yourself on Financial Management

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Knowledge is power, especially when it comes to finances. Educating yourself about budgeting, investing, and saving can sharpen your skills in managing money. Resources are plentiful, from books and online courses to blogs and podcasts. The more you know, the better equipped you’ll be to make smart financial decisions and grow your emergency fund efficiently.

Building a Financial Safety Net

Building a Financial Safety Net

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Creating an emergency fund from scratch is an empowering step toward financial independence. These ten tactics not only help you accumulate savings but also encourage a more mindful approach to your overall financial health. As you watch your emergency fund grow, you’ll gain not just financial security but also confidence in your ability to handle life’s uncertainties.

Read More

4 Reasons Why Having an Emergency Fund is Essential for a Busy Mom

The Importance of Building an Emergency Fund: Strategies for Quick Growth

Bankruptcy Blues: 14 Financial Mistakes We Can’t Believe People Still Make

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In today’s fast-paced financial world, managing personal finances effectively is more important than ever. With a myriad of options and pitfalls, it’s easy to fall into common traps that can lead to financial distress or even bankruptcy.

Below are 14 critical financial mistakes that are surprisingly common yet entirely avoidable. By understanding these pitfalls and learning how to steer clear of them, you can take control of your financial health and secure a more stable and prosperous future.

1. Ignoring a Budget

Surprisingly, many people still navigate their finances without a budget. A budget isn’t just a tool; it’s a crucial part of financial planning, helping you understand where your money goes. Without it, overspending becomes a silent financial killer, often leading to debt accumulation.

2. Relying on Credit Cards for Emergencies

Using credit cards as a safety net is a risky move. While they offer immediate relief, the high interest rates can quickly turn a manageable situation into a debt crisis. It’s wiser to create a dedicated emergency fund for unexpected expenses.

3. Not Saving for Retirement Early

Starting late on retirement savings is a common error with significant consequences. The power of compound interest means that starting early can significantly boost your retirement funds. Delaying this only increases the financial burden and reduces potential gains.

4. Living Beyond Your Means

Living a lifestyle that exceeds your income is a fast track to financial woes. This habit often leads to a cycle of debt and financial stress. It’s crucial to align your lifestyle with your actual income, not your aspirational one.

5. Ignoring Insurance

Many overlook the importance of insurance until it’s too late. Whether it’s health, life, or property insurance, being uninsured can lead to devastating financial losses in times of crisis. Insurance is an essential tool for risk management.

6. Paying Only the Minimum on Credit Cards

Paying just the minimum on credit cards prolongs debt and accrues massive interest. This practice can turn a short-term loan into a long-term financial burden. It’s always best to pay off as much as you can afford monthly.

7. No Emergency Fund

The lack of an emergency fund is a glaring oversight. Life is full of unexpected events, and without a financial buffer, these can lead to debt or worse. An emergency fund provides a safety net, keeping you financially secure during tough times.

8. Taking on Too Much Debt

Excessive debt is a major precursor to bankruptcy. It’s important to use debt wisely and avoid overburdening your financial future. Responsible borrowing involves understanding your repayment capacity and avoiding unnecessary loans.

9. Neglecting Credit Scores

Many underestimate the impact of a poor credit score. It can lead to higher interest rates on loans and credit cards, affecting your financial health. Regularly monitoring and improving your credit score using tools like My FICO is vital for financial flexibility.

10. Co-signing Loans Without Caution

Co-signing a loan is a generous gesture but can be fraught with risks. If the primary borrower defaults, you’re on the hook. Always consider the implications and your ability to pay if things don’t go as planned.

11. Falling for Get-Rich-Quick Schemes

The allure of quick wealth can be tempting, but these schemes often lead to financial ruin. Real wealth is built over time through consistent saving and smart investing. Avoid any plan that promises high returns with little or no risk.

12. Not Diversifying Investments

Putting all your financial eggs in one basket is a risky strategy. Diversification reduces risk by spreading investments across various asset classes. This approach can protect you from significant losses in any single investment.

13. Overlooking Small Expenses

It’s easy to dismiss small expenses, but they add up. Regular small purchases can quietly eat into your budget, leaving less for savings and investments. Tracking and managing these expenses can lead to significant long-term savings.

14. Failing to Plan for Taxes

Taxes are an unavoidable part of financial life. Not planning for them can lead to unexpected liabilities and penalties. Effective tax planning can help you understand your obligations and minimize your tax burden.

Leave The Idea Of Bankruptcy Behind

Navigating the complex world of personal finance can be challenging, but avoiding these 14 mistakes can make a significant difference. From the basics of budgeting to the nuances of investment diversification, each aspect plays a critical role in securing your financial future and helping you leave the ideal of bankruptcy behind.

Remember, financial wellness isn’t just about avoiding bankruptcy; it’s about building a stable life where your money works for you.

