The first thing I want to mention (and it might be obvious), but in order to fully fund your emergency fund (and financial security is REALLY important, believe me) you may have to make a few changes in your current lifestyle. If you really want to achieve a goal (like funding an emergency fund) I think you should go full throttle and knock it out.

Unfortunately, in order to save a year’s worth of expenses in a reasonable amount of time you’re probably going to have live a little smarter and make a few changes.

1. 1. Do I really need this?
      One of the most powerful things you can ask yourself when it comes to personal finance and savings money is “Do I really need this?”. Before each and every purchase I just ask myself if I really need this item? Is it a want or a need?

      Is this important?

      If you’ve taken the challenge to furiously save an emergency fund then the answer is absolutely, it’s very important. So, we need to differentiate between wants (things we’d like to have) and needs (things we can’t do without.)

      Obviously the big three are needed (food, clothing and shelter) but what kind of clothes and how often you go out to eat is where we need to take a hard look at. I will be going through about 20 areas that you can either increase the money coming in or decrease the money going out.
      Not all of these items will apply to everyone and I’m sure there’s a million more things that you think of (so leave a comment below with your ideas so everyone could benefit from them.)

   2. Get a 2nd job
      This may be one of the least popular ideas on this list, but it’s also a sure-fire way to increase your income. Moonlighting as a pizza delivery man or working weekends at the home depot may not seem like too much fun, but you have to think of the big picture. The end results.

      You’ll find that a fully funded emergency fund and many nights of restful sleep because little “bumps in the road” financial problems won’t affect you the same way is 100% worth the extra effort it took to establish your emergency fund.

   3. Sell crap you don’t need
      Now that we’ve addressed the wants vs. needs on future purchases, let’s go through our stuff and analyze whether we really need all the crap that we have. Let’s put everything we don’t use in a pile and figure out what we can actually sell.

      Ebay it or garage sale, it doesn’t matter just get rid of it and bring in some money. I usually start with Ebay (because I hope it would fetch a little more than a garage sale would) but for anything I can’t sell on Ebay I’d have a garage sale or find someone I know who is having one and sell me crap there. My theory is that if I don’t need something and nobody is using it, selling it will not only get you some cash but will free up some clutter around the house as well.

   4. Insurance
      You may want to get a couple of quotes from different companies. There are usually a couple hundred-dollar differences between companies. (Just make sure you have your policy in front of you while you speak to them to make sure you get the exact same coverage).
      Also, bundling your policies under one company can save you some dough.
   5. Finance charges
      If you use credit cards and run a balance at the end of the month you are probably paying ridiculously high finance charges. This is a savings and investing killer. It’s almost impossible to consistently earn as much on your money as credit cards charge in interest.

      Here’s my simple rule: Pay it off or pay in cash!

1. Cable and Satellite Television
   Can you cut premium channels, video rentals and on-demand programming from your monthly cable bills? The answer is yes you can.

   Before you go crazy missing your favorite series on a premium channel get quotes from competing cable/satellite companies, maybe you can switch companies and get locked in at a great rate for a couple of years.

2. Cell Phone
   Cell phone plans are changing all the time. Determine if you are really using all of the minutes that you pay for? Do you need internet and texts? Maybe you do but maybe you can trim your plan and save a few bucks each month.

   If your contract is up maybe you can see how much other company’s plans cost or if you really only have a phone for emergencies look into getting a pre-paid phone so you can eliminate the monthly bill altogether.

3. Telephone
   Do you need a land line phone? Look at #6 above and see if you can bundle your home phone right in with your cable provider.
4. Internet Provider
   Look at #6 above and see if you can bundle your internet service right in with your cable provider.
5. Refinance Your Home
   Some of us own homes. You should take a look at the interest rate you are currently paying because current interest rates are at historic lows. If you find your mortgage interest rate over 1% greater than the current market rates you should look into refinancing your mortgage. (You’ll have to do the math and factor in closing costs, or maybe you could keep the same payment but knock some time off your loan.)
6. Credit Card Rewards Points
   Now do not even think about this step if you don’t pay off your credit cards in full each month. If you are disciplined enough to pay credit cards in full then you should put everything on a card that offers you at least 1% cash back. I mean everything, cable bills, groceries everything!

   You’ll be surprised how much that cash rewards start to build. Deposit each check into the bank to help with your emergency fund. It might be small amounts but it’s like free money because you were going to have to pay for those things anyway.

   Just remember my simple rule: Pay it off or pay in cash!

