Firstly, thank you for all the comments & emails on the post about giving up tv, it was amazing and encouraging to read how many people are tv free! Okay back to this post…

 For the month of November I set myself the little goal of reading one financial planning book/guide a day! So far I’ve read about 21 so I’m ahead of schedule! One thing I have noticed is that some books do not seem to value an emergency fund, or at least feel you only need a small one. I have to say I completely disagree based on my experience.

The rationale some of the authors used was that it was too tempting to spend the money. I have to say I am amazed at the number of blogs I’ve read where people mention pulling from their emergency fund for holidays, clothing, concerts etc. However, the villan is not the emergency fund, it is the spending habits and lack of financial savvyness! I would imagine that those people have a hard time saying no to holidays/vacations, temptations, concerts and therefore they would always find a way even if it meant going into debt!

It is true that there is money there, sitting in an emergency fund, that isn’t too much hassle to get to. But if you really want to take control of your finances, I honestly believe that an emergency fund is good training in financial obedience!

This year I’ve had to use mine, I had 6 months worth of expenses in my emergency fund and it is now almost gone. I had to use mine because not just one emergency cropped up but three emergencies in a short space of time! I also faced a large move and I experienced unemployment. While it isn’t nice knowing I have to start again, at the end of my unemployment I should have no debt whatsoever and have been able to pay my rent, bills and relocation costs (which were huge).

Seeing how quickly six months of expenses has gone, I’m even more determined to beef up my emergency fund system especially as I near motherhood. My most important goals related to my emergency fund are the following:

1. Have a mini-emergency fund of $1000 which would cover any unexpected car costs, emergency services etc.

2. Have a fully stocked emergency fund of $30,000 which would cover 1 year of unemployment

I know everyone’s situation is different, I’m single so there is no other income to pay for the necessities if I lost my job, I’m it. Perhaps if I was married a 6 month emergency fund would do, but what I need to do is make financial choices that are right for my situation and in my stage/season in life! So while many books might say 12 months isn’t needed, for me, in my particular situation, it really does give me peace of mind!

How about you? Do you have an emergency fund and how much do you keep in it? What’s your rationale for the amount you feel you need?

p.s. My new post is up at the Simple, Green and Frugal Co-op, thanks to yesterday’s post as inspiration, we’re discussing tv watching!

I’ve been thinking a lot about the family I previously mentioned, the family which was made homeless. In thinking about them, I’ve been reflecting on just what it would take to lose everything (financially). I’ve thought that it rarely is due to one bad event, but usually several large setbacks occurring without financial recovery in between. In this families instance there was a move, a loss of job, illness, severe car problems all within a couple of months. The emergency fund simply couldn’t cope with such a drain.

I’m always amazed when statistics are released about how few people have enough in an account to cover job loss for more than a month, it becomes easy to see just how catastrophic a couple of emergencies can make a family. I know we all think that we have family & friends who would step in, for some that is the case, for others that assumption leaves them in a scary place.  I think one of the joys this credit crunch has brought is that people are finally realizing many of those family & friends who had good lifestyles of eating out, vacations, kids in multiple activities and new furniture & toys, well much of that was due to debt or at the very least got in the way of saving.

I used to think that an emergency fund of 3 - 6 months expenses was a realistic figure (for those that have to pay rent, mortgages, utility bills etc). Now I’ve revised my thinking. In the last 6 months most of my emergency fund has disappeared due to sick leave from work (unpaid) at the start of the year, followed by contracts backing out, an employer not paying me, major car trouble (£600 aka $1200), rent increases. However much I feel sadness that the fruits of my labor are now gone, I can see just how important that emergency fund was and even though I need to start again, I could *just* deal with all these difficult challenges thrown my way.

I now have a new plan, it won’t be easy but I really think when relying on one income with rent or mortgage to pay, you really need 9 -12 months of expenses saved, plus as always my mini emergency fund for car troubles, home repairs, dental etc.

Part of me feels scared at having to start all this yet again, but part of me knows just how important it is to not lose everything, not crash & burn, to be able to deal with those challenges that arise!

So you read it here:

New Goals

Mini Emergency Fund £1000 = $2000

Major Catastrophe Fund £12, 500 = $25, 000

Not to mention that adoption goal ;0)

For some this may seem impossible, and looking at my depleted savings I too have moments where I think this will be impossible as a single woman, working for a not-for-profit (charity sector) but really the impossible is made possible with hard work, sacrifice, determination, faith and time.

What about you? Have you thought about financial worst case scenario and how you would be able to cope?

Apparently there was a problem with the comments over the weekend, not to worry I know you’re still reading And the big giveaway begins tomorrow!

Here isa chart which compares my spending to that of 4 friends. We are all childless and take home about the same income each month! I’m too tired tonight to post my thoughts on our spending differences although some key themes are already jumping out at me. So tomorrow I’ll update this post with my thoughts  and catch up on blogs! If you have any thoughts or notice anything feel free to let me know!