Five Financial Questions Women Should Ask About

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It’s no secret that women face unique financial challenges. From the gender pay gap, to managing household finances, it can be tough for us to make informed decisions about our money. To empower ourselves and make sure we’re on the right track financially, we need to ask the right questions. Here are some of the most important ones.

What Insurance Should I Have?

Insurance is a big (and often surprising) topic for women: we live longer, are more likely to experience a disability that impacts our earnings, and are more likely to support children or elders. We have a stronger need for a safety net.

As a high-level guide: max out any employer-sponsored coverage (like through your job) and then get an individual policy for the remainder of your need, as your budget accommodates.

Life Insurance

Life insurance is a tax-free gift you give the next generation, and term life insurance is inexpensive. Buy what you can afford, on the private market or through your employer.

Disability Insurance

Disability insurance is so important for women – it will replace a portion of your income if you can’t work, and you want to target 60% and 70%. Especially if you are a single mom or supporting family. To achieve this target, you will probably need a private policy in addition to any coverage from your employer (if available).

Long-Term Care Insurance

And finally, if you’re approaching retirement, long-term care insurance is important if you want to make sure you don’t have to spend all of your savings on health care in retirement. It can be very expensive, so don’t purchase this til you’re older and approaching the need for it.

These are just general guidelines – there’s no one right answer when it comes to insurance. It’s important to talk to an expert (like a financial planner) about what kind of coverage makes sense for you given your unique circumstances.

What is the Best Way to Budget?

There’s no one right way to budget your money – find the method that works best for you and stick with it! Consistency is much more important than perfection.

The Envelope Method

Some people use the “envelope system” where you put a certain amount of cash into an envelope for each category (like groceries, entertainment, and transportation). That’s all you get for that category for the month. This is great if you have to be very careful and want to stay away from credit cards entirely. It’s also a great system if you like using a physical planner over software/apps.

Budgeting Apps

If you prefer using technology to manage your finances, there are a number of great budgeting apps out there that can help you track your spending and set goals. Some popular options include Mint, You Need a Budget (YNAB), and EveryDollar.

Spreadsheet Budgeting

For those who like having more control over their budget (and who are comfortable with Excel or Google Sheets), creating a budget in spreadsheet form can be a great option. This method gives you a lot of flexibility to track your spending in the way that makes the most sense for you.

Pay Yourself First

One of the best ways to make sure you’re saving enough money is to “pay yourself first.” This means that as soon as you get paid, you put some money into savings before you spend any of it. This can be difficult at first, but if you make it automatic (i.e., set up a direct deposit from your paycheck into your savings account), it will become easier over time.

What is the best way to save money?

Again, there is no one right answer to this question – it depends on your goals and financial situation. But the upshot is that you can build an emergency fund or improve your generational wealth. Here are some general tips that can help you get started:

Increase Your Income

It can be very challenging, but to save money, you need to bring in more money than you spend. You can lower your costs and watch your spending, but you can also increase your income through a side hustle, a raise at work, or a promotion. You could sell extra things around your house. You don’t need to make a huge commitment – even small improvements in your earnings can make a big difference.

Automate Your Savings

Set up automatic transfers from your checking account to your savings account so that you’re automatically putting away money each month. This is a great way to make sure you’re always saving something, even if you don’t have a lot of extra money.

Join a Savings Challenge

A savings challenge is a great way to encourage you to save more money and get some community support. There are all kinds of challenges out there (like the 52-week challenge, where you save $52 in week one, $51 in week two, and so on), but the important thing is that you find one that works for you and stick with it. Dasha Kennedy at the Broke Black Girl runs a great year-long savings challenge to help women save $1000.

How Much Do Women Need to Save For Retirement?

As much as you can.

Women retire disadvantaged: we generally receive lower social security benefits due to lower earnings. We also tend to live longer (which means more years in retirement), and we’re more likely to experience a period of disability. All of this points to the need to have a larger retirement nest egg.

Target 20% Savings

Controversial opinion: I encourage all women to target 20% of pre-tax household income for savings. That is a lot. But most of us are playing catch up, and starting from lower earnings. Build up to it by increasing your savings rate little by little, and remember that even small amounts add up over time.

Invest Your Savings

You want to make sure your money is working hard for you, and one of the best ways to do that is to invest it. Investing can be intimidating, but on average, female investors outperform by 1% because we are less likely to panic. 1% is what professional investment advisors charge. Set up auto investment, choose low fee index funds and increase your contribution little by little. Like saving, successful investing is about consistency and patience.

What Biggest Money Mistake Should Women Avoid?

The biggest mistake you can make is to hand your finances off to a partner and ignore them. Women are socialized to do this (and it’s changing, slowly) but we pay for it. If you are widowed or experience divorce, you will be adding a terrifying and steep learning curve to a personal crisis.