7. Utility Bills
   Try to minimize utilities, don’t run the water while shaving, take a quick shower, keep lights and electronic turned off when not using them. There may not be too much to cut here but just a couple of things to think about.
8. Movies (Entertainment)
   If you must go to the movies try a matinee, they usually cost less and are usually not too crowded. Plus bringing snacks from home and avoiding the concession stand will save you big!
9. Renting Movies
   If you don’t need to see a movie the day it comes out then get a membership to Netflix, it costs less than the price of a movie ticket to rent movies by DVD and streamed directly to your TV. Plus, they have like a million selections to choose from (ok, I’m slightly exaggerating here.)
10. Groceries
    I’m all about the coupons and I love reading the circulars for the sales for the week. Stick to these items and you’ll save a bundle on groceries. Plus buying the store brand can save you a lot, just compare the ingredients to your favorite brand to make sure it’s similar.
11. Pack your own Lunch
    Now a days a slice of pizza costs $2.50, so eating lunch out can really start adding up. Packing a good quality nutritious meal can usually cost half as much as a meal purchased at a fast-food type of place. Plus, you’ll be eating a lot healthier.
12. Eating out
    The same holds true for eating dinner at restaurants. Cutting back on eating out can save you a lot especially since we’ve clipped coupons and shopped for sale items at the grocery store. Plus, you can eat a lot healthier.

    I’m not saying never eat out but make it a special night rather than the norm.

13. Library
    Instead of buying books, magazines, music and even DVD’s, visit your local library and renew your card. The library is a tremendous resource that’s there for the taking. It’s like a Barnes & Noble, Tower Records and a Blockbuster all rolled into one (and it’s all free.)

    I can even reserve and request items online and then I get an email when it arrives.

    The library has come a long way.

14. Energy Efficient Light Bulbs
    Here’s an idea that I did in my house. You won’t see immediate, huge savings but you will get a little savings each month over time. I wouldn’t get rid of my working regular light bulbs, but I’d think about replacing them with energy efficient one’s when they finally do burn out.
15. Drive a cheaper (fully paid off) car
    Instead of buying a new car (or worse leasing a new car) why not just pay a few bucks for a reliable used car. Granted it probably won’t be a “Chick Magnet” but instead of looks and speed we’re concerned with reliability and gas mileage. This is what Dave Ramsey would call an “Old Beater”.

    If you can drive a car that you paid $1,000 for a couple years and put a $100/month toward your next car, at the end of 2 years you’d have $2,400 plus the trade-in or sale of your “Old Beater”, now you upgrade to a better car and do it all over again.

    The best this about this plan is you will never have a car payment!

16. Have your kids go to a State School instead of a private University
    Lastly, I’ll leave you with an idea that should give you long-lasting peace of mind. Instead of worrying about saving up for a private university for your kids, just focus on saving enough for them to go to a State School. If you’ve accomplished this, you can consider your job done.

    Then if your child really wants to go to a private school let them worry about the difference (or you can help if you’re financially sound at that point.)

    State schools are really good, and for the money they’re a real bargain.

I’ve jotted down over twenty ways to save money and start building an emergency fund. I can’t explain how incredible it feels not to worry about money, what an incredibly freeing feeling it leads to.

You can live life the way you want to rather than the way you have to.

So in the long term it’s worth sucking it up and cutting costs, taking on extra work and furiously saving until you reach your goal, because having the freedom to take chances, have fun, and not having to worry about money all the time is really the way life is supposed to be lived.

It’s not 100% cut and dry and you’ll have do a little bit of math (like 3rd grade level – nothing too bad.) but I’ll illustrate a basic guideline I like to use when “stashing cash”, I mean… saving money in an emergency fund.

First things first, you have to determine how much you’ll need for a year’s worth of expenses. Here is a simple method I use to determine what you would need to cover your expenses for a year. Yes, I said a year, I believe in order to have full financial peace (to coin a Dave Ramsey phrase) you should have one full year’s worth of expenses in reserve.

After determining what you need to save to fully fund an emergency fund (a year’s expenses – I’m going to use $40,000 in this example.), the next step will be a plan to save that money for maximize returns and eliminate risk.

Let me first start by explaining what an emergency fund is not. Notice I never used the word INVEST, when saving money for emergencies that last think your trying to do is make a lot of money. That doesn’t mean you shouldn’t get any return on your savings, but this is not a vehicle where you’ll be investing in stocks or options or stock-based mutual funds.

This is money that you need to be able to rely on being there in the event of an emergency. The last thing we want to do is put any of it at risk. We are not trying to “make money” on our emergency fund savings. We are basically preserving principal and finding rates of returns that hopefully will allow us to keep up with inflation.

