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You are doing AWESOME! You have now laid down the footings in this journey of building a financial foundation. If you have jumped ahead, don’t neglect the significant portion of having goals, making a budget and using it! The whole purpose of a footing is to support the foundation.
In the book The Total Money Makeover by Dave Ramsey (if you have not read this book, you should!), he uses the term Baby Steps for building a foundation. And we too are going to talk about this term. This term comes from a movie What About Bob? Bob is a little crazy and has a therapist that has written a book called Baby Steps. The framework of that book is “you can get anywhere if you simply go one step at a time”. And because I just cannot help myself here is a little clip from the movie.
Now we are going to think like Bob and do ONE STEP at a time. Did you hear that? One step at a time… Start with one thing and do that with enthusiasm until it’s complete, then and ONLY then do you move to the next step. If you tried to do everything at one time, you would fail.
A great example of this is running. Let’s say that I want to run a marathon. Now something you should know about me, I do not like to run… I can barely run on lap around a track. So I would not just go out and run 26 miles. I would work up to it, running a little bit farther day after day. If I did try to run it all the first day, I would have given up because I would have been frustrated. Working up to it, I would notice the little changes I was making!
Focus on one step at a time because then you will see the changes! If not, your progress will be slow and it will make you feel like you are not accomplishing anything. Making you lose your enthusiasm, don’t let that happen…
To finish building on our foundation, we will work on one important step at a time. Have patience and only move forward after the step is done.
RAINY DAY FUND
We have to admit it, it’s going to rain. And you need to be ready! You could lose your job, the car stops working, water is coming from under the kitchen sink, whatever it is you need to be ready. I am not saying you need a full emergency fund now but you need a rainy day fund. Obviously this will not help with some big emergencies but it will help with the little ones.
HOW MUCH DO I NEED?
This really depends on your income. If you make under $20,000 per year, start with $500. But if you’re over that, you should save at least $1,000 but not over $2,000. See what a good number is for you and save that fast!
To get the funds fast adjust your budget again to only include things that are a must, work extra hours, sell stuff, get another job; do everything you can to get your fund quickly! Ideally you should have your fund in 1-2 months. If it looks like it will take longer, do something more to get you the funds within that time.
As a BONUS, I have created a chart to track where you are in saving your rainy day fund. But to be able to download the file, you need to be an email subscriber. Once you are, you can download the printable plus so so much more.
YOU HAVE YOUR FUND, NOW WHAT?
This part is important, are you listening? When you have your rainy day fund hide it… The point of this is to make it difficult to get to it. What I suggest doing is opening a new savings account (I use a completely different bank). Then this savings account is your DO NOT TOUCH account. I use a different bank because I am less likely to go there. You need to protect this money from your old habits, so put it away somewhere that you will not see often.
WHAT IF I HAVE TO USE IT?
Let’s say you are in the process of paying off your debts, when… Your car breaks down and you have to use your rainy day fund to pay for it. Now what? If you have to use the fund, stop paying extra to your debt and replenish your rainy day fund. Once your back at your number then continue paying off your debts.
WHAT IF I ALREADY HAVE THE MONEY?
If you already have the $1,000 to $2,000 saved, great job you get to move to the next step. BUT if you have more than that amount in anything other than retirement plans, get it out! And use it in the next step of paying off your debts (If you have no debt keep it there!).
Let’s say you have $5,000 in savings already and the thought of using $3,000 to pay the debt is scaring you. It should because it’s your security blanket and there is fear in using it. Or let’s say you’re not sure because you will have a penalty for doing it. Think about why you’re here and if it’s to change your life, you need to do this. Believe me, you are paying more in interest on your debts then that account is earning you…
PLEASE NOTE: You should ONLY use this money if and only if the whole family agrees. Remember all parties need to be onboard or you could be creating some different issues… And don’t clean out your savings if you plan on taking over 2 years to pay off the debt.
Now for your homework, don’t worry I will not be grading you because you should see the result! You need to do everything you can, as fast as you can to get your rainy day fund. Use the chart to keep track of where you are at, FIND THAT HERE.
OK I’VE DONE IT ALL, NOW WHAT?
First, you’re amazing! For some of you, this could be your first time ever having saved this much money and that is a wonderful feeling. Congrats on finishing this step. Now you can move onto paying off your debts and I cannot wait for you to see the TOOLS I have created for this step, they are to die for!
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