Additionally, and I say this as Chief Financial Officer of our family, financial decisions will be better with your input! Even though I do this for a living, my husband often has great insight and our decisions benefit from his involvement. Don’t discount your ability or perspective, especially given that women are better investors.

When Should You Use Your Emergency Fund?

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Many people spend a lot of time setting money aside to build a healthy emergency fund. In some cases, this might cause them to hesitate to use the cash even if the situation seems to justify doing so. In others, they might be tempted to use some of the money to treat themselves on occasion. Even if they aren’t facing an actual financial emergency. By understanding when it is and isn’t wise to use that cash. You can make smarter choices about your finances. If you’re wondering when you should use your emergency fund. Here are some times when tapping into that cash reserve is warranted.

Living Expenses After a Job Loss

One of the main reasons to have an emergency fund is to pay for living expenses if you unexpectedly lose your job. In this case, the cash is a functional safety net, allowing you to continue paying required costs while you plan your next career move.

Similarly, using an emergency fund to pay for living expenses after a reduction in hours or another situation that results in a pay cut is fine. It allows you to stay afloat while you either wait for your hours to go back up or find something new that provides you with a better income.

Just make sure you focus on genuine necessities if you’re using your emergency fund for this reason. For example, shop grocery sales or use coupons to limit food-related spending. Avoid unnecessary car trips to save fuel. Forgo dining out and cut back on other kinds of optional entertainment. That way, your money will last as long as possible, giving you more time to determine what comes next.

Additionally, access any other resources that you may have available. For instance, you may qualify for unemployment if you’ve been let go, laid off, or had your hours cut. Make sure you apply for unemployment even if you aren’t sure your situation qualifies. If it turns out it does, you’ll get a bit of an income boost, allowing you to use less of your emergency fund.

Vehicle Repairs After a Breakdown

While you should plan for routine vehicle maintenance in your budget, unexpected issues may warrant using your emergency fund. Even if you are diligent about maintaining your car, that doesn’t mean you’re guaranteed to avoid breakdowns, flat tires, or similar problems.

If something unexpected happens that puts your vehicle out of commission and having a car is essential to your day-to-day, using your emergency fund to get it back up and running is reasonable. Just make sure you get a competitive price on the work by shopping around and getting several quotes from reputable repair shops, ensuring you don’t have to spend more than is necessary.

Home or Auto Insurance Deductibles

In a similar vein to the point above, using your emergency fund to pay a home or auto insurance deductible is typically appropriate. Usually, you’ll only owe a deductible after an unexpected covered event, like a vehicle accident or fire at your house.

Since paying your deductible allows you to get the required repairs, using your emergency fund to handle it isn’t a bad idea. Just make sure you get quotes for the work and that your insurer pays its share, ensuring you don’t have to come further out of pocket than necessary.

Emergency, Must-Have Medical Treatments

Even if you have insurance, the cost of emergency medical treatments can be incredibly high. Since accidents or sudden illnesses aren’t something you can typically predict, using your emergency fund to handle any of the resulting costs isn’t out of line.

However, you may not want to default to this option if it isn’t necessary. For example, if the bill is large, many hospitals offer no-interest payment plans. In that case, you may be better off using that arrangement, allowing your emergency fund to earn interest while you pay down the debt over time.

Travel Costs Associated with Family Emergencies

During certain kinds of family emergencies – like a sudden, serious illness or death – you might need to head to another city or state without notice. If that’s the case, don’t hesitate to use your emergency fund to cover the cost if you can’t manage it otherwise. That way, you can get where you need to go fast.

Just remember that recreational travel doesn’t fall in this category, even if you’re planning to see family along the way. With that, you’re better off saving up the money you’ll need separately, ensuring your emergency fund is intact in case you end up needing it.

Emergency Home Repairs

While regular, expected home maintenance costs shouldn’t come out of your emergency fund, you might need to tap that cash if an unexpected issue arises. For example, a pipe bursting, refrigerator breaking down, or a similar problem needs to be addressed quickly, so using your emergency fund can make sense.

As with other repair or replacement-oriented emergencies. You may want to shop around to ensure you’re getting a great price. That way, you can use as little of your emergency fund as possible. Just make sure that you don’t sacrifice when it comes to quality. As it’s better to get a solid repair or replacement than go with a cheap solution that’ll just result in an issue in the near future.

Critical Technology Replacement

While some technology you own may be primarily for entertainment purposes. Other kinds of tech might be essential. For instance, you might need a capable smartphone or laptop for work, or your children may need a computer to handle their homework.

If a genuinely essential piece of technology breaks down or it has catastrophic damage. Consider using your emergency fund to replace it. However, only do so if it’s legitimately a must-have for a purpose other than entertainment. If it’s solely for amusement. Then you’re better off setting money aside out of your budget and using that to cover the cost once you’ve got the money gathered up.

