• Check out Chief Family Officer's Valentine's Day Pinterest board for fun crafts, party ideas, recipes, and more!
  • Recently read and enjoyed: The Four Tendencies: The Indispensable Personality Profiles That Reveal How to Make Your Life Better (and Other People's Lives Better, Too) by Gretchen Rubin
  • Enter for a chance to win a Mystery Box Full of Goodies!

  • Your best financial investment may be your good health (but you should also practice sound money management)

    I came across an article titled Medical Debt Sending Many Over Financial Brink. The gist of the article is that most people manage to get along financially until there’s a crisis of some kind, which causes them to fall behind in payments, eventually leading to catastrophes like foreclosure and bankruptcy. The article claims that half the time, the precipitating crisis is a medical one.

    This quote was how the article ended:

    “I don’t know if we have enough working years left to buy a house,” Donna said. “That’s pretty heavy punishment for having gotten sick.”

    My instinctive reaction was to think, “Well, could you have done anything to prevent your illness?”

    And that made me think: Investing in good health could really be worth thousands of dollars in the long run.

    Of course, there are many other reasons to want to be in good health, but if money is what motivates you, then by all means, use it to get in shape, lower your cholesterol and blood pressure, eat less meat and saturated fats, eat lots of fruit and veggies for the antioxidants and flavonoids, etc. No one can guarantee that you won’t end up with huge medical bills at some point, but at least you’ve reduced your risk (and increased your quality of life).

    As it turns out, Donna had uterine cancer, which I honestly don’t know much about. But her husband had “serious artery disease,” which sounds to me like the average heart/cardiovascular problem that’s common in older men. The really disturbing part of their story is that they were “technically fully insured” throughout their medical crises. But, reading between the lines, I gather they didn’t have much savings and that’s why they couldn’t pay the annual out of pocket maximum under their insurance plan. The max was $9,000 – obviously a lot of money, but not exactly an astronomical amount.

    I’m not judging Donna and her husband – for one thing, I just don’t know enough about them to form any kind of opinion. But I can speculate and point out that a lifetime of sound money management would probably have left them in a position to pay that $9,000. The article doesn’t say how old they are, but since they have grown children, I am going to guess they are at least in their late 40’s, and probably more like in their mid-50’s. If they had: (1) carried their mortgage as their only debt; (2) saved for retirement; and (3) built up an emergency fund, they would not be in the situation they’re currently in.

    Of course, doing these three things is not easy. But I know it can be done, even on a very low income. Thanks to the internet and especially blogs, I read such success stories every day. It’s just a matter of prioritizing and acting according to those priorities. And if you don’t prioritize and act accordingly, then at some point, you have to pay the price.

    Image credit: Indiamarks.com.

    Emergency Funds: Another example of why you need one

    More than 200,000 California state employees are now working for federal minimum wage, or $6.55 per hour.* And they’re the lucky ones. Part-time and seasonal workers were fired.

    All because the state legislature can’t pass a budget, even though the last fiscal year ended on June 30. (And because Governor Arnold Schwarzenegger apparently doesn’t care if California ever has another Republican governor. He signed the executive order bringing about this situation.)

    Sure, the employees now receiving minimum wage will eventually be reimbursed the difference in their salaries. And the part-time and seasonal workers will probably get rehired.

    But in the meantime, how many employees have an emergency fund that will see them through to the passing of a budget? I have no idea, but I can guarantee that not everyone does.

    Where does that leave them? The Sacramento Bee State Worker blog reports that Golden 1 Credit Union will offer interest-free or low-interest loans to state employees. An interest-free loan sounds pretty good, but it’s only available to members who had direct deposit set up before June 30. The low-interest loan at 4.99% is available only to members who joined before June 30 and signed up for direct deposit after June 30. All other employees must turn elsewhere for higher-interest loans.

    That’s a hefty penalty for an innocent state worker to pay. But just how innocent is the employee who doesn’t have an emergency fund?