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Everywhere I turn it seems like renting 20 and 30 somethings are talking about buying a house; it seems like people are of the opinion that rent is going to soar as less people get on the housing market, and there are “deals” to be had. During various train journeys for work over the last two weeks, I did a lot of thinking about this and thought I’d post my thoughts on what to be weary of when buying a home and how you would know if you are ready to actually commit to the biggest financial undertaking of your life.

My first concern is the fact that we don’t know where house prices are headed. Stretching yourself now thinking prices are lower than a year ago, might seem like perfect sense, but what if they drop 10, 15 or 20% could you really cope with being in negative equity? Now, negative equity, while not ideal, is not so much of an issue if you don’t need to move. If you have savings behind you, you could cope with job loss, have no plans to move etc, then you can usually ride out negative equity and sell once things pick up. The problem is that many people in their 20’s and 30’s are not at an age or stage in their lives when they will be in one place for the next 5 or 10 years. Many have no savings, no emergency fund and are still single, thus relying on one income. One income plus job loss = disaster!

My other concern is that many of these deals are meant to make you act now and think later. You can’t afford that new 2 bed flat, no worries you can buy 75% of the value and just pay us the other 25% in the next 10 years. You can’t afford a deposit, no worries their own mortgage specialist will get you a 95% mortgage and they will contribute the rest. I’ve always believed that no company gives anything away for free, there is usually a reason why they are helping you out. Is the home in a mixed block? Is the development not selling well? Are the companies mortgage rates higher to compensate for that 5% they’re putting towards the deposit for you? And one thing I keep wondering about is this, will people actually want shared equity homes in 5 or 10 years time?

Out of interest, I telephoned two major builders today to ask about deals they were advertising. Both told me that the deals were over this weekend and I better act fast because these were the best deals possible and I was about to miss out. Both developments apparently only had 1 flat left and it will be gone this weekend. I plan to ring next week and just see how accurate their “sales pitch” was.

Now, some people may be ready to think about purchasing a home, so, I thought I’d share my list of  what would be the ideal before making that big step

1. Check out the neighbourhood, look at the community profile, find out what type of housing is going up & where. An area near me told home buyers that the affordable housing within the new development was going to be NHS workers housing. Nothing was written in contract, by the time the housing was ready and people moved in, the buyers found out it was actually council housing (no problem with that in theory!) but several very problematic families fresh out of HMP (jail for you North Americans!) were being placed there and lets just say that after many high profile incidents, many home owners lost £50K off the value of their homes within 2 weeks. New communities that have boarded up houses on the end of your street and pictures in the paper don’t retain their value too well!

2. Be realistic about what bills you face. Plonkee did a good post about what her bills are each month. She had more than me because as a home owner, insurance was very important. Don’t forget that you will be on your own paying bills (even if you plan to rent out a room, there is no guarantee of  a tenant!); look at your budget accordingly.

3. Emergency Fund – the problem with home ownership is that you can’t get out easily. At a bare minimum you should expect it to take 3 months and right now that would be with a lot of luck on your side! It is more realistic to think it would take 6 months + especially in the case of single people or families with 1 income. If you had to sell asap, do you have enough money in your savings account to pay for even 3 months of mortgage payments plus bills plus lawyers and estate agent fees?  Personally, ideally, before I am next a homeowner, I’d like to ensure I have 6 months expenses saved for the possibility of job loss & a mini emergency fund to cover the day to day emergencies. Experts say you should have 1-3% of the value of your home in a home fund, for unexpected major repairs.

4. Deposit – When you have no deposit or a small deposit, it means you will have to pay significantly more interest on your mortgage and you will have fewer mortgage companies that are willing to loan to you. This will cost you financially in the long run. Be realistic and work hard. I would say at a minimum you want 10% downpayment, but if you can squeeze that (through frugal living, selling belongings, working an extra job!) to 15% that gives you wiggle room both in respect to the possibility of the market going down and mortgage deals.

5. Be realistic – most people want their mortgages paid off as soon as possible. This makes a lot of sense, the longer it takes the more interest you pay. However, locking yourself into higher payments so you can pay it off in 10 years instead of 20 is smart if you can look into a crystal ball and see your future! Since I don’t have those powers I would need to take a balanced approach.  For me, I would be finding a rate and time frame that allowed for comfortable payments with the option of overpaying each month/year. I would then set up a goal to overpay each month, even by £100.

6. Gone are the days where you can purchase a property, sit on it and sell it a year later for a profit. This means you need to be very honest about your situation. Are you staying in that city/county/country? Is your job secure? Is your relationship secure? What would you do if you split up? Could you afford to carry the mortgage payments on your own? Are you someone who wants to work abroad? Do you plan to have children? These are all very important questions before you even think about purchasing a property.

So, if I were to want to purchase a property at £175,000 (BTW this isn’t even possible in London!) by my own “staying safe” calculations I would want the following:

£10,000 in my emergency fund (for job loss) = 6 months expenses

£3500 in a home emergency fund (2% of the value of the home) for furnace, roof, etc.