Emergency Care for Pets

Like people, pets can experience unexpected health issues, including acute illnesses, injuries, and more. While you shouldn’t use your emergency fund for routine pet appointments.  Using the money to handle an unexpected, urgent pet health matter is fine. It ensures you can get your pet the help they need right away. Thus, increasing the odds that they’ll survive the incident and live a healthy, comfortable life afterward.

Have you ever tapped your emergency fund for any of the reasons above? Do you think there are other times when using your emergency fund is a good idea? Share your thoughts in the comments below.

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Financial Resolutions: Debt, Savings, Investing, Real Estate, and Crypto

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The new year is right around the corner so I thought it fitting to layout some resolutions for a few different financial topics. Here are financial resolutions for crypto, investing, real estate, savings, and debt.

Debt

Pay down or pay off your debt. If you have credit card debt, make it a goal for next year to pay it off completely. The interest rates that credit card companies charge are so brutal. Getting rid of credit card debt would relieve a lot of stress and save you a lot of money that you’re wasting on interest. Not to mention, whatever you’re currently paying towards your credit card can be used for something way more productive.

If all you have is a mortgage, make extra payments. If you have no debt, congratulations! Try and save more so there’s no chance of you going into debt again.

Savings

Would you like to buy a house next year? Save for your down payment. The bigger your down payment is the smaller your responsibility will be; in terms of monthly payments and in terms of total money owed. Especially if your down payment is 20% or more. If that’s the case, you don’t have to pay mortgage insurance (AKA PMI).

If a down payment isn’t something you need to save for, increase your savings rate for retirement. Or set yourself up to cover some unexpected expenses by creating an emergency fund. Do some math, establish a goal number (emergencies, down payment, retirement savings), and then create a plan to save and hit that number.

Investing

For the most part, investing will take place in your retirement account. And for most people, the amount of time you have until retirement is a couple of decades. With that said, you can be a little more aggressive with your investments.

If this description doesn’t fit you, then figure out what works for you. Determine your time horizon, risk tolerance, and what you’d be able to tolerate in terms of short-term losses. If you’d like to get a good idea about what your preference is, take our risk tolerance quiz.

Real Estate

This one is a little challenging because it’s not like you’re going to move once per year. Also, investing in real estate isn’t for everyone. So I’m going to try and hit a few groups with this one.

Buy a new home. If you need more space for your growing family, you got a new job that requires relocation, you want to be closer to your church or family members, then make a move.

Make improvements to your current home to increase the value of your home or to make better use of the space. It can also improve tax credits especially if you use sustainable materials like solar panels. Either way, the improvement has a positive effect on your living situation.

Most people can invest in real estate, they just do it differently. Some people are going to invest in physical properties and some can invest in Real Estate Investment Trusts (REIT). Either way, you need to be picky (like all investments) so you get a good return on your money.

Crypto

This applies to everything in this post, but especially here…do your homework. I like crypto. I think there are investment opportunities, but I also think there’s a possibility it all collapses. I like the technology it’s created on, but I don’t know how it’ll transform and what the adoptability will be. Invest only what you can afford to lose is my best advice. With all that said, make financial resolutions to get more educated about cryptocurrencies and the blockchain.

Related reading:

8 Ways to Improve Your Retirement Savings in 2018

Diving Deep into Debt

Worthy Goals to Set and Crush

How to Invest in Cryptocurrency: A Guide for Beginners

Relocating Without A Job? Here Are 10 Tips

Disclaimer:

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com

The Best, Low Maintenance Way to Invest 30K

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If you’ve been building your savings to start investing and you’ve managed to put aside $30K, you may be wondering what your next step should be. How do I invest 30k? What is the best, low maintenance approach?

Here are some great ways to apply that 30K towards growing your wealth.

Pay Off Debt

First and foremost, use some of the money to pay off any debt you may have. It will save you money in the long-run. If you’re carrying a $10K credit card balance with a 15% interest fee, you’ll be paying an extra $1500/year in interest. That’s money that can be better spent on investments down the road. If you want to invest 30k, first start by getting rid of debt.

Emergency Fund

If you don’t already have one, put some of your money aside in an emergency fund so you know you’ll be able to manage if something unexpected happens. You should have 3-6 months’ worth of expenses put aside in an easily accessible account like a savings account. Just make sure it’s not linked to your debit card so you can’t spend it. The period of time you need to cover varies based on how long you think it would take you to find another job should something happen to your current job.

Earning return

What’s next has all to do with three things: risk tolerance, time horizon, and investment objectives. As a matter of fact, that’s how all of your investment decisions are made.