    After all, an emergency can strike at any time, whether it’s a catastrophic illness or your employer refusing to pay you what they owe. We all have an obligation to ourselves and to our loved ones to be prepared for such events to the best of our ability. It may be too late for California’s state employees to build their emergency funds up before they need them, but their predicament should serve as a reminder to all us of to make sure that we are financially prepared for an emergency.**

    *The state minimum wage is $8.00 per hour. (source)

    **It’s possible state employees will never miss a penny from their paychecks. State Controller John Chiang, who issues the checks, has indicated that he will not comply with the governor’s executive order. So if a budget is passed before the state runs out of money, all should be well. And this will all just have been a lesson learned. Until next year, when the legislature fails to pass the new budget in a timely manner . . .

    Our budget & emergency fund will really pay off in June

    I’ve said that my best financial decision of 2007 was the creation of an Infrequent Bills Account (“IBA”), which is what I use to pay annual and semi-annual bills. To determine how much to contribute to this account each month, I added up the annual amount of each of the applicable bills and divided by twelve. Each month, I take that amount and transfer it to the IBA. If necessary, I first deduct the amount of the bill I will be paying that month.

    I had forgotten that June is when four of our life insurance premiums hit. Added together, they account for the entire month’s IBA contribution. In fact, I’ll be taking some money out of the IBA to pay for May’s car insurance bill, which I had charged to our credit card and will be paying off in June. Because of the IBA, these bills are all taken of without any stress.

    Some people treat their emergency fund as untouchable except in true emergencies, such as a job loss, while others consider their emergency fund their primary savings account, to be tapped for unscheduled, unbudgeted expenses. I fall into the latter group, and I am expecting to have to tap our emergency fund in June for a couple of reasons.

    First, due to a lack of foresight on my part, I allowed our oldest to put a small dent into a car that was parked next to us. The owner of the car insisted on exchanging insurance information, so although I think it may hurt him in the long run to file a claim on the dent, he may very well do so. I’m just glad that I don’t have to worry about where the money to pay for this claim will come from (although it may very well be covered by our insurance policy, which in turn might cause our premiums to rise).

    Second, like PaidTwice, we have some unplanned medical bills coming up (nothing to worry about, though). Like PaidTwice, the amount left in our Flexible Spending Account probably won’t cover the bills in their entirety. Again, I’m grateful that we have a solid emergency fund in place so that I don’t have to worry about how we’ll pay these bills.

    The funny thing is, at the same time that I’m grateful we have the money set aside, I’m still a little frustrated that these unexpected expenses are setting us back in our quest to achieve our financial goals!

    We’ve paid off the car – now what?

    As I mentioned yesterday, we were able to pay off our car loan less than two months after we bought the car. One reason we were able to achieve this is because we were setting a substantial amount aside in savings each month specifically for the car purchase. But now that the car is paid off, I thought I’d mention some of our other financial goals and how we’re going to get there.

    The first thing we are going to do is continue saving for a new car. That might sound strange, considering that we just bought one. But we’ve decided that we never want to take out a car loan again. Every car we buy from now on will be paid for with cash. Our next car purchase should be in about five years, and we’ll probably spend about the same amount of money. Saving $325 per month for the next five years will give us $19,500 plus interest. We should be able to pay the remaining cost of the car with the trade-in value of our current car and additional savings. I’m not contributing more to the car fund because . . .

    I am also significantly increasing the extra amount that we pay on my student loans each month. At this rate, my loans should be completely paid off in less than two years.

    Finally, I am increasing the amount we put into “regular” savings each month. In addition to what I have budgeted, I’ll be snowflaking all extra income into our savings. This savings is money that will pay for our vacation in Las Vegas in the fall (we’re going for a relative’s wedding), as well as any other unexpected expenses that arise. Once we’ve saved a substantial amount, I’ll use the money to make a large principal payment on my student loans, and then we’ll start over with the savings. (Note: This isn’t our emergency fund, which will remain untouched.) While I could put this money toward my student loans to begin with, I like having the extra cushion in my savings account. (Especially since we have talked about installing a new air conditioning system, which would run about $3500.)

    Once my student loans are gone, we’ll be debt-free except for our mortgage. I’m really looking forward to celebrating that milestone!