So, let’s get back to the $40,000 we’ll be using in this example. Suppose you are working the Dave Ramsey Total Money Makeover, if you read my review you’ll know that I recommend saving 3 months expenses first (then go on to retirement, children’s education, etc).

Read My Dave Ramsey Review Here

The first 3 months of our emergency fund will be saved in a regular good old fashion savings account. Even if you get .25% interest.

This first 3 months ($10,000) needs to have 2 things:

• Absolute Security (FDIC Insured)
• Complete Liquidity (You need to be able to walk into the bank and withdraw your money immediately and penalty free

Don’t worry about:

•  Rate of Return (you’re only focus should be liquidity and security)
•  Locking in anything (we need liquidity)

The next focus will be on trying to gain a little return on the remaining $30,000. Basically, we’re trying to keep up with or slightly beat inflation while keeping the investment secure.

For the next 3 months (months 3-6) we’re going to lock in some savings. Using the same example, the next $10,000 we’ll invest in CD’s. These are basically time deposits where we’re penalized if we withdraw month prior to term of the CD.

What I usually recommend is taking the maximum amount of money you can invest in a given month and invest it in a CD. I’ll assume we can save $1,000 per month towards this goal. For the next 10 months invest $1,000 per month in a 3-month CD (if the rate is much better on a 4 or 6-month CD you can use that but don’t go past six months with this $10,000)

As these CDs mature you will consistently roll them over (take the proceeds and invest in another CD) into a six month CD. You will put 10 monthly contributions of $1,000 in 3-month CDs then starting on the 4th month you’ll have one mature, then you’ll invest that into a 6-month CD for the next six months. So after you’re done with the 2nd $10,000 you should have a six month CD maturing every month.

Just continue rolling over the full balance of that month’s maturing CD into a new 6-month CD and you should see a nice little increase in your rate of return.

The last six months of your emergency fund should be no different. You can stick to the CD strategy but start looking at the best rates that you can get (up to a year’s duration). Sometimes banks have a weird higher rate on an 8 month or 14-month CD (try to stay within a year but if you get a really incredible rate of return you can go as far as 18 months, but no longer than that)

The reason I’m recommending a slightly longer duration than a year is because after we establish our one-year emergency fund, we’ll start investing for wealth. The beginning stages of our wealth building will overlap the emergency fund a little, so we can look for better returns.

If a catastrophe struck, it’s not like we can’t get the money if we needed it, we’d just have to forfeit some interest.

The goal with the CD strategy is to invest monthly into CDs so that every month we have another CD maturing. Then we reinvest that money (including interest earned) into a new CD. Our goal with the emergency fund is to have insurance (FDIC) so that our money will be there when we need it, returns are secondary (should look for returns to keep up with inflation not create a ton of income, unless you can do that at zero risk)

What if a money market is paying a better rate than CD’s?

As long as it satisfies our emergency fund rules. 100% security, and 100% liquidity for the first three months and then have a portion of our money rolling (into maturity) each money for a little better return.

If a money market at a bank or credit union is paying a greater rate of return than CDs are currently paying then, by all means, invest your money there. If it’s FDIC insured (or NCUA for credit unions) and you don’t have any time restrictions, then that sounds like a home run. Just keep your eye on the rates in case they change.

What about investing in a government bond fund in my brokerage account?

While short term government bonds have traditionally been a good place to park cash earmarked for conservative investments, bond funds do not meet our 100% insured investment criteria. You see, as interest rates rise the bond our investment (our principal falls) and conversely as rates fall our principal rise.

The last thing we need to the market to tank, or your company decides to “right-size” your position right out the door thanks to some yutz consultant’s recommendation whose company will get paid twice as much as your salary for the input.

The last thing we need in a situation like this (an emergency) is for the principal of our emergency fund to be at risk. This is why you need to follow the two rules with your emergency fund, and you’ll be ok.

•     Absolute security (FDIC or NCUA Insured)
•     Liquidity (Need to able to get to your money when you need it)

Follow these steps and you can sleep like a baby knowing that you’re in a position to weather just about any storm.

~Scott

Think of the two phases as the Ying and the Yang of personal finance problems.

First phase, people spend too much, usually taking on debt or spending (what I call) future savings, like NOT putting money into a retirement account. This is when people decide to not live within their means. The “My neighbor just bought a new Benz so I’m going to buy the new Lexus” mentality. This is what Dave Ramsey calls trying to keep up with the Joneses. (Chapter 5)

Secondly, people don’t save nearly enough, no emergency funds (rainy-day funds). They usually live from day to day. Even if the people live within their means if they’re not saving on a regular basis, when that rainy day happens there is no rainy-day fund.