There are several different vehicles you can utilize, so what I’m going to do is give each vehicle its own section, explain what it is, and then give a little more detail as to when it could be used.

Certificate of Deposit (CD)

A bank product with a specified interest rate and a specified maturity. CDs are used to hold money for a specified period of time in a virtually risk-free fashion. More about CDs.

You’ll choose a CD for two reasons. The first is if you want a safe, federally insured vehicle to stash away some cash. The other reason is if you do not want to touch that money for a specified period. For example, you’re going to buy a house in three years and you don’t want to jeopardize that down payment. You buy/invest in a 3 year CD. At the end of year three, you’ll get back your principal (what you put in) and some accrued interest. Early withdrawal penalties apply.

Savings/Money Market Accounts

Typically used for your emergency fund. Easily accessible, and able to earn a little interest.

That’s pretty much it when it comes to these accounts. The interest they offer will be (not always) pretty low, but, like the CD, it offers a very safe place to store your cash until you need it. Unlike the CD, however, there are no early withdrawal penalties.

Qualified accounts

Basically any retirement account. Traditional IRA, Roth IRA, and employer-sponsored plans (401k, Simple IRA, etc.). There are contribution limits associated with these accounts.

With these accounts, as I said, contribution limits are something to pay attention to. With your Traditional and Roth IRA, there’s a $6,000 contribution limit ($7,000 if you’re 50 and older). 401ks have a limit of $19,500 (25,500 for 50 and older). Simple IRA limit is $13,500 ($16,500 for 50 and older).

This is a long term investment solution, as early withdrawal penalties apply. There are several ways to “exempt” yourself from that penalty, however, such as a first home purchase. For an extensive list of these exemptions, click here.

These accounts are also called “tax-advantaged” accounts because, as the name suggests, there are tax advantages. You either lower your taxable income with your contributions or have the ability to withdraw the funds “tax-free” (barring an early withdrawal penalty, of course).

Non-Qualified Accounts

Brokerage accounts or any investment vehicle that doesn’t have any tax benefits. Meaning, you pay taxes on any capital gains and dividends you receive. No contribution limits.

Honestly, the only advantage to these accounts is there is no contribution limit. For example, if you’ve maxed your contribution for your employer-sponsored plan and your IRA, then you can dump the rest of your money here.

Health Savings Account (HSA)

Accounts specifically designed to help you with your medical expenses. Money that you contribute to this account is “tax-free” or “tax-deductible”, which means it lowers your taxable income. Also, the funds, if used for qualified medical expenses, are tax-free.

With some, not all HSAs, you can invest what you’ve contributed. So if you have 30k to invest, I’ll point you to the below section to help with that. There are contribution limits with the HSA, however, so keep that in mind.

Asset allocation

After you’ve selected an investment vehicle (this section does not apply to CDs, savings accounts, or money market accounts), it’s time to invest your capital.

Asset allocation is my preferred method to invest, and I’ve written extensively on it here. So if you want to invest 30k, here’s what you need to ask yourself. How long until I need these funds? What is my ultimate goal for these funds? What am I willing to lose?

If your time period is less than 5 years, ignore this section and stick your money in a savings account or a CD. The risk/reward is unfavorable in this scenario.

If you have, ideally, 10+ years, then you have some options. The next question is about risk tolerance. What kind of portfolio are you comfortable with? Using the stocks/bonds/cash breakdown, are you a 60/40/0 type of person? Maybe you’re quite tolerant and prefer an 80/20/0 approach.

For those of you that are not tolerant of risk and/or you have a shorter number of years until you need to access these funds. Your portfolio should start at 50/50/0, and then adjust as you see fit. The cash portion in this breakdown should be used as investable cash for when you see a buying opportunity and/or funds you’ll need access to in the near future (unriskable capital).

Risk Tolerance

If you really want to know what your unique risk tolerance is, take our quiz!

I know I didn’t really give a concrete answer to what’s posed in the headline, but that’s the thing about investing – it’s incredibly personal. You need to do what’s best for you.

If time is on your side, max your retirement contribution, then put the rest in a savings account until next year. At that time, max it again.

If time isn’t your friend, a CD isn’t a bad idea. As I said earlier, paying down/off debt is incredibly worth it. That’s an automatic 15% return on your money if you pay off your credit card. Money that can be used more effectively going forward.

Read our articles, ask for advice, and do what’s best for you. That’ll help you answer the question: how do you invest 30k?

 

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see website for full disclosures: www.crgfinancialservices.com

How My Finances Have Changed with Covid

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Aside from the death and illness, it has caused, Covid-19 has done a number on the financial system and the economy.

I’m writing this on May 19th, and up to this point, over 30 million people have filed for unemployment benefits.

In my previous post, which can be found here, I detailed how you can plan in the event of job loss.

