Need Help with EF

[frugalguy]

Hi everyone. I just want to say thanks in advance for any help you may give my wife and me. Here's the situation: I, like others, am having a hard time keeping my EF from flailing. My goal is to have one month's expenses saved up by Jan. 2 2011 ($3k). In order to do this I am putting away $193/mo. to the savings account. Now, everything should be okay but I keep coming up with unexpected expenses. My savings are down to $1177! So I renegotiated my cable bill, car insurance bill and cell phone bill. Next month I should start saving $90/mo and about $120 starting in June. My question is, should I put the extra money into the EF or into our budgeted envelope money. I literally have a shoe box with envelopes that I put cash into for bi-weekly purchases. It goes like this:
Gas: 200
Groceries: 150
Restaurant: 50
Retail: 20
Car: 10
Prescr. Drugs: 63
Misc. 20
Charity: 340
Our fixed expenses are as follows:
Rent: 565 (includes utilities)
Line of Credit: 40
Car Insurance: 79
cable: 80
Massage membership: 49 (will be canceling in July)
Car payment: 350
Credit Cards and Student loans: 235
We make around $3000/mo. and don't put anything away to retirement (my wife's job contributes 5.6% to a teacher pension, though). We do pay an additional $197/mo to credit card debt. I figure I'm getting a better return on my money by paying off cc debt first and then I will allocate the money to retirement. My wife and I are 27.
So to recap, I think I'm doing my best but can't seem to keep my savings above $1500. And my a/c in my car just went out (I live in the South and can't go without A/C), my wife needs dental work done and I'd like a $6/mo gym membership. I've lost 54 lbs. by working out outside but with Summer coming I don't think I can continue my weight loss in triple-digit weather. Anyway, what do you guys think I should do? Should I increase my misc. envelope or just tuck the money away to the EF and use the money as needed?

[disneysteve]

Welcome. I see a number of problems with the numbers you posted. You are struggling to fund your EF. You are carrying credit card debt, student loans and a line of credit. But you have a number of luxuries on your budget. Over 11% of your income is going to charity. You can't afford that until you get out of debt and start living below your means. You list restaurants, cable TV, massages and a hefty car payment. I think you need to cut out all of the fat, get out of debt, start saving for retirement and then you can think about things like charity, cable TV, dining out, etc.

[disneysteve]

Another suggestion is that you add a couple of items to your budget: car repair fund; home repair fund; medical fund. Those are things that you can be 100% sure will be needed from time to time. Best to prepare for them. They really aren't emergencies.

[wincrasher]

You are literally giving away your future by giving so much to charity. That is simply a luxury you can't afford. Look for ways to give your time, instead, if you must.

Normally I'd say a gym membership is a good investment in yourself. But in your situation, I'd say you need to walk, run or bicycle instead until you are in better financial shape.

Cut the cable out completely. Terminate the message membership immediately if you can get out of it. Sell the car and get something more in line with your income.

Good luck!

[creditcardfree]

An emergency fund is a critical building block of your financial plan. You must make all the sacrifices you can to get it funded. It includes the suggestions that others have mentioned and possibly others that you did not elude to in your post.

Pay only minimum on debts until you get it funded. Sell everything you can think of to fund it. And then don't touch it, except in an emergency. And you need to evalute every emergency that might come your way, to determine if it is really worth dipping into your fund. Is there another way to come up with the money, besides credit? Can the emergency wait until you can fund it with future income, rather than the emergency fund?

The lessons you learn by getting the emergency fund funded are critical to other financial decisions you will make. It teaches you to live on LESS than you earn, so there is room for the unexpected.

Let us know if you have other questions!

[maat55]

Just getting rid of cable and eating out will get you the 1500 in 12 months. You could have a couple of garage sales and get a temporary part-time job to get ahead.

Your EF, paying off CC's, then establishing your retirement plan need to be prioritized before any wants. If you do not make retirement a part of your regular expense you will likely turn 40 with no savings.

[watsoninc]

One note, if your charity is your church (i.e. you are giving your tithes, and according to your numbers, this seems plausible), I do not think it is unreasonable to continue giving. A financial plan does not precedes a moral obligation IMHO. Otherwise, it doesn't appear you are a position to be giving that much, yet.

If you temporarily eliminate dinner (50)+ cable (180) + massage (50), you will have your $3000 EF in 11 months. Also, you may have to pick up a part-time job if possible, which would accelerate your plan even greater.