This usually forces people into debt to take care of their emergencies. Then the debt causes people to stop saving or gives them a great excuse never to start (whether for a rainy day or retirement).

People who have fallen in this trap of increasing debt and non-existent savings start to feel like there is no hope, things just keep getting worse. I’m often asked, “what can I do RIGHT NOW to turn my life around?”

I’ve thought about creating a system to help people get out of debt and take back control of their finances. Take that first step, from being completely out of control, to becoming a builder of wealth. Each time I thought about this I always kept coming back to Dave Ramsey’s The Total Money Makeover. For getting out of debt it’s a fantastic system.

This system has three things going for it.

1. The book is an easy read, Dave Ramsey describes things in terms that everyone can understand. He shares parts of his personal experiences and mixes in some good, clean humor, making for a very enjoyable reading experience. I’m sure you’ve read some finance books that were a little dry (no matter how great the information was).
2. It’s easy to implement right now. Dave Ramsey’s plan needs no special software or years of study and practice in order to implement. The plan contains 7 “Baby Steps” (which I’ll go over in a minute) that guide you through the process step by step. You only need to worry about one step at a time.
3. It works 100% of the time. Dave Ramsey has laid out a plan that is fool proof. When someone calls his radio show claiming that the plan didn’t work, Dave can prove pretty quickly that the caller didn’t follow his plan. The plan is so simple to follow everyone should be successful, but you have to follow the plan you can’t start improvising all over the place.

The first 5 chapters I call the mindset chapters. They give you Dave’s take on five different psychological factors that cause financial problems.

Here is a brief summary:

1. In Denial
   People first have to realize that they have a problem. Most people are in denial when it comes to financial problems until it’s too late. People tend to rationalize their debts and lack of savings. I think it’s human nature. This chapter is your wake-up call!
2. Debt Myths
   The common myth in America these days is debt is normal. People don’t even think about it, they just accept perpetual car payments, credit card monthly minimum payments and FICO scores being the norm.
3. Money Myths
   This section deals with the myth that money is NOT the root of all evil, but if managed wisely, can truly benefit you, your family and those around you.
4. Financial Ignorance
   Dave Ramsey is a champion of the idea that it’s the parent’s role to teach their kids financial responsibility. I really wish they had a program like the Total Money Makeover for students when I was in high school.
5. Got to Keep Up with the Joneses
   Car payments, huge mortgage payments, maxing out credit cards and paying minimums, let’s all make sure we have all the crap our friends and neighbors have… This material peer pressure gets us in trouble more often than not.
   Or as Dave Ramsey puts it: “We buy things we don’t need with money we don’t have to impress people we don’t like.”

The rest of the book contains the 7 “Baby Steps”, if the first chapters dealt with the mindset one needs for a The Total Money Makeover, these seven chapters are the action plan. The physical steps you need to take to become debt free and start building wealth.

Here is a brief summary of the seven “Baby Steps”

1. Save $1,000 in a Beginner Emergency Fund.

   The very first step in your The Total Money Makeover is saving $1,000 in what Dave Ramsey calls a beginner emergency fund (or BEF). To make this happen you need to basically pay minimums on all debt (credit cards, loans…), stop investing in retirement, sell as much crap you have lying around as you can, take on a part-time job if you have to, but get $1,000 saved.

   The theory behind the $1,000 is pretty straightforward. 90% of emergencies can be solved or repaired for $1,000 (brakes for your car, replace a window in your house, or fix the oil burner in the middle of winter so you don’t freeze to death.). Then if need to use part of your emergency fund you go back to minimum payments on everything else until you replenish the $1,000.Bottom line is the BEF is there so we don’t use any debt in The Total Money Makeover.

2. Develop a Debt Snowball.

   Contrary to what other financial experts recommend Dave Ramsey doesn’t get all hung up on interest rates or how much your minimum monthly payments are when it comes to paying down your debt.

   You just need to list every debt that you owe (except for the mortgage) from lowest to highest. Then write down the minimum monthly payments next to each debt. Next determine how much you have to spend paying down debt each month, pay the minimums on all but the smallest and pay every other red cent you have on the smallest debt until it’s paid off. Then add the money that you were paying on the smallest debt to the next smallest debt until that one is paid off. Do this over and over until you are debt free (except for the house).

   Each time you add the payments from a paid off debt to the minimum of the next debt, your payment on the debt you’re knocking out goes up (like a snowball gets bigger as you keep rolling it in more snow).