£1000 for lawyers fees

£17,500 – £25,000 down-payment (this is 10-15% of the value of the home)

Total £32, 000 – £37,500

I’ll end with this…a friend bought a flat for £175,000, the same cost as my calculations above. She told me recently that she got her deposit for free from a builder. I just worked out she will pay more than £50,000 more on her mortgage because of that deposit. Suddenly it seems a lot wiser to have waited until she had that £17,500-£25,000 down-payment saved.

Plonkee asked me a question in my previous post about how I manage to stay on the bandwagon. There are times I don’t, like this week when I spent over £20 on groceries instead of £15. Now, yes that isn’t a huge “fall” but I do employ tactics every time I’m tempted or see a shop to help me stay in line!

1. I ask myself what would happen if I went to work today and was told I was no longer needed, or given a weeks notice etc. While this might seem pessimistic to the point of the glass not even being 1/2 full but the water evaporating so quickly we are all going to die of thirst, it does really and truly make me think about what I would do. Right now I have £1000 in my emergency fund and £3600 in my ISA. I don’t ever want to touch my ISA as it is part of my retirement plan which I’ll blog about another day, but I guess the point is I know £1000 would only pay for my rent for 1 month plus 1 bill. Things would be pretty dire, so spending on clothes, books, nights out ISN’T A CHOICE!
2. I keep a record of how much my emergency account can grow each month – knowing that through exceptionally frugal living I can save £600 a month AND by extra work (which is rare!) I can this month top up to £1000 makes me keep the eye on the prize. That extra £1000 means I have more than 1 months income saved! That gives me 1 month breathing space if something went wrong.
3. All my regular readers know I Iove to travel and have lots of tips for saving to travel here and here. I have a pretty big trip I’d like to do next summer, but I can only do it if I have met my 3 goals mentioned in my last post.
4. I read and re-read the same financial books over and over again to keep me motivated. The best one for me, at this stage in my life is Love Is Not Enough: A Smart Woman’s Guide to Making and Keeping Money this keeps me motivated to keep going
5. I calculate what my pension and ISA contributions will be over the next 30 years, seeing that compound interest accumulate keeps me going! I know that my paying 15% of my income into my pension AND putting £3600 into an ISA each year will give me a good retirement fund!
6. I have worked VERY hard to stop “living in the moment”. The no spend days were the ultimate lesson, I can wait for things, I should wait for things, things are worth waiting for! Of course making sure I don’t go to clothing, book, furniture or coffee shops helps too!!
7. I know this isn’t forever. Now that I’ve paid my debt off and know how wonderful it feels, I know that one of the best abilities in life is to sacrifice now for later. Now, I don’t think anyone should always live like this, I do know one person who is soooo frugal despite over £150K in savings, no mortgage on her £240k house that she simply doesn’t live, only heats 1 room in her house, never travels, never goes out for a meal or drinks, never has people over for a meal, won’t partake in any hobbies etc. What I am doing now isn’t hard, it is about keeping my eye on the prize and 6, 9, 12 months living frugally really isn’t hard – being unable to pay my rent and being homeless would be very hard!
8. I admit it’s difficult to always stay on budget and read money blogs to motivate me!
9. I stay away from blogs that make me feel bad about how little I have, I read blogs of those people I feel a connection with and those who share my values!
10. I remember every single day what it was like before. I made a HUGE financial mistake which took my £12k savings and all my income, I was stuck in a job I hated, living in an area that was wrong for me, in an area where I couldn’t meet friends I had things in common with and felt my life was going to never ever get better. I changed my life by getting a new job, moving more than 3 hrs away, making new friends, getting OUT of debt, making my money my own and getting a financial plan in place!
11. As a child I was brought up with “catholic guilt”. If you did something wrong the world was over. I used to be like this myself, if I had one day where I ate a cookie I was the “fattest, greediest person ever”, I couldn’t talk about saving with my mum without her saying “think of all the money you’ve wasted, what’s the point now, you’ll never be able to change” – when I moved I had a good LONG look at what I do and don’t do well, one of my biggest problems was NOT being able to forgive myself and move on. Forgiving myself for my past financial mistakes and NOT allowing them to define my future has given me the motivation, energy and ability to move forward!

And that is how I stay on the bandwagon!

What about you, any tips on how you stay focused on the prize?

I need to keep myself motivated for June as I had some doubts and questioning last night about whether I can really save up 6 months income, save up a downpayment for a house and add to my retirement – all on 1 income! I was chatting away with a friend who said she and her husband are working hard to save, she then said how if they keep their belts tight – after mortgage, bills, credit card payment etc, they can pretty much save her income each month (£1300)…..I don’t often get jealous, but man I was pretty green eyed last night thinking about how hard it is on 1 income to accomplish everything!

So, what am I going to do? Well, I’m going to set some goals for June.

1. To spend no more than £60 = $120 on groceries (I have lots of rice, pasta, lentils, tinned tomatoes left and am away for a week)

2. To have 16 no spend days!

3. To figure out how to do an online survey and do one!

4. To transfer my money into a new account ear marked My Emergency Fund

5. To get my things out of storage and find someone who will store them for free! This will save me £50 a month!