Check In: New Year’s Resolutions and the Emergency Budget

Now that 2015 is in full swing, I thought it was about time to see how my New Year’s Resolutions (NYR) were hashing out. Way back in January, the decision was made to focus on dramatically improving my long-term financial goals: early retirement and family planning.

The Recap

  • NYR #1: Fully contribute to my 401K retirement account- $18,000
  • NYR #2: Fully contribute to my Roth individual retirement account (IRA) – $5,500
  • NYR #3: Increase taxable investment account by 25% – $7,500
  • NYR #4: Maintain emergency fund by saving three months worth of expenses – $7,500
Savings/Investment Monthly Current 
401K  $ 1,725.00  $ 3,450.00
Savings  $   624.00  $ 1,248.00
Mutual Fund  $ 1,042.00  $ 2,084.00
Stocks  $          –  $          –
Roth IRA  $   458.00  $   916.00
Total Savings/Investment  $ 2,124.00  $ 4,248.00

Thoughts So Far

Thanks to the power of automation, all my account contributions are chugging along smoothly. My monthly transfers are listed and the current amounts moved so far. I also want to note the amounts can be deceiving, because of how they are transferred. For example, my 401K is immediately taken out by my employer so the feel or impact of not seeing that money is minuscule compared to the mutual fund which is removed from my checking account inspect all the time through my Mint account. I can definitely feel the belt tighten there. In addition, I upped the ante on on my taxable mutual fund. Instead of targeting an increase of $7,500, I have the deduction going at an annual rate of $12,500. I’m a proponent of pushing the limits of your goals. I may not hit $12,500 at the end of the year, but it does give me wiggle room if/when things get unpredictable. Overall, this has been way more challenging than expected. It is working, albeit to some detriment.

Things I have noticed? My eating habits have significantly changed which is not surprising since I planned to cut down cost for my NYRs, but I really didn’t think it would change this much. In the past, I have always been the “you have to try everything once” kind of gal. At grocery stores I would pick up the newest roast of my local coffee shop. When eating out, I’d always get the special of the day to see what creativity my favorite sandwich maker had going. No more! I am so incredibly picky and judgmental now. Just this past weekend, I went on a ballistic rant about the rice at a sushi restaurant. How did I transition from a carefree eater to an unhinged maniac about plain old white rice? I have reasoned it out to this. One, now that I eat out significantly less, I expect more. I most definitely expect it to be better than what I can make in my own kitchen. I mean… it was just rice! Two, I now see dollar bills as my employees, not paper. My money-peeps help grow my lifestyle enterprise. I treat and manage them to the best of my capabilities and in turn they produce valuable returns. When I send my cash money staff to return delicious food and they give me stale, refrigerated rice… well I have failed. And I hate failing.

However, there was success! A comparison of Jan-Feb 2015 to Jan-Feb 2014 shows that I’m spending approximately $463* less per month. Thumbs up! I also have a quick tip for those that are trying new budgets and determining if it is going well. Compare months to like months; many people’s expenses change based on seasonality. I would not compare Nov/Dec to Jan/Feb. Although your income (i.e. interest, dividend, salary, passive, etc.) are more similar, it usually fluctuate less. Your spending on the other hand could be significantly different between months (i.e. Christmas and Thanksgiving during the fall, weddings in the spring, etc.). Keep track but stay sane. If you’re here, you likely don’t need to analyze every cent coming in and out.

Still More to Go

Lastly, there were a couple of things included in my resolutions that were more qualitative than quantitative. Not really my forte but a necessity nonetheless.

  • NYR #5: Re-balance my retirement accounts
  • NYR #6: Create an emergency budget (this is the expected and pared down budget if faced with an emergency)

Quite frankly, I have not looked at my retirement accounts since the first week of January. My focus has been entirely on my investment and savings account. So unfortunately, no update for the re-balancing, but I do have plans this month to get my act together. I would note that if you own a market index fund, it is looking quite good right now. I’m definitely curious to see how the year turns out. Anyway, back to the NYRs.