   For example, if you have three credit card debts ($1,000, $2,000 & $3,000) and the minimum monthly payments are ($10, $20 & $30, respectively) and you have $200 a month to pay down the debt. For your debt snowball, you’d continue paying $20 and $30 minimum payments on the two larger debts and use the remaining $150 to pay down the smallest, $1,000 debt. Then when that debt was paid, you’d roll (like a snowball) the $150 into the $20 and continue paying $170 until the second largest, or $2,000 debt was paid off, then you’d use the full $200 to knock out the last.

3. Save 3-6 Months of Expenses in an Emergency Fund.

   Now that your debt free (except for the house) it’s time to start building the full emergency fund. Dave Ramsey recommends 3-6 months of expenses. So you have to figure out what your annual expenses would be (take a look at this post to see how I recommend you tackle it).

   If you calculated your total annual expenses to be $40,000, then put every extra dollar you have each pay period into a savings account until you reach $10,000. (Since we aren’t investing for our retirement at this step, I recommend only saving 3 months now. After you finish your Total Money Makeover try and kick up your emergency fund to one year worth of expenses. I like to feel secure, better to be safe than sorry)

4. Save 15% of Your Income for Retirement.

   Now that you’ve paid off your credit card debt we can start preparing for those golden years. Save 15% of your income for retirement. Now the obvious place to consider would be your company’s 401k plan, but only invest up to your company’s match. (If they match the first 3% then only start with 3% in the 401k)

   Then put as much as you can in a Roth IRA (tax free earnings in retirement, you’ll thank me later). Then if you were able to maximize your Roth IRA contributions and still need to invest more to reach the full 15%, now you go back and add to your 401k contributions.

5. Save for the Kid’s College.

   This next step is obviously situational. If you have kids or are thinking of having kids then start saving for their college education.

   Let’s take a step back here and notice that the kid’s education comes AFTER your retirement. Remember kids can take loans or even work to pay for school, but you can’t borrow for your retirement.

   Having said that, I’m sure parents want to help their kids and that’s a really good thing (I sure wish my parents had this book thirty years ago), just don’t do it at the cost to your own future.

6. Pay Off Your Mortgage Early.

   Next, we come to paying off the mortgage early. This one comes under fire quite often because everyone you talk to thinks you need a mortgage payment for a tax write-off.

   That’s a bunch of crap and here’s why.

   Let’s say you pay income taxes at a rate of 30%. You also believe that you need a mortgage for the tax write-off. Let’s say for this example the interest you pay on your mortgage in a given year is $6,000 (assuming a $150,000 mortgage at 4%) (I’m just straight-lining it, don’t worry about amortization tables and all that.)

   So in this example you are basically paying $500 a month interest to save $150 a month, crazy right? Not to the majority of people out there, who seem to think a mortgage is the greatest tax saving vehicle in the world.

   Remember what Dave Ramsey says, “The grass under your feet will feel different when you own your home.”

7. Invest for Wealth.

   Lastly, we start to really build wealth. With no debt, at least 3 month’s expenses saved in an emergency fund, 15% of your earnings going to retirement, saving for your children’s college education and owning a home free and clear, you can really start investing some serious money.

   Dave recommends putting money into good growth stock mutual funds with good track records. I think this is solid advice for a basic investing plan. You could write a whole book on investment strategies (there are thousands already written). We’ll cover some of my favorite investing strategies over the coming months.

So, there you have it, a review on The Total Money Makeover.

I think if you carry any debt or know people who do; this book isn’t a recommendation but REQUIRED READING.

This plan works 100% of the time but does require a complete change in your mindset when it comes to money. It goes against what I call “the modern mindset”, your friends, family and work associates will probably think your weird but at the end of the day you’ll be that much closer to financial freedom. That’s total financial peace!

I’ll leave you with one of my favorite Dave Ramsey quotes that sums up The Total Money Makeover:

“If you will live like no one else, later you can live like no one else.”

If you don’t already have a copy, grab some Dave Ramsey programs Right Now! Take back your finances, you’ll thank me later. ~Scott

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So, what’s going on?

Well, it’s pretty obvious with the modern mindset that most people regard money and finances a little different from a few generations ago.

Giving this dilemma some thought I came up with the top five reasons that seem to cause people to run into financial problems. These five actions can wreak havoc on your personal finances. Let’s identify and eliminate them. Then let’s go a little further and avoid getting into the mindset that causes you to accept making financial mistakes in the first place. This is the first step in taking back your finances.

Let’s create some financial health!

You goal HAS to be to get your personal financial position from the red (being strapped with debt) to the black (actually having a surplus of money each month).