Even if you haven’t lost your job, more than likely, your finances have changed. In this article, I want to pull back the curtain on how my finances have changed during this environment.

My Job

Thankfully, I’m still working. I work for my family’s business. Technically speaking, we have four family businesses and I work three out of the four in various capacities.

Two out of those three businesses are very resilient during recessions, so I’m not terribly worried about my income from those two sources.

The last, however, will be influenced by movements in the market. If I do my job well, it shouldn’t vary a ton, but if I don’t, my clients will feel the pain, as will I.

The reason being is I, typically, charge a percentage of the assets under management (AUM). If account values go down, so does the fee I receive. The two go hand in hand, as they should. If I do a poor job, I should make less. It just makes sense.

With that said, my income hasn’t moved too much from the financial advising gig. It dropped a little bit last month, but I imagine it’ll come back up by the end of May, as the market has recovered.

Opinion: The Economy

I don’t know if I’ve mentioned it yet here, but my opinion of the economy is darker than some. I think there will be a cascade of bankruptcies in the public and private sectors.

With regard to the public sector, the companies that are rated BBB are already at record highs. When revenues stop coming in or significantly reduce, it’s hard for companies to make interest payments to lenders (holders of debt).

Companies will start defaulting on their debts, and the ability to pay, as well as other factors, help determine the credit rating. This will cause a slew of BBB rated companies to get downgraded.

Funds

With regard to fixed income mutual funds and ETFs, the vast majority of them have rules they need to abide by. One of those rules could be only investing in investment-grade companies.

Investment grade is anything from AAA to BBB. My fear is that when companies get downgraded from BBB to BB, it’ll cause funds to dump those companies; exasperating the sell-off.

My Finances

With that said, here’s how I’ve adapted.

My finances really haven’t changed much. I’m spending more on groceries, especially right now as I am stocking up on certain goods. The added benefit of that is I’m spending less on food from restaurants, which saves me money and I’m eating healthier too.

So you’re spending more on groceries and less on take-out…what else? Well, given the nature of Covid and the uncertainty that surrounds it, my priorities have shifted a little.

More Cash

I’ve planned my clients’ portfolios with the above scenario in mind. The majority of clients aged 60 and up are positioned more conservatively than normal. With that in mind, all of the portfolios I manage will take a little hit, and my income will drop as a result.

I’ve suspended my retirement contributions, via payroll deduction, until I feel comfortable again. This may seem counterintuitive because of the stress I put on leaving things alone and dollar-cost-averaging as prices go lower.

Due to the fact that my income has some variability, not to mention my rental property and the uncertainty of my renters’ making rent payments (because of talks about forgiving rent payments for those affected by Covid), I have to keep more cash available than normal.

Retirement Contributions

As I mentioned, I stopped my automatic retirement contributions, but I am making voluntary contributions to my Roth IRA when I feel my cash available is adequate.

Other than that, nothing else has changed. Debt payments will continue as planned and saving for a down payment on a house will also continue.

Be advised: Any opinion expressed about the market/economy is strictly an opinion and should not be viewed as a certainty. Additionally, my preparations for said opinions are specific to me. Consult your financial professional about your particular situation.

Related Reading:

Why Asset Allocation Matters

What You Can Learn From Different Market Environments

Job Loss: What To Do

Dealing With Market Fluctuations

Job Loss: What to do

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Losing your job is like a big punch to the gut. At first, it’s hard to process, but then your head starts spinning. What will I do for work? How will I pay my bills and put food on the table? What will my family do?

Taking a deep breath is a good first step. After that, it’s time to put a plan into action. Many of you could be experiencing this right now, given what the world looks like today.

In this article, I’m going to lay out how to financially prepare before and in the midst of a job loss.

First thing

As I said, this will be a big shock to absorb. Give yourself some time to realize what has happened. More than likely, you’ll go through the 5 stages of grief.

Unemployment

One of the first things you should do is apply for unemployment. There might be some hoops that you have to jump through, but one imperative item you need to confirm with your old employer is that you were let go and without cause. Resigning or being fired for cause disqualifies you from collecting unemployment.

Set money aside for taxes. Unemployment does not withhold FICA taxes or state income tax (if applicable). If you normally receive a refund, you might get a reduced refund or none at all. Plan accordingly.

Severance

The next step has to do with severance. If you were let go or fired without cause, your company will, most likely, offer it to you. It isn’t required by law, but most companies do it. Take severance home and review it closely. Don’t sign right away. Once you’ve reviewed it, take it back and negotiate.

Job Search

Starting looking for a new job right away. It does not pay to wait. All jobs are first come first served, set get searching as soon as possible.

Be picky, but pick up a job of some sort that will provide you with some cash flow.

Is now the time for a career change? Have you been dissatisfied with your industry or line of work? Do you have the skills and/or qualifications to make such a change? These could be questions to consider.

