Why we all need an emergency fund

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Happy New Year 2018!

January’s blog post theme

During the month of January, I’m going to be thinking about money, as we have set some specific financial goals for our family in 2018.

It follows that my blog posts may follow a bit of a financial theme in this first month of the new year.

Holiday listening

In particular, I’ve been listening to Dave Ramsey’s podcast over the holidays. Ramsey’s consistent, straight-talking and sound advice has benefited thousands of people worldwide and his simple series of Baby Steps has helped his readers, listeners and YouTube watchers get a grip on their finances and – in Ramsey’s words – “Change their family tree.”

Baby Steps

The Baby Steps help break down Ramsey’s plan into manageable chunks and build momentum. Indeed, the small wins that can be achieved early on in the programme through these Baby Steps help psychologically with motivation.

Baby Step 1

The very first of the Baby Steps is to start an emergency fund of $1000 (or, in the case of us Brits, £1000).

This should be done as fast as you can.

If you’re already a seasoned declutterer, you may find this easier than you think. A good rummage through your garage, wardrobe or loft may yield some excess stuff you no longer need, so you may soon be able to pull together the funds to get started.

If, like me, you’ve already learned to let go of stuff, freeing up unwanted items to contribute to this initial £1k may not be too much of a challenge. It may take only the effort of cleaning them up, photographing them, then listing them online on sites such as ‘Things for Sale in Kenilworth’ (our local community site on Facebook) or eBay.

Why Baby Step 1?

Ramsey’s approach is to establish this beginner’s emergency fund so that if you have a genuine and unforeseen expense, you won’t have to go into debt to pay for it. In a later Baby Step (#3), a fully-funded emergency fund of 3-6 months worth of expenses is put in place, but this starter fund is where we begin.

When you need an emergency fund

Between Christmas and New Year, we had a sudden and unwelcome fall of slushy, grey snow. We came down for breakfast the morning after Boxing Day and noticed something was odd about the hedge that usually sits against the wall by the side of our kitchen window. The supports to the hedge had given way in the wind and snow, so the prickly shrub had lowered itself forward over the border, covering all of the smaller plants and herbaceous perennials beneath.

Thankfully, with some significant effort (and 6 hours’ commitment), my lovely husband managed to shore up the woody stems, drill new supports into the wall, and push the hedge back into place.

However, this unexpected job reminded me that we weren’t quite as lucky when the fence blew down.

When the fence blew down

On the other side of the garden, we share a boundary with our next door neighbours.

One very stormy night two or three years ago, our shared fence decided it was no longer fit for purpose, leading to an unexpected but essential replacement. This cost about £375 per family, which our emergency fund was able to cover easily.

The point of this is that, whilst you’re taking steps to get your finances into good shape, the last thing you need is a mini-emergency to set you back.

In 2016, research by the charity Shelter found that 37% of working families in England could not cover housing costs for more than a month in event of job loss. Ramsey’s approach is designed to mitigate against this and putting an emergency fund in place is a first step in the right direction.

Do you have your emergency fund in place?

If you haven’t done so already, I’d encourage you to get your emergency fund in place.

So, when the metaphorical fence blows down, you’ll have the financial resources to deal with it. Plus, there’ll be no call on your emotional reserves either, as you won’t be stressed about how you’re going to pay for it.


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The Life Energy Experiment – One Year On

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A little over a year ago, I conducted a simple experiment. The essence of it was simple and you can read my rules here.

The Life Energy Experiment

The experiment invites you to consider how much ‘life energy’ (or time in paid work) you have to devote to pay for something you want to buy?

As Henry David Thoreau put it, “The cost of a thing is the amount of one’s life which is required to be exchanged for it, immediately or in the long term.”

As a rule of thumb, I used my gross hourly rate, but if you were going to be 100% accurate, you’d use your net hourly rate (less the cost of getting to work and other work-related costs such as clothing). That really focuses the mind.