Here is an article I wrote on creating a basic budget. I made it as simple as possible so everyone could be successful if they spent a little time preparing it. A budget is a great place to start building some financial health. Knowing what’s coming due ahead of time, so you can plan out each dollar makes it much easier to avoid falling into the five financial traps that I’ll outline next.

Remember no budget is perfect on the first pass, you’ll need to go back and refine it as new information becomes available (you get a raise at work and have more income to work with, buy a new home, switch insurance companies…etc.). Just take a stab at the first pass, it’ll be the most difficult, all other revisions will be a piece of cake.

Ok, without further ado, the five financial traps you must avoid.

1. 1. Credit Cards are the Devil

 I truly believe that if someone threw out all of their credit cards and pay for everything with cash it would eliminate 90% of the financial problems that plague people. (sure, there will always be that unexpected things that will throw some people into financial turmoil but for the vast majority, credit cards are root of all financial evil.

Having said that, I think it’s great that you can get miles, points or cash back when you use a credit card. Getting 1% cash back is a fantastic rate of return on things you have to pay for anyway (think: phone bills, cable bills, utilities, even groceries) plus any big item purchase (TV’s, furniture or vacations). A nice little “bonus” check or a free flight is absolutely great plus using a credit card is so much more convenient than carrying a wad of cash around.

Here’s the catch, here’s the golden rule that will make or break your finances (when using credit cards).

HAVE THE MONEY IN THE BANK TO PAY THE BILL BEFORE YOU CHARGE A CENT!!!

Doing this assures that when you get the bill at the end of the month you won’t have a problem paying it. You must psychologically earmark those funds for payment of the credit card. It’s a simple rule that hardly anyone follows anymore. (This is the primary reason I feel that the elderly person from a few generations ago, living on a meager pension, still is more financially secure than someone working for the big bucks. They don’t buy things they can’t pay for)

So for this to work you have to decide what kind of a spender you are.

Do you think of your credit limit on your credit card as cash you have available to spend? Or do you determine how much you have in the bank to pay for a purchase you are planning to make using a credit before you purchase anything?

That is the question.

Paying 18.99% on a purchase completely negates the 1% cash back in about 20 days. It’s never worth it.

1. 1. Leases Suck

There almost nothing I hate worse than making payments, I truly despise making car payments. I absolutely HATE and loathe the very existence of making lease payments.

Lease payments = car payments on ACID.

Why?

Because once you make the payment your money erodes into nothing. You get absolutely NOTHING to show for that payment, you aren’t getting any closer to owning the vehicle (at least with a car loan you will eventually own the car), furthermore you may end up owing for the privilege of “renting” the car (go over your allotted miles, little ding here or there, stain on the carpet…YIKES)

Leasing is like buying something you can’t afford. Sort of like buying something with a credit card that I don’t have the money for. For example, you lease a new Lexus for like $500 a month, with a couple thousand dollars down and you’re thinking “ok, I can afford $500 a month”. Now, if you purchased that same Lexus with the same two thousand down your payments would probably be double what the lease payments are.

So, if you thought $500 a month was doable, do you still feel that way at $1,000 a month? Most people can’t afford the cars they lease,

What’s the worst part of leasing? Perpetual Car Payments (PCP). You trade in the three year “old” Lexus put another $2,000 down and roll out with a new one (plus another 3 years of “rental” payments.

It’s a never-ending vicious cycle. (I’d rather buy that 3 year “old” Lexus that you just traded in, now that you paid like half the depreciation for me).

1. 1. Failing To Save For Emergencies

When that unexpected thing happens, and it always seems to happen when you least expect it, having little or no emergency funds in place will turn a bump in the road into a 10-car pileup.

It’s quite alarming when you think about the saving habits of most people these days. I read recently that the average U.S. personal savings rates fell to ZERO (from 1%).

That is scary.

What is an emergency? There is always going to be a time when something will happen where you need money immediately (you were part the companies great new restructuring plan, you need a new roof, brakes for the car or your dog has bloat, and you need to decide within like 15 minutes whether or not to operate and save his life). For reasons like this we need an emergency fund in place.

What is NOT an emergency. That new outfit or car stereo that you “have” to have is not an emergency. A trip to Europe to see the Eifel Tower and Roman Coliseum is not an emergency. That 72″ plasma T.V…. You get the idea.

So how much should you save? What’s a reasonable amount to save in an emergency fund?

I recommend one year’s expenses. Now if you looked at my plan for making a budget you should have a pretty good idea about how much you need on a monthly, quarterly and annual basis for your expenses. Now look at the expenses and make sure there isn’t any “fluff” (yes, that’s a real financial term, I think)

See how much you need for the bare essentials each month (utilities, mortgage payments, groceries (NOT restaurants), cable, phone, gas for your car, car payment if you have them.

