Beating Broke

Personal Finance from the Broke Perspective

Sometimes Saving is Wrong

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Invariably, every few months, we get a wave of posts talking about “what would you do if you won $x,xxx,xxx?”  Or, what you would do with a smaller windfall.  And invariably, a majority of the people talk about how they would save the money.  And in some cases they are right.  But, most of the time, they are wrong.

Why are they wrong?  Because they’re looking at saving from the wrong direction.  I wouldn’t save a dime of it.  I would use every last cent of it to pay off debt.  And until I have no more debt, that’s what I would do every time.  Sure, maybe I’d by a few things that I needed, but the rest goes to debt.  Saving in a savings account doesn’t do you damn bit of good if you have debt.

If you have any debt at all, you really should think twice about having any savings at all except for an emergency fund.  Why?  Because, there is no savings account in the world that will guarantee you more interest than what you are paying on your debt.   If you pay off $100 of your credit card debt, you’ve just earned the 19% interest that you would have paid.  You “saved” more with that $100 than you would have in years if you had put it into a savings account.

Don’t fool yourself into thinking you need to have anything more than an emergency fund in the bank.  All the rest is just money that could be making you 19% interest instead of the paltry 1.30% that you’ll get at that high-yield online savings.  When you get rid of your debt, then is the time to start building your savings!

Some of you will likely ask “what about retirement savings?”  That’s a gray area.  There are some that would argue that if you don’t get that debt paid off, you’ll end up taking that money out early anyways.  Others would argue that due to the tax benefits of retirements accounts, and the magic of compound interest, you really should be putting money into your retirement too.  My current opinion is stuck somewhere in between.  I think that you should be putting a little into retirement, just so you have something going.  But, I also think that you should keep in minimal until your debt is gone and then ramp it up like gangbusters.

So, what would you do if you won $x,xxx?

Balanced Billing: Budget Helper

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In our house, we have a gas fueled furnace for heat and an electric fueled central air unit.  So, as you can likely deduce, our gas bill is much higher in the winter months and our electric bill is much higher in the summer months.  But, our bill hardly ever fluctuates.  Why is that?  We’ve got both bills set up on a little budget helper called balanced billing. It’s a lifesaver when it comes to doing a budget, and it offsets those peak months like the Money Beagle just had.

How does it Work?  It’s pretty simple really.  The gas/electric company takes our bills for the last year and adds them all up and then divides by 12.  That’s our bill for the month.  With the gas company, it adjusts each month, so we’ll see a variation of up to $10 or so dollars each month.  And with the electric company, they adjust once a year so we usually end up with a little bit higher bill (about $20) for one month to make up for any difference and then it’s back to where it was.  I highly recommend it.

How is Balanced Billing a budget helper?

Here’s a little anecdotal story to cement the need for such a program.  When I was still in college, I lived with 4 other guys in this awesome old house.  It didn’t have air, so it was warm in the summer.  In the winter, it had a gas fueled boiler that fed those old registers in each room.  The first winter we lived there, our typical gas bill up to that point had been about $200.  Not bad when you split it 5 ways.  Then we had a particularly cold November.  Our bill in December was over $650!  Obviously, it was a bit of a shock to us when our heating bill was more than the rent each month!  Luckily, we were all pretty good friends and a couple of the guys floated the rest of us some money to help pay for the bill.  But, imagine what would have happened if that had happened to a family that was living paycheck to paycheck?  Even if you aren’t living paycheck to paycheck, imagine what that would do to your budget!

And that, my dear readers, is why balanced billing can be such a wonderful budget helper.  If you’re interested, it usually just takes a quick phone call to the utility company to get it set up.

Starting a Business: Can You Afford the Risk?

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Freedom! Be your own boss! There are plenty of people out there that will tell you that starting your own business is the only way to go. You can set your own hours, and do what you are passionate about. And, sometimes those things happen.

Eventually, you might be able to set your own hours.  Eventually, you’ll be able to make gobs of money doing what you are passionate about.  Eventually.  Until then, you’ll work long hours and probably not make much money doing it.

As with anything, starting a business can be a very risky proposition.  If you decide to do it full time, you’ll have to leave your job.  Doing it part time is a valid response to that, but then you’ll be working even longer hours than you already do.  And, sometimes, your passion just isn’t profitable.

But, I’m not here to discourage you from trying.  In fact, I’d like to do the opposite.  But, if you’re going to start your own business, do it responsibly.  Know ahead of time that you will likely be working long hours and making less money than you have planned for.  And know ahead of time that a very large portion of new businesses (about 60%) fail within the first 5 years.  I’d be willing to bet, however, that a very large portion of those failed businesses failed because the business owner didn’t do their research and didn’t know what they were getting themselves into.

But you will.

Can you afford the risk of starting a business? Let’s ask ourselves what we will need financially to devote ourselves to our new business. We’ll need to have a way to pay ourselves. You cannot count on the business to make enough revenue to pay yourself with. You’ll have to have a way to pay for start-up costs. It’s actually pretty expensive to start a business. To better understand where you stand financially, it’s wise to start by analyzing key financial performance indicators that will show you whether you’re on track and how sustainable your business model is. These indicators can provide valuable insights into your cash flow and profitability potential, helping you plan your next steps.

If you’re still in the planning phases, visit your local branch of the SBA, or find a local business incubator, and sit down with someone to discuss your business plan and the costs that will be associated with it.  Those experts do this all the time, so they’ll have a much better understanding of what it will cost you to get running.

Once you have a firm idea of what it’s going to cost you, you’ve got to start saving up.  Plan on saving at least a few months of salary and personal expenses, but I would shoot for at least 6-12 months.  And if you can, start saving any extra so that you can put that towards business costs as they come up.  Again, the business isn’t likely to pay for itself right away.

A solid savings plan will not only help you get your business started properly, it can also do a great deal towards keeping your business operating if necessary.  And having an extra cushion to pay your own expenses will save your sanity while you expend all your energy into your business.