Finances

With regard to any debts that you have outstanding, call your creditors and see if they will let you defer payments, or at least make reduced payments, for a while. Also, make the minimum on your debt payments. Having cash available for other necessary items is more important.

Relentlessly cut expenses and review your budget with fine-toothed comb. Again, cash flow is your friend in your new situation so the more liquidity you have the better.

Pad your emergency fund. Obviously, this is something that needs to be done before you lose your job, so it’s imperative that you listen. Common advice is to save 3-6 months’ worth of expenses. If you’re self-employed and are responsible for payroll and other business expenses, it’s prudent to have 6-12 months worth saved.

HELOC? That stands for Home Equity Line of Credit. Is that something you are able to do? Is that something that you want to do? A HELOC turns the equity you’ve accumulated on your home into a loan.

Insurance

Life and disability insurance are very important coverages to have, but a just loss and loss of income could derail those coverages. There is a rider that can be added (waiver of premium) at the time of application so your policy stays in force while you are unable to make payments. *Be advised: this has to be done when you sign up, not after the fact.*

Healthcare is another important item to take care of. First off, if you have any appointments you were waiting to schedule, do it now before your coverage changes. The next step is to find a suitable replacement for your current coverage. This could be taking your spouse’s insurance, finding new coverage on the marketplace, or signing up for COBRA.

Retirement

Avoid dipping into retirement savings – this should be your last resort. Retirement savings accrues most effectively when you leave it alone. That’s when compounding works the best. Not only that, withdrawing funds prematurely will subject you to income taxes and an early withdrawal penalty.

Do you have 401(k) loans? If the answer is yes, you’ll be required to pay that loan back in its entirety in the next 60 days, otherwise, it’ll be considered a withdrawal. Again, taxes and a penalty.

Make a decision on what to do with the old retirement plan – Do you roll it to your new employer, roll it to an IRA, or leave it with the current institution. If you have a lower account balance, your HR department could require you to transfer it or cash out. Each company is different.

Related reading:

Employer/Employee Negotiations

Why Financial Literacy is Important

Your Go-To Budget Guide

Two Guys and Your Money #018: Top 5 Ways to Raise Your Emergency Fund Interest Rate

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Have shows come automatically to your iPod! Use the 2 Guys iTunes page here.

Listen to shows on your smartphone! Try the Stitcher app here.

Wow! This was a fun, fun, fun show (of course it’s filled with our usual surprises…..). BUT what we can tell you is that PK this week tells you the optimal time to rebalance your portfolio, Carrie Smith and Dominique Brown share their biggest financial gaffes, and OG & I save you some money in taxes on your mutual funds. Of course, we also give you our favorite ways to get a better interest rate on your emergency fund.

Sorry about the short post….I’m on my way back from San Antonio (I ran the marathon yesterday!).

Show Notes:

<Open>

Special thanks to Fidelity Investments for sponsoring our show! Check out TheFreeFinancialAdvisor/Fidelity to find out how Fidelity has been helping clients for over 60 years.

<> PK: Rebalancing

<> Let’s Give Something Away: How about a $25 Amazon Gift Card to help during the holidays? Check out our giveaway page after you listen to the show!

<> Shortwave: Carrie & Dom discuss their biggest financial mistakes.

<> Top 5 Ways to Raise Your Emergency Fund Interest Rate

<> End: Films  OG – Wilfred   Joe – Argo  (both thumbs up!)

Enjoy!

Emergency Fund or Roth IRA?

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If you’re teetering on the edge of a trip down investing lane–but aren’t sure that you’re ready to begin locking money away–a Roth IRA just might be like two tickets to paradise. Pack your bags, we’ll leave tonight.

I just made that up. I know it sounds familiar. Deal with it.

Unlike its nasty cousin, the “For Retirement Only With a Couple Exceptions” Traditional IRA, a Roth has some attractive properties for people who need money in a safe place but are thinking “I’d like to start slipping some cash into a retirement account.” Two tickets to paradise.

Of course, this paradise has some weeds, but what do you want? I never promised you a rose garden.

Just made that up, too. I know…it’s a gift. Thank you.

 

Paradise Ticket #1: Emergency Fund

 

While it still makes absolute sense to have “need it right now” money outside of a Roth IRA, here’s the magical property that makes this shelter a fine second tier cash reserve emergency fund: you’re allowed to take principal back out whenever you want. If you remove funds contributed during the current year, it’s as if you’d never made a contribution in the first place. If it’s beyond the first year, you may take out up to the amount you’ve contributed.

That’s awesomesaucewithacherryontop because if you need money quickly, there’s no reason why you can’t access the cash you contributed.

Before you fight me on this, let’s work through it logically:

– When you make a Roth IRA contribution, do you receive any immediate tax benefit? No.