Say that’s $3,000 a month (or $36,000 year)

Now add any quarterly, semi-annual and annual payments into the equation. (property taxes, insurance) Say this comes out to 7,000 per year.

Add the annual and monthly expenses together and round up to the nearest $5,000 to arrive at the annual amount we’re going to use for our emergency fund.

$36,000 + 7,000 = $43,000 round up to $45,000

Whether you make $35,000 or $85,000 this is the number you should shoot for. This way you can be sure that at least you can cover a year’s worth of expenses or a pretty big emergency. (If you had to relief some of your emergency fund due to an actual emergency then you’d just start to build it back up until you hit the $45k, in this example)

How? I’ll discuss ideas for “how” at a later date, but here are a few tips to help you get started.  How much does that coffee really cost?

1. 1. Failing to Save For Retirement

As important as it is to save for an emergency, saving for retirement is another item that people don’t seem to grasp.

Here’s the paradox, most young people don’t see the need to start saving for retirement because they think that because they are young and have “so” much time before retirement that they can put off starting to save (or investing their own future).

The ironic thing is that money invested at when someone’s in their twenties will grow exponentially faster than money invested in someone’s fifties so the amount you would have to invest overall if you began younger would be a fraction of what you’d need to invest if starting when you’re older.

Does that mean you shouldn’t start investing if you’re in your fifties, absolutely not, you should absolutely invest for retirement no matter how old you are when you start. The only thing is that the older you start the more money you’ll need to invest.

So, start as young as you can – LIKE RIGHT NOW!

I’ll be talking about investing strategies in the near future to help pave a basic roadmap for your retirement savings.

1. 1. Living Well Beyond Your Means

Another scary thought regarding the average savings rate being at about zero is that some people actually do save money, which means that some people are spending more than they make each year.

You have to make absolutely sure that you’re living below your means, this way there will be something left over for you to save (and not only for retirement or an emergency fund, but the European vacation fund, or the send my daughter to college fund, or the “I need that 72″ plasma T.V.” fund. You get the idea.)

Here’s the catch-22, by saving for things like retirement, emergency funds and vacations, it forces you to live below your means. Your saving part of your earnings so you have reduced the funds available to actually live on. If you amass retirement savings that allow you to replace 75% or your income, since you’ve been living on less than your total earnings, savings and budgeting, basically living below your means, you already used to living on this reduced amount.

On the contrary, if you never save, watch what you spend and live above your means (leased cars, credit cards with balances) you’re going to be in trouble when you want to retire or just want to work less. Your “above your means” lifestyle will be more difficult to maintain.

Temptations are everywhere these days, our brains are flooded with advertising, we want what our friends and neighbors have. It’s easy to get caught up in the “keeping up with the Jones” mentality. Let me offer you one more piece of advice that has helped me over the years.

Before buying anything ask yourself “Do I really need this?”. More often than not it’s a WANT to have rather than a NEED to have.

Let me know what you think, any questions, comments or suggestions?

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There are a couple problems with this:

1. People aren’t saving nearly enough for retirement. With more and more companies eliminating their pension plans, self-invested retirement plans (like 401k’s, 457’s and 403b’s) and Individual Retirement Accounts (like traditional and Roth IRA’s) are becoming the only viable choices for investing for retirement.
2.  The indirect problem with this is by taking 100% of your income (not deferring anything or very little for retirement) you are living on 100% of your net earnings. Typically, “Your Number” needed from most retirement calculator has been about 80% of your income. My theory here is that if you live on less during your working life (by deferring 15% of your income into a 401k and saving money in an IRA) then your lifestyle already reflects living on less. So, as you approach retirement you don’t need to do any drastic lifestyle changes.

Have you ever really thought of the cost of a cup of coffee?

Over a lifetime that $5/day Venti Caramel Latte habit can cost you a small fortune!

Let’s explore a $5 per day reduction in your cost of living. The following spreadsheet shows what $5 per day would add up to over time at various interest rates. (for this example, I used $5 per day x 30 days in an average month to equal investing $150 per month).

I looked at it over 4 different durations (10, 20, 30 & 40 years). Also, I’m looking at it from five different interest rates (4, 6, 8, 10 & 12%). Is it realistic to assume a 12% rate of return? Probably not in in this day and age, but over the past 70-80 years the S&P has gained around 12% on average.

Let’s say that your in your 20’s and invest in a growth stock mutual fund, with a good track record and it returns on average 8% for 40 years. That’s over a half MILLION dollars in 40 years! Saving only a $150 dollars a month ($1,800 a YEAR). Now imagine if you saved 15% of your salary for that same forty years?