The emergency budget, I did take my first shot at it which is condensed below. My budget is vastly different than most. I do not drive regularly and do not own a car (approximately 90% of American households owned a car in 2012), do not have children, and do not own a home. You may or may not be in a similar situation so keep that in mind when reviewing. I’ve included some assumptions about the expected changes in my lifestyle; you’ll want to do something similar if you are creating an emergency budget. In general, I reviewed where I’m spending my money that is job-related and determined the possible future changes that could occur. I then updated my current budget accordingly.***

Assumption

  • I still want to put some money towards my investment accounts, even if it i significantly less. $1500 versus $200.
  • An emergency would take me out of the work force (i.e. no salary income).
  • I would not be physically disabled.
  • My partner would continue to work at their current salary.
  • All current service costs remain the same (i.e. I would not renegotiate to lower costs).
Savings/Investment Monthly Emergency
Savings  $   624.00  $          –
Mutual Fund  $ 1,042.00  $   100.00
Stocks  $          –  $          –
Roth IRA  $   458.00  $   100.00
Total Savings/Investment  $ 2,124.00  $   200.00
Expenses Current  Emergency
Electricity/Energy  $     26.00  $     30.00
Rent  $   875.00  $   740.00
Mobile Phone  $          –  $     45.00
Entertainment  $     13.33  $          –
Internet  $          –  $   120.00
Rental Cars/Taxis  $   150.00  $   220.00
Food  $   500.00  $   300.00
Shopping  $     50.00  $   100.00
Total Expenses  $ 1,614.33  $ 1,555.00
Total  $ 3,738.33  $ 1,755.00

The reality is that my employer helps me a ton and if I were to no longer work a lot of those benefits disappear. This includes my Internet service, mobile phone, and public transit subsidy as you can see from those expense increases. I do figure that my rent payments, entertainment, and food costs would also decrease given that I’ll be home much more often (probably trying to figure out new way to generate income) and my partner would cover slightly more of our expenses. All of that comes down to $1,755 in monthly expenses that need to be covered with an emergency fund. My thought is to round that out to $2,250** for eventual child caring expenses. Based on NYR #4, my original thought was that three months worth of expenses would be $7500. It looks like I’m on track ($2,250 x 3 = $6,750). Overall, I am able to cover quite a few months with my current emergency account. In fact, I am contemplating taking money out of the emergency account and investing it in a mutual fund rather than sitting there earning little interest. Maybe an update on that in a later post.

The exercise of creating an emergency budget was great. I highly recommend it, if you haven’t done so already. It forces you to look at what’s really important and gives you a general idea of how risk averse you are. I also got a chance to talk to some friends about their child caring costs and experiences. It really opened my eyes on how much spending goes to babies. In short, it is a lot. I also realize, I may have been putting away too much (a good problem to have) and that my money is better utilized elsewhere.

Would love to here about other folks experiences with their New Year’s Resolution and emergency budgets. Good luck to all those folks out there diligently sticking to their lists. Even if you’ve broken  a few, you should definitely keep going!

* Average spending of January February: 2015 Avg: $1,713; 2014 Avg: $2,156.

** I estimate that caring for a child would cost about $5,940 a year or $495 per month. This is significantly less that what I have seen on the Internet (between $10,000 and $12,500 annually). Here’s why. If at home, there is no need for childcare services which is a huge cost for most families. The estimated factors include housing which is already accounted for; so I removed that from my estimation. I also have a large network of mommies that can help with clothing, child\baby supplies, etc. Lastly, my partner has excellent preventative care insurance to cover health expenses (she actually works at the hospital).

*** There are much more refined approaches to creating an emergency budget. Here’s a blog post that went into great detail or this one that had a nifty calculator. Try them out and figure out what’s best for you.

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