Beating Broke

Personal Finance from the Broke Perspective

Beating Broke Rules: Budget

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If you’ve ever been involved with a company’s financials or been an investor researching a company, you likely know that they all have budgets.  In fact, they would have a pretty big problem if they didn’t have budgets.  And even with budgets, they still have problems when those budgets are unbalanced at the end of the quarter.  An unbalanced budget that is in the red can cause a paper loss of millions (or billions) in stock price.  That makes for a lot of unhappy investors (read owners).

Why shouldn’t those same rules apply for your personal finances?

Beating Broke Rule: A budget is a must.

Let’s face it.  Only the Government gets away with an unbalanced budget.  If you or I were to take up similar fiscal actions, we’d be declaring bankruptcy every year.  The bottom line is this; If you want to be fiscally responsible and be in control of your finances, you’ve got to have a budget.  And it must balance.  Must!

Let me finish by finishing the analogy.  Think of your personal finance situation as a “business”.  You and your Wife (or partner and any children you may have) are the shareholders.  When the “business” does poorly (i.e. runs in the red) the shareholders lose value.  Only, instead of being able to sell the stock and find a better performing “business”, you have preferred stock that is non-saleable.  What’s more, you’re the CEO, CFO, CIO, and mail room attendant.  There is nobody you can fire for poor performance and you can’t trim your labor costs with layoffs.

The only way for your “business” to perform well is to have a budget that balances.  If you really want to make your “shareholders” happy, you’ll find a line item in there for savings as well.

Analogies aside, a budget can really help you see where your money goes and helps you get in control of your money.  Instead of trying to find a few dollars at the end of the month to pay bills, you might just find a few extra for an ice cream cone or two.  If you’re curious how to create a budget, read my article on building a simple budget to learn how we created our first budget.

Beating Broke Rules: Emergency Fund

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If I could use only one word to describe my thoughts on this it would be the word yes.  I went the first 26 years of my life without an emergency fund and I’ll never go another day without one.

The purpose of an emergency fund is to give you available funds in case of an emergency.  Your car breaks down and needs repair.  You fall and break an arm and have to take some unpaid leave.  Whatever the emergency is, your fund is there to see you through it.  It’s a great thing, and can take an immense weight off of your mind that you didn’t even know was there.

So where do you put your emergency fund?  A fluid account that you have nearly immediate access to.  I prefer to have it in a secondary account that is separate from my everyday account because that makes it that much harder to spend on silly non-emergencies, but where it’s still available if I need it for an emergency.  At the moment, I keep my e-fund(my pet name for it) in an Ally Bank interest checking account.  The interest rate is consistently in the top 10 or so and the service has been superb.

How much do you put in it?  Ideally, you’ll keep 3-6 months of expenses in your emergency savings.  If you’re just starting out with your debt plan, try for something between $1000 and 1 month of expenses.

Make your emergency savings a priority.  Until your reach your $1000 balance goal, you should be paying as much as you can into it.  The peace of mind that you’ll get by having the account is well worth the extra interest you’ll pay on your debt while your building it.