Rainy Day Pennies | Debt Free Living and Personal Finance

Even if you’re in debt, you need a savings account. I’m a firm believer in that because until I had an account for unexpected expenses, I wasn’t really in control of my debt.

I used to take every available penny and put it into my debt after paying for food, gas, rent, etc. The problem was, when I had unexpected car trouble (the rotors on my Jeep were warped beyond all goodness), I had to pay for the rotors, brakes, and service on my credit card for about $1000. I consistently underbudgeted things like food, and with no available savings, I would have to pay on my card. The cycle of seeing my debt go down and up, down and up, was discouraging and distressing.

One of the best things I did to get my debt, savings, and spending under control was to buy two books. One was Jean Chatzky’s Pay It Down! : From Debt to Wealth on $10 a Day. The other was David Bach’s Smart Women Finish Rich. These books are my financial bibles – I keep them in my bookbag.

The key thing I got out of “Pay it Down” was I needed an emergency fund. I need that money to dip into instead of credit. What I got out of David Bach’s book was to automate the process. I setup my accounts to automatically deduct the money every paycheck into my savings account. I opened a Capital One Money Market Fund for my savings account (I wish I had opened with HSBC, but c’est la vie). Good interest rate, checks, and yet fairly inaccessible. I paid this money to myself first, before I paid rent, credit cards, electric bill, etc. That money was no longer in the equation. I budgeted my money on the remainder of my check.

Then a funny thing happened. Once I had that savings account and budgeted my money with the remainder, I no longer had to use my credit card for unexpected expenses. In fact, I didn’t touch the money at all for almost 6 months. I switched insurance companies, and paid the 6 month advance for the cheaper rate. I had plenty of money in my account to cover it! While not an emergency, I consider this a good use of the money as it saves me money.

It was a great feeling to see the savings account grow from 1 month worth of expenses, to 3 months, to 6 months. In case of the extreme (loss of job, medical emergency), I feel better knowing I can strap down to the minimums and cover myself without growing debt for up to 6 months. That sense of security has made a huge difference in my overall life. Now when I pay my credit debt, it only goes in one direction: DOWN!

-Cathy-

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Budgeting by Cathy