Budgeting

By budgeting wisely, my wife and I saved $11,000 in 3 months!

Yesterday, I talked about building an emergency fund, today I will dive into the steps that we took to get our emergency money together.

How much do you need?

We had to first calculate how much we needed. To do this, we outlined our monthly living expenses. We determined what was important to us that needed to be included in our “basic needs”. Even though a car is not among the basic human needs, it is definitely a need for us.

These are the things we included in our monthly living expenses:

Mortgage – $1500

Utility bills – $500

Food/Groceries -$200

Car note/insurance – $800

Based on this, we need $9,000 – $27,000, for a 3-6 months emergency fund. If I was to save 300/month it will take me 10 months to get to 1 month savings and 30 months to get to 3 months. Depending on your numbers, it may take longer or less, regardless this takes time, patience, sacrifices and desire to have financial wellness.

Zero-based budget

We implemented a zero-based budget. There are many different ways of budgeting that I will dive into as this blog grows, but for today I will briefly outline zero-based budget.

With zero-based budget, we gave every dollar that we earned a job, and at the end of the budgeting we had zero dollars left over. In order for us to do this, we had to know our numbers. Our monthly income and our monthly expenses. Our monthly income was consistently the same, but our expenses fluctuated. We sat down and outlined last 3 months expenses, this process took us 2 weeks. It was challenging to confront our expenses, they were out of control!!

But after cutting 50% of our expenses, we were able to save about 40% of our income. We both have debt, but we put a pause on making extra payments to our debt so we could build up this emergency fund. We created a spreadsheet for “basic needs”, “wants”, and “savings”. Then we put money first towards the basic needs, 80% of what was left over went to savings and the rest to wants. Our emergency fund grew quickly with this method, but we just as quickly realized that this was not a sustainable method for us (more on this later). That is why we did this aggressively for 3 months.

Where did we save our money?

We opened up an online high yield savings account. Interest rates are currently really low, the account started with 0.9% interest and it is now at 0.5%. It is better than zero.

Figuring out how much you need to put towards your emergency fund is a very personal decision. You have to do your financial analysis to see what areas you can cut expenses and put that money towards your EF. Another option is to increase your earnings. That is another thing that I did …