SUPER INVESTING newsletter series
Part 1: One of the Most Important Numbers in Your Life: Your Credit Score
Part 2: Business or Investing?
Part 3: Foreclosure Fortunes in Missouri
Part 4: Are you Looking for a Sanctuary in the Current Economic Uncertainty? NEW!

7 New Year's Resolutions for 2010-Part 3 of 7

Hello Rogue Investors,

Welcome to issue number 3 of 7 New Year’s Resolutions for 2010.

My resolutions:

1. I will clean up and get organized.
2. I will review my assets and investments.
3. I will set aside extra money in an emergency fund.
4. I will review my insurance needs.
5. I will pay down debt using the stacking idea.
6. I will finish my estate planning.
7. I will give back with greater purpose.

Resolution Number 3: I will set aside extra money in an emergency fund.

First, I want to say that I would never mention the word “budget.” It is a horrible, horrible word that has been loathed by many generations. I will not and I cannot mention this evil word. On the other hand, it is crucial to know what is coming in and what is going out. Instead of budget, I will defer to my accountant friends and call it personal cash flow. A cash flow statement really does a great job of showing you what is left over from your income and your outgo.

Your goal is to increase the net so you can use the extra money to feed into an emergency fund. You can accomplish this by either decreasing your expenses or increasing your personal revenue. If you have a steady income through a job, distributions, or government pension the money coming in may be somewhat fixed; therefore, the first thing we should talk about is decreasing expenses.

Start by creating a table showing income on one side and outgo on the other. From personal experience you should keep this simple or you won’t do it. No need to worry about fancy personal financial programs in my opinion. Just write it down or use a simple spreadsheet.

Here is an example:

If you are thinking that you have no idea how to monitor this, I would suggest reading one of my all-time favorite personal finance books, “Your Money or Your Life.” This book will help teach you how to monitor your spending. The authors do this by having you monitor all your income and outgo for at least a month. They take it literally, too. If you find a penny in the parking lot, you have to write it down as extra income.

Okay, you created a cash flow statement and you monitored your spending. What can you do to increase your net cash flow?

Remember to minimize what goes out and maximize what comes in. I believe it is important to gradually phase this process in so it is not a shock. This is akin to going on a diet. If you make drastic changes such as vowing to never drink a cappuccino again (a vow I could never make), you are setting yourself up for a fall. Your gains will be offset by frustration and letting your guard down for a big spend at the shopping mall. In a diet and in your personal budgeting (oops, that’s the word I vowed not to say), the following philosophy works best: constant and gradual movement toward your goals

Here are some ideas to save money:

1. Decrease the number of times you go out to eat. If you eat out five days a week, stay in one day. Don’t make it dramatic, just do something small to start.
2. Decrease your utility usage by turning up the thermostat one or two degrees in the summer or down a degree or two in the winter – compensate with clothing.
3. Review your insurance with your agent and see if there is anything you can do to save. Oftentimes, you can increase a deductible or you may be paying for coverage you don’t need.
4. If you receive a refund from taxes, then change your withholdings, keep the extra money and set it aside in your emergency fund, instead of allowing the government to hold the money all year.
5. Drive less or use the car that gets better gas mileage. Rather than driving back and forth to the store, plan your trips so you accomplish more than one objective (e.g., drop off the kids at school, deposit your check and pick up groceries).

Here are some ideas to increase money:

1. Start an online business. For next to nothing, you can earn money through Google Adsense or using an affiliate program. Did you know you can help me sell products and earn a substantial fee? It’s not hard. If you recommend one of my products, workshops, or real estate we own, we can offer an affiliate or finder’s fee.
2. Sales. If you can sell, the world is at your feet. You can get a part-time or full-time job anywhere. Every business is lacking high-quality sales people. Do you know how I know? Because a good sales person pays for herself in an easily quantifiable manner. If you told me you are self-motivated and you would work on commissions only, then I would say you are hired. Why not? That’s what every business wants. The more, the better.
3. Ask for a raise or overtime. Even in this economy it doesn’t hurt to ask. If you are valuable, then you should know it and not be ashamed about it. Many companies are not hiring, but they are using their existing employees to the fullest extent.

Setting up an emergency fund is as easy as going to your local bank and setting up an extra savings account. I would not recommend an account that has checks or a debit account. You don’t want to make it easy to access the money. I don’t even think it is a good idea to have online access. In the U.S. we have local credit unions that seem to be a good fit. Of course, make sure that your account is interest bearing. As it grows in size, you will want to ask if a short-term certificate of deposit is available for part of the money.

The point of the emergency account is to maintain at least three months of emergency reserves for expenses. You should understand your expenses now by using the table you just created. If you prefer, some experts suggest a minimum of six months of emergency reserves.

Why is this so important?

Well, as we have seen over the last two years anything can happen and it often does. When you have an emergency fund your confidence will increase dramatically and you won’t be held hostage by employers or your own circumstances. If something happens, you will have a buffer.

Emergency funds are so important that I believe you should set them up before or while you are paying down credit card debt or even while you are saving for a house.

All the best,

Michael Williams
1-913-381-4520


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SUPER INVESTING newsletter series
Part 1: One of the Most Important Numbers in Your Life: Your Credit Score
Part 2: Business or Investing?
Part 3: Foreclosure Fortunes in Missouri
Part 4: Are you Looking for a Sanctuary in the Current Economic Uncertainty? NEW!