Anything left should be put into a good mutual fund until you hit 30% (or more)<\/li>\n<\/ul>\n3. You have at least $1000 in an emergency fund.<\/u>\u00a0 In cash, ready to be used for a car breaking down, unexpected expense, etc.\u00a0 This helps you maintain your savings goal of #1 so you’re not schizophrenically starting\/stopping\/changing your contributions.<\/p>\n
4. You have at LEAST 6 months of living expenses on hand in CASH.<\/u><\/b>\u00a0 Not in bonds\/stocks\/retirement accounts.\u00a0 This is money above and beyond anything else sitting there ready to be used with no other strings attached.\u00a0 The way you know you have enough is that if you lost your job, no relatives could send you money (aka absolutely NO other money is coming in), could you pay all your bills, rent, home\/car\/student loan payments, buy food, gas, and have enough money to go looking for another job for a solid 6 months.\u00a0 Better still is having 9-12 months saved – especially if you have a professional job that might take some time to find a position.\u00a0 Odds are very good this is going to be in the $20,000-$30,000 range for most folks.\u00a0 More if you have a family.<\/p>\n
I personally have 9 months saved up with enough money to go to 2 targeted conferences with job fairs and pay for 3 flights with hotel+car rental during that time.\u00a0 In addition, I have enough for first\/last month and moving expenses in case a new job takes me to another city.<\/p>\n
Why in cash?\u00a0 Well, because if you lose your job, odds are good the time that happens will be a financially tough time in the economy at large.\u00a0 Hence the reason you got laid off.\u00a0 That means that stocks and other investment vehicles will probably be down as well.\u00a0 When I worked at Intel and the dot-com crash happened, the stocks crashed too.\u00a0 Then you get laid off and if you try to liquidate those stocks for your living expenses and you had half of what you thought you had.\u00a0 And you’re stuck because you can’t wait to liquidate them when things are better.<\/p>\n
Also, when the dot-com crashed, there were lots of computer folks looking for the same jobs.\u00a0 I knew people looking for work for 12 months.\u00a0 Don’t just think because you’re highly skilled means you won’t be out of work.\u00a0 Often when layoffs happen, nobody else is hiring either – and there will be lots of folks with good skills fighting for the very few jobs open.\u00a0 That’s why you need to save up more than what normal market conditions would require.<\/p>\n
To beat inflation, you can put the 3 month blocks of living expenses in rolling over CD’s spaced so that every 3 months one of them becomes available.\u00a0 Your goal is NOT to build money, but beat inflation but be immediately available and guaranteed.<\/p>\n
5. Alway be insured<\/u><\/b> My professor had a rule:\u00a0 You must be adequately covered by insurance for all possibilities you can’t absorb with cash in hand.\u00a0 This was kind of a surprise for me.\u00a0 My professor said that if you aren’t comfortable\/able to pay for some eventuality – you need to be covered by insurance.\u00a0 Some examples:<\/p>\n\n- Health Insurance<\/strong> – I know, this is brutal – and a good percentage of our country does not have this.\u00a0 If you don’t have health insurance, you should be doing everything in your power to get it – even partial coverage.\u00a0 You are guaranteed to need health coverage at some point in your life – even if you are as fit as a fiddle. Without coverage, you’re playing with serious fire and you should NOT be going on to buy houses or cars or other things until you are covered.\u00a0 This is number 1.\u00a0 If not, prepare to become a sob story on the radio.\u00a0 I have no sympathy for you and you don’t deserve government bailout if you’re driving a new car but don’t have health insurance.<\/li>\n
- Long-term disability<\/strong> – should cover you to a minimum of 80% of your current annual salary.\u00a0 Surprised me – but you can’t believe how many folks get disabled in car accidents\/back injuries\/etc that will debilitate them for the rest of their lives.\u00a0 Without this coverage – you’ll be saddle with the double problems of not being able to work and likely having persistent and expensive medical outlays at the same time.<\/li>\n
- Car insurance<\/strong> – a single car accident that seriously injures someone in another car or folks in your own car (including yourself) can result in lawsuits that can run up to a million dollars.\u00a0 I’ve personally seen it.\u00a0 And if you’re not covered – you most likely will be dragged into a court room and lose your house or anything else of value on top of trying to recover from injuries you’re trying to deal with yourself.\u00a0 You simply must have coverage and not the bare minimum.\u00a0 Just a few years ago, $100,000 in coverage was thought to be adequate, that number is now $300,000.\u00a0 If you don’t have coverage – you can expect to lose your home or have your wages garnished for near the rest of your life.\u00a0 All in the blink of an eye.