Some examples

Imagine your gross hourly rate is £10 per hour (for easy maths) and you work a standard 7.5 hour day. I know that’s a simple way to view this, but let’s take it as an example. You can work out your own figures.

See how much of your life you’d have to devote to earning the money needed just to buy the following things:

  • Take-out pizza from Domino’s – £9.99 = 1 hour of your working day and just moments to consume!
  • New (full-price) coat from Zara – £99.99 = 10 hours of effort (so more than the average working day)
  • Your family’s weekly shop from mid-range supermarket – £120 = 12 hours of paid work (or 1.6 days’ effort)
  • A tank of fuel for a small car – £39.50 = 4 hours of work or half a day in the office! I know that I could get a monthly pass for the bus for just £5 more….

What about things you don’t really need?

Once you’ve started viewing your expenditure through the lens of the Life Energy Experiment, you might hesitate a little as your finger lingers over the ‘Buy it Now’ button.

You might look for ways to achieve the same goals (or to get what you’d like) in other ways:

  • Buying second-hand
  • Borrowing
  • Finding a substitute

Think about the Life Energy Experiment

So, think about the Life Energy Experiment as you go about your Christmas shopping this year.

For me, it’s definitely changed the way I view how I shop and what I choose to buy. And, as Amy from More Time Than Money says, there are times when you look at something and can simply proclaim, “This can stay money!”


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Sticking to your budget – week by week

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For a while now, I’ve been using my dual account budgeting system for our family finances. In case you haven’t read about this before, I use two separate accounts. One is for all of our regular standing orders and direct debits, the other for discretionary spending including food, fuel, clothing and so on.

Use two accounts

Splitting out our two major spending groups means we never have to worry about our bills. These are paid automatically. Plus, we make sure there’s always the money we need in the first account to cover this planned, regular expenditure.

Track with an app

As well as my dual account budget spreadsheet, I’ve been using an app called Spending. This helps me work out what proportion of my overall expenditure is devoted to the different categories I have specified. By seeing the percentages in Spending’s pie chart, I know that I’m allocating the correct proportion of our overall household budget to each category.

Try breaking expenditure into weekly totals

In spite of paying a lot of attention to budget tracking, August seemed like a very long month in money terms. The long summer holidays meant our usual spending patterns shifted and there seemed to be too much month left at the end of the money.

So, I decided to take my ‘what gets measured gets improved’ philosophy a step further. I opted to divide my monthly budget amounts into weekly totals. This way, I could pace our expenditure, and track our overall monthly finances at the same time.

Here’s how I did it

I quickly worked out the number of weeks in the month. It’s easy if every month is February (28 days/7 days in a week = 4 weeks in the month). But, what about a month in which there are 31 or 30 days? Well, a 31 day month has 4.43 weeks and a 30 day month has 4.29. So, that’s the maths out of the way.

An example

Imagine you’re allocating £575 per month to your family food and groceries and you’re in a 31 day month, that gives you £129.84 to spend per week on your weekly shop. Seeing this amount as a weekly total really helps you focus when you’re doing your online shop. I have found that if I spend a few more moments comparing prices and making substitutes, I can keep within the weekly amount.

When it gets tricky

Other items are a little more tricky to manage on a week-by-week basis. For example, a single tank of fuel can exceed the weekly budget, but I know that we only fill up around once a fortnight. For this category, I might allocate fortnightly amounts.

I also think it’s OK to vire between budgets (get me with my finance terminology!). For example, if I know that there are no school lunches to buy during vacation time, I can boost another ‘pot’ if that would be helpful or allocate those funds to savings.

What next?

So, I’m going to continue for the remainder of the month and see whether or not this ‘pacing’ of expenditure makes a difference. At least, I’m not buying stuff we don’t need. That’s such a blessing in so many ways.

How about you? What helps you stay on track? Do you use an envelope system and pay for everything in cash? Do you have a favourite app? Do share!


