emergency fund — Beating Broke

How To Prepare Your Teens to Live On Their Own

December 30, 2019 By MelissaB Leave a Comment

Sure, you love your children, but there’s no doubt that raising them is expensive. Many parents miss their kids when they move out, but they’re glad to be rid of a heavy financial obligation. . .unless the adult child moves back in. Suddenly, aging parents may find themselves paying for Junior again, negatively affecting their finances. One of the best ways to guard against that is to make sure Junior is ready to responsibly handle his finances when he flies the coop.

How to Prepare Your Teens to Live on Their Own

Since our son was about 12 years old, he has been eagerly anticipating moving out and living on his own when he turns 18. We want to make sure that when he does move out (whether that’s at 18 or a year or two later), that he can live independently and sustainably. These are some of the skills we’re working on.

How to Prepare Your Teens To Live On Their Own

There are some essential skills your child should master before moving out of the home:

Have a Strong Work Ethic

Some teens leave the nest never having worked a job or done chores around the house. Kids who leave home without a strong work ethic are less likely to successfully transition from childhood to adulthood, meaning they have a higher chance of ending up back at home.

Teach children from the time they’re young to work for the things they want. This becomes even more important as they reach the teen years. Rather than just give your child $20 when she wants to head to the movies with friends, make her work for her money by doing a job around the house or helping a neighbor with a task.

Budget and Handle Money Responsibly

How to Prepare Your Teens To Live on Their Own

Many an adult child has moved back home saddled with debt from the college years. To avoid this, in the high school years, teach your child how to budget. Show her how you budget for the family and have her create her own budget with the money she earns from an allowance or part-time job. Teach her to save for an emergency fund and to save for upcoming expenses.

Just as important as teaching her how to budget is to teach her how to use money responsibly. One way to do start doing this is to give your 13 or 14 year-old child the money you would normally spend for her clothes for the season. Let your child buy her own clothes with the money, and she will start learning how far a dollar stretches. Another way to do this is to let her buy her own food.

Buy and Cook Food

How to Prepare Your Teens to Live on Their Own — Photo by Andy Chilton on Unsplash

When our son was 15.5 years old, we decided to give him a weekly grocery budget and let him do all of his own grocery shopping and cooking. This has been interesting to watch. The first few weeks, he ate too many carbs because they were cheap and he thought they would fill him up, which he quickly found to not be true.

The next few weeks, he had a meat heavy diet, which left him feeling sluggish.

The weeks after that, he started finding healthy recipes with balanced nutrition. He did all of this with minimal input from us. He learned by doing and experiencing.

Plus, he’s learning not only how to grocery shop wisely, but also how to meal plan and cook, essential skills for when he leaves the home.

Final Thoughts

Obviously, there are many steps to get a teen ready to leave the nest, but right now in our family, we’re focusing on these three as they seem most important for a teen to be able to successfully live on their own.

What suggestions would you add for how to prepare your teens to live on their own?

Should You Create Sinking Funds Before You’re Debt Free?

October 21, 2019 By MelissaB Leave a Comment

You have debt. A lot of debt. And now you want to pay it off, IMMEDIATELY! You’re fired up. You’ve read financial blogs, read debt payoff gurus books, and you’re setting up your budget. Should you create sinking funds before your debt free or put all of your money toward debt repayment?

What Are Sinking Funds?

If you’re new to budgeting, sinking funds are money you put aside for irregular expenses you know will come up during the year. Let’s say you spend $1,000 each Christmas, so you decide, in January, to set aside $83 a month in your Christmas sinking fund. When December rolls around, you have all of the money you need to pay for your Christmas gifts debt free.

Create Sinking Funds Before You Pay Off Debt? — Photo by Eugene Zhyvchik on Unsplash

The Argument Against Sinking Funds

Some argue that you shouldn’t set up sinking funds until you’re debt free. What is the point of putting $83 aside for Christmas when you’re paying 15% interest on your credit card? That $83 each month would be better served if you applied it to your credit card and reduced the balance and therefore the amount you’re paying in interest. You’ll get out of debt more quickly this way.

The Flaw With This Kind of Thinking

There is one major flaw with this kind of thinking. What will you do when you need to actually pay one of these irregular expenses?