– How can the government penalize you for something that you received no benefit from? They can’t.

You want proof? Okay, here’s the IRS applicable document, Publication 590, Individual Retirement Arrangements. Check out the chart on page 63 and then the ordering rules on page 64.

More proof? At the bottom of the page I’ve included links to two less well written articles than mine. No charge.

When will you get into trouble? If you try and take any interest the account has earned, you’ll pay penalties to receive this interest unless it’s been in the account for five years and you’re 59 1/2 (whichever is later) OR qualify for one of the few exceptions to the penalty (you’ll still pay tax on the money when you withdraw it).

 

Paradise Ticket #2: Retirement

 

If you don’t end up needing the money, because your car didn’t break down, junior didn’t need to be bailed out of jail (again), and the dog stayed out of your neighbor’s trash bins for a change, this money can be used for retirement. At some point, once you’ve completely secured the reserve, you can switch these funds into more appropriate investments for retirement.

Ultimately, of course, this is what a Roth IRA should be used for: retirement savings. By easing into the Roth IRA plan, you’ll build the account early so there’s plenty of money available when you’re ready to begin in earnest.

Like Steve McQueen you’ll have a fast Roth IRA machine and they’ll never catch you tonight.

 

The Downside

 

Oh, yeah, you weren’t thinking about having a Roth IRA as your only emergency fund, were you? A Roth IRA is, to put it bluntly, an absolutely rotten place for a first tier reserve.

Here’s just a sample of our problem:

–  Remember when I said you can get money in a hurry? It’s not like the payday loan shop down the street or Louie on the corner. If your money is at an institution close by (like a neighborhood bank), you can probably take out funds now. If not, you’ll either have to wait for money to be transferred to a non-IRA account or until they can mail you a check. That’s not instant money. It’s “we’re going on an emergency trip to visit ailing Grandma in her cottage in the woods, and I paid for it with my credit card but don’t want to pay interest on the charge” money.

– If you take out all of your principal, you’ll only have some interest in the account. This money MUST stay in a Roth IRA for five years or until 59 1/2, which ever is later (as mentioned above). To take it out early, you’ll pay an IRS penalty. Although this may be a negligible amount on a small interest amount, it’ll make your tax return more complicated.

For these two reasons, I wouldn’t start a Roth IRA as your main emergency fund. Instead, only use it as second tier money.

 

What Type of Investment Should I Use, Joe?

 

It’s your cash reserve, silly. We don’t want to use anything that fluctuates at all. I know interest rates are poor, but if you’re only beginning, you’ll need the highest paying account the bank will allow while still keeping your money safe.

Don’t lock up the funds in a CD or you won’t be able to access the money, ruining why you used this strategy in the first place. It has to be a liquid account, like a savings account.

Once you have enough, transfer your money to a higher paying money market. Often this is between $500 and $2,000.

As soon as your cash reserve emergency fund is full, begin saving money into real retirement accounts that match your long term goals. Use a 401k for tax advantages today. Open a 529 plan for your children’s college.

Before long you’ll have so much cash they’ll be lining down the block just to watch what you’ve got.

So delicious.

 

How to Get Money In There Without Stealing It

 

The only way you’ll successfully save money is if you leave it outside of those pockets of yours. You know the ones. The I-can’t-hold-cash-for-longer-than-a-couple-minutes-without-spending-it pockets. Instead, make saving a bill.

Better yet, make it an automatic payment bill.

By setting up an automatic payment into your account you won’t have to remember to fund your account. Instead, money will flow directly from a checking or savings account into the Roth IRA, building it while you focus on other areas.

If possible, set up a separate direct deposit into your first tier reserve at your bank and then an automatic payment from the first tier reserve directly into the Roth IRA reserve account. That way, you’ll never have the money in your hot little hands.

If you want money in your hands AND to make Roth IRA contributions systematically, it’s going to be much harder, and there’s a good chance you’ll fail.

You can’t always get what you want. But if you set up an automatic payment plan you just might get what you need.

 

A Good Strategy

 

Once you’ve achieved your first tier reserve ($1,000 fast if you’re a fan of the bald dude on the radio, or other similar “quick cash” amount), split your automatic investment between your first tier reserve and a Roth IRA. This will help you ease into the investment world without the fear that the money is untouchable.

I’ve used this plan with nervous beginners to help calm them into rolling toward doing the right move: investing in their 401k where the money IS untouchable. It’s a good way to ease your mind.

…and before you know it you’ll be on your way to a million dollars. Then you could buy yourself a green dress.

But not a real green dress; that’s cruel.

No, I can’t stop.

 

 

Other Documents That Totally Agree With Me:

The Motley Fool: All About IRAs

My Money Blog: Can I Really Withdraw My Roth IRA Contributions at Any Time Without Tax or Penalty?

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