[BlackDiamond]

Why do you spend $50 a month on restaurants? My fiance went to a restaurant last week and that was the first one we'd been to (where we paid) since January. Our bill came to $27.50 + a tip.

Why do you have a massage membership? Are these medically necessary? Why do you have to wait until July to cancel?

Your charity is way too high. You need to stop that or decrease it signifgantly until you can afford it. Donate your time if you want to give.

Also is that one car or two? If it's two, and you need two, ok. But if it's one car at $340 a month that is way too high.

[disneysteve]

Why do you spend $50 a month on restaurants? My fiance went to a restaurant last week and that was the first one we'd been to (where we paid) since January. Our bill came to $27.50 + a tip.

BD, going to a restaurant is not a problem at all and $50 for dinner for 2 is not unreasonable, but only if you can afford it and OP can not. My wife and daughter and I enjoy eating out and probably do it more than we should but we also save close to 25% of our income, max our retirement plans, save for college, have no debt except our mortgage and have a fully funded EF.

[BlackDiamond]

BD, going to a restaurant is not a problem at all and $50 for dinner for 2 is not unreasonable, but only if you can afford it and OP can not. My wife and daughter and I enjoy eating out and probably do it more than we should but we also save close to 25% of our income, max our retirement plans, save for college, have no debt except our mortgage and have a fully funded EF.

That's why I asked him why he goes.

My only thought was maybe a business expense? Ie. he takes a client to lunch or something once a month.

I can't wrap my mind around spending $50 at a restaurant honestly for two people. But then again, I enjoy cooking at home and know I could make the same thing for less than that. I wouldn't enjoy it.

[deedee421]

One note, if your charity is your church (i.e. you are giving your tithes, and according to your numbers, this seems plausible), I do not think it is unreasonable to continue giving. A financial plan does not precedes a moral obligation IMHO. Otherwise, it doesn't appear you are a position to be giving that much, yet.

If you temporarily eliminate dinner (50)+ cable (180) + massage (50), you will have your $3000 EF in 11 months. Also, you may have to pick up a part-time job if possible, which would accelerate your plan even greater.

Thank you so much for your response regarding tithes. I've been debating how to respond, and you put this very well. I agree completely.

[watsoninc]

Thank you so much for your response regarding tithes. I've been debating how to respond, and you put this very well. I agree completely.

You are welcome. I remember struggling with this very issue when I was becoming debt free nearly two years ago. If your financial plan doesn't have even a 10% margin for a moral conviction/spiritual obligation, then there is something wrong with the financial plan IMHO. For example, you may need to consider a career change if possible or picking up a temporary part-time job. If someone is demoralized because he feels like he is violating a core spiritual tenet (i.e. paying tithes), I don't know how successful he will be in debt-repayment anyway. I will say that there is some debate over whether offering (amount over the tithes) should be given when you are in consumer debt.

BD, it is very easy to spend in excess of $50 for a dinner for two, depending on where you go. Like DS, I think it is all about whether or not that fits into your budget. If you are leveraged with bad/consumer debt and are struggling to build an emergency fund, it is a luxury that you really cannot afford IMHO.

[BlackDiamond]

What on earth kind of church requires that it's members who are struggling to get ahead with their finances donate that much (or any!) money to them to be considered "moral"? I have never heard of such a thing.

[disneysteve]

What on earth kind of church requires that it's members who are struggling to get ahead with their finances donate that much (or any!) money to them to be considered "moral"? I have never heard of such a thing.

BD - This is a constant debate around here (and on many other boards). No church, synagogue, mosque or any other house of worship that I know of requires members to give 10% of their income. However, many individuals feel that they have a personal responsibility to do so. It isn't logical. It doesn't make any financial sense. But it isn't something worth arguing about because people who feel that way aren't likely to change their minds. I've always chosen to stay out of the tithing conversations for just that reason. I have patients who tell me they "can't" afford their medicine because after they pay their tithe, they don't have enough left to live on. They would rather die than reduce their tithe. You can't reason with someone who feels that way.

[creditcardfree]

Tithing is referenced in the bible, so many Christian churchs that view the words literally, emphasize tithing,not that anyone gets kicked out of the church for it. Personally, I think if one was to talk to their pastor, the pastor might give them a break on the tithing. I'm also of the belief that God does not need your money to know your true heart and intentions. I also agree with putting in time or giving less for a period of time.

I do respect those who feel otherwise, it is a personal choice. One can tithe and still make headway financially, but you can't go out to eat, have cable and eat and restaurants along with it and expect to get ahead. You WILL have to make sacrifices if your priorities are an emergency fund and tithing.