I live in Arizona, and six months of the year, my air conditioner runs night and day. During those months, my electric bill ranges from $225 to $275, depending on how warm it is outside. Then there are about two months a year in flux when the electric is $125 to $175, and, in the winter, for four months, my electric settles down to $80 a month.

My budget can’t handle such big fluctuations in our electric bill, so every month, I set aside $150 for electric. When summer comes, I have a large sinking fund to help me pay for those hot months when the electric bill will be much higher than $150.

If I didn’t have a sinking fund, how would I pay for the high electric bill in July?

A Happy Compromise

I encourage everyone to set up sinking funds, even if you do have lots of debt. Part of getting out of debt (and staying out of debt) is changing your attitude toward money. What’s the use of putting all of your money on your debt if you have a $1,500 car repair, no money set aside, and you have to charge it and go further back in debt again? That’s not a budget roller coaster I want to be on.

But there is a compromise; if you have extra in the sinking fund after the event is over, apply that money to debt. For instance, let’s go back to the sinking fund of $1,000 at Christmas. Let’s say you’re conservative, shop the deals, and only end up spending $750 on Christmas presents. Great! Take that leftover $250 and apply it to debt. Then, in January start saving for the sinking fund again.

If you’re paying down debt, make sure to create and fund sinking funds. You won’t be sorry, and you’ll be changing your attitude toward money so when you get out of debt, you stay out of debt.

Do you create and fund sinking funds each month? If not, how do you handle it when large, unplanned or irregular expenses come up?

Are You Ready for a BIG Emergency?

June 15, 2015 By MelissaB 6 Comments

Are you ready for a big emergency? Do you have the required 6 to 12 months’ emergency fund?

I can hear your groan now. Who has enough extra money to put aside 6 to 12 months in the bank? If you have expenses of $3,000 a month, an ample emergency fund of 6 to 12 months would be $18,000 to $36,000. Definitely not small change.

An emergency fund is hard to build, and that may be part of the reason why many people never even try.

Big Emergency — Original image credit: https://flic.kr/p/7KLtYi

But there will be an emergency that will occur sometime in your life. You will need that money.

Financial Death by a Thousand Nicks

We relocated to Arizona 10 months ago. Doing so drained our meager emergency fund. For a few months, we were doing pretty good and getting back on our feet until we started facing endless financial nicks—braces for our son, $2,000 in medical and dental expenses, $1,500 in car repairs, etc. The last five months have been financially very difficult.

If we would have had a 6 to 12 month emergency fund, our job now would be to rebuild the emergency fund, not do constant damage control. I think it will be a few more months until we are financially in the clear, assuming no other major expenses come up. Meanwhile, we feel extremely vulnerable financially.

The Big Emergency Worst Case Scenario

However, our current financial difficulties are nothing compared to what others face. My daughters’ therapist is living a financial nightmare. Her husband had a stroke and now has locked in syndrome, which means he has his full mental faculties, but he can’t move his body. He is no older than 40. No one would expect this to happen.

The therapist’s life now is driving to see her husband and advocate for him as well as juggling the finances of losing one income as well as the rapidly mounting medical expenses. She does work but has had to take frequent days off. Even with a Go Fund Me page that brought her nearly $50,000 in donations, I have no idea how she is handling the expenses.

Of course, this is a worst case scenario, but still, an emergency fund to liquidate in this situation would be nice.

Take Baby Steps to Reach Your Goal

Right now, my husband and I are struggling to stay out of debt. So far we’ve succeeded, but we’re right on the edge. Still, our plan is to put a small amount away in our emergency fund, say $50 a month. Something is always better than nothing.

In the next few months, we’ll amp that amount up to a couple of hundred a month and keep increasing as we are able. We won’t have a sizeable emergency fund anytime soon, but we will have some money put aside.

Too often, it’s easy to look at your finances when everything is going right and say to yourself, “We’re doing alright. I can afford to splurge.”

But that’s short-sighted thinking. Look at your finances and ask yourself how would you be financially if you had several smaller emergencies of a few hundred or thousand dollars or if the worst case scenario happened?

My advice is to wait to splurge until you have that emergency fund. Trust me, one day you’ll be glad.

Do you have a 6 to 12 month emergency fund, or do you find it too difficult to achieve?