Now, I know what you’re thinking. With times so tight these days how where can I save $5 a day (or $150 a month)

Here are ten simple tips that you can use to help you save at least $150 month. Start with the most obvious ones (this will be different for everyone) and then start to combine them until you reach $150. By all means DON’T stop at $150 if you can save more.

1. 1. Kick the Coffee Habit.

Going to a coffee shop is a nice luxury but it doesn’t taste so good when you realize it’s costing you a half million dollars!

Tip – Get some good drip coffee and make it at home, use a thermos to take it on the road.

1. 1. Save a Tree, Cancel your Newspaper

With the internet spitting out real-time news left and right on so many different devices (Pc’s and Mac, laptops, iPads, Kindles & phones – and most of us own more than one of these devices) is there any reason to get the daily newspaper delivered? Barring Sunday’s paper (See Tip # 9)

Tip – If you don’t have some sort of computer currently, pick up a refurbished iPad for news and ditch the daily newspaper  delivery.

1. 1. Brown Bag it

Going out to lunch every day costs at least $5 a day (and probably a lot more if you want to eat somewhat healthy), for a few dollars a day you can make a salad or a sandwich. Add a drink and a snack and your probably eating a decent lunch for about $3 a day.

Tip – Make you own lunch, it can be much healthier, plus if you have leftovers you can save even more!

1. 1. Quit Driving around Aimlessly

With gas prices skyrocketing, limiting your driving will save the $5/day pretty fast. Outside of necessities try not to drive.

Tip – Take a walk

1. 1. Lower the Cable Bill

Do you really need 147 movie channels? Now the answer may be a resounding YES! But if you are having a hard time saving $150/month you may want to trim back on the premium channels.

Another option is to have basic cable and get a Netflix subscription. For like 8.99 a month you can stream movies right to your TV. (Also see Tip # 7)

Tip – If your having trouble saving, trim the fat of your cable bill. Don’t let the cable company retire on your dime, YOU retire on your money!

1. 1. Mow your own Lawn

For those of you who don’t own a lawn mower, I had to buy one last year and calculated the break even, it me 14 weeks to break even. Let me back up, yes I was lazy for a few years and had a landscaper cut my lawn. It started out at $20/week, then $22/week then $25/week and finally last year he wanted $29/week plus he started charging me tax. That was it, I ran down to Home Depot bought a mower and an edger. it cost me around $400 so it took 14 weeks (including all gas and everything) to break even. Now every time I cut my lawn it’s like pure profit.

Tip – Don’t pay for things that you can easily do yourself.

1. 1. Take Advantage of some Freebies

There are plenty of nice things to do in your spare time that do not cost money. Go to the park, ride a bicycle, take your dog for a walk (or borrow someone else’s dog).

The other great free thing that a lot of people don’t take advantage of is going to the library, not only do they have tons of books and magazines to read, but my library has tons of CD’s and movies.

Tip – Utilize every available “free” service. You do realize you pay for the privilege with your taxes so TAKE ADVANTAGE !

1. 1. Exercise Outside NOT Inside the Gym

Going to the gym can cost anywhere from $10 a month to as high as $50 a month. Instead of going to gym to run on a treadmill or ride a stationary bike just go outside and run or ride a bicycle, throw in some push -ups and sit-ups and you can avoid the monthly fee altogether.

Tip – If you have to Zumba go to the library borrow a DVD (or spend $10 for a copy)

1. 1. Clip Coupons

I realize earlier I alluded to the idea that the internet is making newspapers sort of obsolete, well Sunday’s paper is still a must have. Most local papers have at least triple their value in coupons. Now, I’m not saying you need to become a coupon king or queen spending the equivalent of a full time job to get free groceries, but if you can keep your coupons somewhat organized (by category) look at what’s on sale, a by those items you can save 10 or 20 bucks a trip pretty easy.

Tip – Save a few bucks a week on groceries (try to find a place that double coupons).

1. 1. Eat at home more often

Some people eat dinner out (or bring in take out) more often than they eat at home. Think about how much you spend on an average meal at a restaurant. If you skip going out to eat once a week think of how much you save.

Tip – If these previous nine tips don’t allow you to save $150 a month to invest for your future then I suggest having a weekly “spaghetti” night to save money. Your stomach might ask why but your retirement account will thank you.

Hopefully you see the value in saving for your future. You can see that even a small amount, like $150 a month really adds up over time.

Please let me know how if this helps you and what tips that you have to save money, so we can all benefit from them.

~Scott

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