\nNow, I used to drive an old Nissan that was worth $1500 blue-book value.\u00a0 I simply dropped insurance to cover my own car in an accident at that point. \u00a0 However, I still kept $100,000 in coverage for injury\/other drivers.\u00a0 I saved $30\/mo that way.\u00a0 Reason being that I had enough money saved up that I could absorb that money IF I got in an accident.\u00a0 And you know what – the gamble paid off.\u00a0 I had no accidents and ended up saving about $400 in one year.\u00a0 However, this requires that you actually HAVE the money to replace the car and can actually absorb that hit.\u00a0 It’s a gamble that if you lose, you can just shrug and pay off – not live on Ramen noodles for 6 months.\u00a0 This is the principle of ‘if you can absorb it – don’t insure for it.\u00a0 If you can’t absorb it – then insure for it’<\/li>\n- Home\/renters insurance<\/strong> – I went without this for some time when I didn’t have much in the way of possessions.\u00a0 The cost of insuring it was not worth the few $1000 worth of stuff I had.\u00a0 Now that’s not so true.\u00a0 Don’t believe me?\u00a0 How much would it cost to replace the clothes, books, kitchen wares, computer, electronics (xbox, stereo, tv, dvd player), furniture, bed,\u00a0 paintings, blinds, etc in your home or apartment?\u00a0 If you could re-buy it yourself and not cry any tears – then just go without insurance.\u00a0 But unless you’re a monk (which I dabbled with!), you’ll have about $10,000 worth of stuff – even if you’re living frugally.
\nAlso, in an apartment, just ONE irresponsible person can burn the building down – so your exposure is higher.<\/li>\n- Life insurance.<\/strong>\u00a0 I have no heirs or dependents – so I don’t bother.\u00a0 Sure, you could get it and donate it to some good cause, but I don’t bother.\u00a0 If you have kids\/wife, I believe the amount you need is equal to 5-10 years of living expenses – but I’m not sure of that exact number – look it up.<\/li>\n<\/ul>\n
6.\u00a0 Buying a home<\/u><\/b> – you cannot afford a home unless you have a 20% down payment in cash, and your monthly mortgage payment (WITHOUT DEDUCTIONS) is 40% or LESS of your TAKE HOME (after tax) pay on a 15 year FIXED mortgage.\u00a0 You should also have on hand the 6-12 month emergency fund funded to take care of the new mortgage payments as well.\u00a0 This sounds outrageous and overly harsh considering the financial vehicles being peddled today (interest only, second mortgages, etc).\u00a0 But traditionally, and for most years up until this point, this was the rule of lenders for home buyers.\u00a0 By following this rule you can absorb repairs that will likely run thousands of dollars, can absorb a market decline, refinance to a 30 if you get into financial trouble, AND still have a life.\u00a0 This also means you’ll likely be buying 1\/2 the house other people are buying with your same income.\u00a0\u00a0 But when you can barely afford the monthly payments on your 30 year mortgage, already have a floor rented out, AND then get hit with a job loss\/new roof\/etc – you have absolutely no out or way to work with the bank.\u00a0 Which is exactly what you’re seeing play out all over the country.<\/p>\n
You also cannot afford to buy a house if you don’t have the first 5 things covered (fully funded retirement, fully funded emergency funds, insurance).\u00a0 First things first.<\/p>\n
7. You have clear financial goals and review them yearly at minimum<\/u><\/b>\u00a0 You do not let your finances go on autopilot – even if you have no immediate goals.\u00a0 Mutual funds for your retirement need to be reviewed every year at bare minimum.\u00a0 Other goals you might be working on:<\/p>\n\n- Paying off all debt<\/li>\n
- Weddings<\/li>\n
- Dream vacations<\/li>\n
- Savings for a child\/children<\/li>\n
- Saving for child college fund<\/li>\n
- Additional money for investment purposes or starting a business (businesses should almost *always* be started from home while you have gainful employment until they are making money and can pay for themselves and you)<\/li>\n<\/ul>\n
And so forth.\u00a0 Basically: you have plans and are working towards them.
\nAnd least you think this is all impossible, I do this AND contribute 10% of my salary to charity (all save owning a house anyway – because I haven’t got the 20% down yet).<\/p>\n
I’m sure there’s others – suggestions you’ve heard?<\/p>\n","protected":false},"excerpt":{"rendered":"
After listening to the talking heads blame this and that for the latest financial situation- and OPB’s love to link everything to the coming election – I want to throw a little of my take on this out there. I keep hearing folks walking around out here saying “It’s the fault of George Bush” \u00a0 I’m not a big fan of Georgy-boy – but folks – if you think the president sitting in his office is responsible for this current…<\/p>\n
Read More Read More<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[1],"tags":[],"class_list":["post-236","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p4WECr-3O","jetpack-related-posts":[],"_links":{"self":[{"href":"https:\/\/mattfife.com\/index.php?rest_route=\/wp\/v2\/posts\/236","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mattfife.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mattfife.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mattfife.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/mattfife.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=236"}],"version-history":[{"count":0,"href":"https:\/\/mattfife.com\/index.php?rest_route=\/wp\/v2\/posts\/236\/revisions"}],"wp:attachment":[{"href":"https:\/\/mattfife.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=236"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mattfife.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=236"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mattfife.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=236"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}