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When the next level up might be a double-edged sword

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Last week, I overheard two colleagues talking, as I passed them on my way to another building. One had shared some information, perhaps about a new job or house. The response from the person receiving the news was, “Oh, that’s good. Is it a level up?”

This struck me. If a new job or a new house is ‘up a level’, what are the benefits? What are the implications?

Stepping up

In respect of the former, a ‘step up’ in career-terms might bring more money, status and recognition. It might be the culmination of years of hard work and study to achieve a long-held goal. Great! Yet, what else might be in store at the next level up? More responsibility? Longer hours? More stress?

If the latter, a new house can mean more space, a new environment, a place to welcome friends and the sense of being ‘a level up’ on the housing ladder in investment terms. The converse is that a new house might bring more debt, more house maintenance and the need to do more paid work, as we service the needs (and costs) of a bigger, more expensive place to live.

Pros and cons

So, if you are thinking about going up a level, take a long, hard look at why. Do the pros really outweigh the cons?

If you consider that your job is fundamentally an exchange of your ‘life energy’ for pay, you might see the prospect of the next grade differently when you reflect that you have the chance to gain a sense of personal satisfaction from the other things you do outside of work. You are not your job. Your job is just one of the things you do. Yes, by all means maximise your earning potential but not at the expense of the things that matter to you (e.g. time with loved ones or a home-cooked meal).

The alternative

You might want more space, but do you really want more debt, higher bills and a commitment that can’t easily be aside. Instead, consider if the process of decluttering might just help you see your existing home through fresh eyes. Do you really need more room or just less stuff?

So, the next level up may be a double-edged sword. Be clear about what you’re getting into. Maybe being where you are right now isn’t such a bad thing after all.


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It’s not what you spend, but what you buy that matters

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I’m reading a book* about our relationship with money. As I read, I realise that a lot of what we learn about money management suggests that tracking our spending will help us ‘tell our money where to go.’

We all know that if we look after the pennies, the pounds will look after themselves. Right?

Was what you bought really worth it?

Whilst establishing (and sticking to) a budget works for a great many people, the authors offer a fresh perspective. They argue that, if you first work out your proper hourly rate of pay, you’ll then be able to consider how many hours of work (translated into life energy’) you expended in order to buy something. Then you can ask if what you bought was really worth it.

When you look at your spending in this way, it takes on a whole new perspective. It might even impact on the choices you make about how you spend your hard-earned cash.

For example, if you earn £10 per hour, that £5 glossy magazine has effectively cost you half an hour of ‘life energy’. When you know this, you can then ask:

“Did I receive fulfilment, satisfaction and value in proportion to life energy spent?”

If not, then you might think twice about purchasing a similar item again next time you’re presented with the opportunity.

Why we spend

In the book, we read that US organisation Debtors Anonymous asserts that we go into debt to avoid feelings, especially feelings of deprivation. Like other addictions, debt allows us to deny pain, sorrow, loss, anger, loneliness and despair. I would say that you are more likely to be struggling with debt – or on a very tight budget – if your spending doesn’t align with your values or bring you real satisfaction.

So, I’m curious.

I’m going to conduct an experiment: a ‘Life Energy (Expenditure) Experiment.’ I’ll do this for the whole of next month.

My ‘life energy experiment’

Rather than tracking my spending or recording ££’s spent, I’m going to track what I buy and ask what value, fulfilment or satisfaction I derived from these purchases. I don’t have any particular plans to buy anything in November (no Christmas shopping for me – see my earlier post on gifting here).  So, I’ll be curious to see how the month unfolds. I’ll be posting my purchases on Twitter, along with their related ‘fulfilment factor’.

Will you join me? What will we notice? How might our future buying habits change by conducting this real-life experiment?

Follow the story using #LifeEnergyExperiment

And let me know how you get on!

*”Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence: Revised and Updated for the 21st Century” by Vicki Robin, Joe Dominguez, Monique Tilford.


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