Changing Up the Plan a Bit...
I've been doing a lot of reading about financial matters over the last few months - definitely since hitting my "financial bottom" in September and starting on Dave Ramsey's "Total Money Makeover" plan, but especially recently - and one of the things I keep stumbling upon is this idea of living off the previous month's income. Or put another way, having a one-month "cushion" of money.
When I first started to get out of debt, my only focus was on getting the debts paid off, as quickly as possible. Dave Ramsey suggests this as well - once you have $1000 in the bank as a sort of "baby" emergency fund - and he calls it "getting Gazelle Intensity." I had this "intensity" for a little while - I sold all kinds of things on eBay and Amazon.com and figured out new ways (like putting ads on my blog) to help bring in more cash - but after looking over my debts, my expected income and other aspects of my financial situation, I realized it was still going to take me quite a while to dig myself out of debt.
That was okay then. I didn't have any wiggle room at the time for doing anything but meeting my basic expenses and paying off the bills. As I've paid off the small debts, my income has been freed up bit by bit and I've come to strike a balance between setting money aside for expenses I know are coming, adequate funding for day-to-day expenses and debt repayment. This feels really good: that I can meet all my expenses and even have a tiny bit left-over to "play" with. Not a ton, but enough to help me feel like I'm living - which in turn, keeps me from busting my budget. (I've written about this before: it's like a diet; if you're too restrictive eventually you start gorging...)
Anyway, now that I've paid off ~$9000 of the debt and I'm looking down the barrel of another few years of repayment, I'm starting to realize that I feel really, really uncomfortable having only $1000 sitting in the bank waiting for emergencies. Yes, I continue to contribute to my emergency fund on a twice-monthly basis, but it is (purposely) just a small amount and not enough to really build the balance very quickly.
So getting back to the "one-month-cushion," I've done some digging around online, reading posts on a number of personal finance blogs (there are some great ones out there, by the way; I will be updating my "money stuff" page, so check back!) and checking in with an "older and wiser" friend about my thinking about this to see if he could poke some holes in my thinking. My thinking is: I want to get a bit of a buffer in place so that I'm not continually living right on the edge.
The last 9+ months have been great in that I have consistently stuck to my budget, not used any credit and lived within my means, but I have zero wiggle room. The $1000 is in a completely separate bank so that I have to make a concerted effort to get it if I needed it (it's liquid, for sure, just not liquid enough that I'd spend it for fakey-emergencies) and it's a comfort knowing it's there if I need it, but I've begun feeling really uneasy the last couple months. Knowing it would take me a while to dig myself out of debt, I realized I just couldn't live that long with only $1000 sitting there "in case."
I was pleasantly surprised to find that my friend agreed my idea was sound and reminded me that part of the reason for getting finances under control was to have a feeling of control and thus, financial peace. My peace of mind at this point is just as important as my getting out of debt.
So, beginning next month, I'll start putting money aside for my "buffer" and once I've completely paid off the debt I'm currently throwing money at (should be finished in September!) I'll go back to paying only minimums on my debts (temporarily) so I can use every spare penny to build up a buffer to the amount I need to live for one month. Then I'll be able to set aside my pay checks for use during the following month.
I know this isn't "Dave's way," nor the most financially "sound" way either - if you look at the numbers and interest rates and etc., but it is a way that will help me feel more secure. So it's going to be my way, for the moment at least. I'll report back on my progress as often as I can!
And, in the meantime, for more information about living a "month behind the money," check out YNAB. I downloaded and installed their budgeting software yesterday and will be using it alongside the "TotalMoneyMakeover.com" budgeting software (from Dave Ramsey) to see how I like it... It has the advantage of offering expense tracking, and so far I'm liking that aspect, but whether I keep up with adding in all my expenditures remains to be seen... Stay tuned!
