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Baby Step 1 (emergency fund) and how to make it happen easily!

Dave Ramsey is famous in the personal finance world. We feel so many of his tips should be followed before you start credit repair. The most important of Dave Ramsey’s teachings is his Baby Steps. Even though some of them are quite hard to follow, baby step 1 is not. Baby Step 1 is creating an emergency account with a thousand dollars in it. Having an emergency fund is a wise idea. Having one should make repairing to your transmission easier when it blows or any other similar disasters. This should make it so you can use cash (debit card) instead of reaching for that credit card when emergencies happen.

Also, look at the stats from Bankrate.com on the chart below. It shows how many people have no emergency fund. Over 29% have no savings, 13% didn’t even know whether they had savings or not. These are scary stats to see how just one small problem could derail peoples lives.

Baby Step 1 (emergency fund) and how to make it happen easily! 1

Where should you place your emergency fund? Don’t use the same account as your checking account where your debit card is. This will make it too easy to swipe at that money instead of waiting for when things are financially challenging. We suggest also not using a local bank because most of them have horrible interest rates. You are probably asking well where should I place this money then? We feel both Wealthfront.com, Varo.com, and Marcus.com have some of the highest interest rates around. We also think its best not to connect your savings account to your checking account for cash transfers.

Where should I get this money? Well if you are even anywhere near tax time using your tax return for this is the best idea. Tax returns should be used for paying down debt or making an emergency fund, not for that vacation to Disney. What about if you already had to desperately use that tax return on an emergency or past debt. We suggest if you’re getting that big of a tax return to add another exemption on to your W-4. This will give you that extra money you need to start saving. Of course, if none of these is an option, driving for Uber or Lyft in your metro area for a couple of hours after work could build this fund. I recently tested this idea to see if it was reasonable. I was able to raise 64 USD in less than 3 hours.

When should you use that emergency fund? Only you can determine what is a true emergency. If you got into a car accident, then yes, using the emergency fund for your deductible would be meet those criteria. If you had a trip to the emergency room, this would definitely be a reason to use it and probably a primary reason for having an emergency fund. If your furnace dies in winter, this would definitely be something that you would tap that emergency fund for. The big question should always be, can I survive without using it? If the answer is yes, then don’t utilize the fund for thes issues.

We also want to add this, being one of your steps out of whatever current financial problems and issues you might have, you could be experiencing a lot of emergencies at this time do what you can to not raid the emergency fund. If you are having trouble making your finances work and getting to this baby step, please take a look at more articles in our Smart Finance Blog. Also, if you feel you could use financial coaching before you start credit repair please contact us. We feel that if we get your finances flowing right first, then credit repair will go a lot easier.

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I don’t have a budget, where should I start and does credit repair even matter if I don’t have one?

Budget

Our primary business, of course, is credit repair, but credit repair will never be successful without a good budget. Would you believe that less than 33% of all people have a budget? A positive financial picture extends beyond “good credit”. Good credit is usually just a symptom of a positive financial picture. The best positive financial picture is a surplus of money every month and the best place to start with is a good budget. I usually use Excel to start mine, but if you don’t have Excel remember Office Libre and Google Docs are free. In fact, I placed a template on Google docs to share with you.

Let’s go line by line through the budget I linked you to.

  1. Rent/Mortgage: This is everybody’s major expense. It should be paid first because it is the hardest one to pay. Also, no one wants the hardships that come with not paying rent.
  2. Car Payment: Your car gets you to work. This one needs to be paid next. If you don’t have a car payment, put money in your emergency savings account for you next car.
  3. Groceries: I usually have one line item for groceries and as I shop at different grocery stores I subtract from the main grocery line item putting less in that line item and keeping track of my whole grocery spending.
  4. Right below Groceries is Costco which let’s face it is mostly food items. Replace with Sams club or any other warehouse club you might belong too. Take a list of what you need it’s easy to stock up on stuff you don’t need at these locations.
  5. Restaurants/Fast food and Bars, This is where all your convenience eating should be whether it is going to a nice 5-star restaurant or Taco Bell place it in here. This is a good place to put entertainment that might be combined such as bars, of course, delete this part if it is not relevant or if it is, make it it’s own line item.
  6. Credit Card. We all know credit cards are not beneficial but whatever your minimum payment make sure to stick it on auto-pay to ensure you don’t have late payments. Make extra payments when you can.
  7. Gas Vehicular: Gas for your car is not cheap. Especially if you commute. This should be an average of gas used for your vehicles.
  8. Electricity: I would line item every single one of your utilities. Put the most expensive one at the top.
  9. Gas House (Natural): Most of us use natural gas to heat our houses put this line next. Of course, if you use propane or something else swap this line item out.
  10. City Utilities: This is where I put my city utilities like water and trash that are managed by the city.
  11. Car Insurance: Car Insurance is usually a monthly bill if you pay it every six months place it in here then
  12. Internet and Television: I usually combine Internet and Television together as most people purchase these together. If you have them from different providers make each one its own line item.
  13. Netflix: We all have Netflix its a low cost but all subscriptions should be tracked on their own line items.
  14. Hulu: My cable TV replacement they brought the price down to 5.99.
  15. Redbox: We have started doing movies from them since Netflix Blu rays was not making it back one time.
  16. Timeshare/Vacation: I have a timeshare that I pay monthly maintenance. Either way, you need a vacation once a year save for that vacation on a monthly basis to take the bite out of it.
  17. Amazon: The thing about Amazon there are some products that can only be found here. Track your total Amazon purchases together from the beginning of the month. Make a separate line item for each purchase.
  18. Activities: Whatever activities you do whether it be mini-golf, real golf, skiing or movies they should be tracked. If there are many give them there own line item.
  19. Medical (Prescriptions): If you have reoccurring medical costs make a line item for them.
  20. Emergency Fund: Everyone should have an Emergency Fund put something in this every month.
  21. Vices: Whether you head to the liquor store or the candy store make a line item fo

This is not an all-encompassing budget. You might have additional lines or items to place in here. All of your expenses might be more than what you have incoming. It doesn’t matter the first step in the right direction is to sit down and find out what your expenses and income are. We will post more in the future how to shave this off.

Do you share finances with a spouse or other loved one? Spend the time to go through the budget with them monthly. Get an agreement on how things should be spent should create greater harmony throughout your household. Use your Google Drive to share the file with them so you can update it live to ensure you are aware of what the other one is spending.

Let’s hope this article inspired you to create a budget. credit repair is important, If you have bad credit then you pay more for loans. Having a good budget along with good credit will help bring that total Financial Health Picture. If you have questions about your budget and credit repair don’t hesitate to call or contact us at Wasatch Smart Finance. Check out this great article on whether CPN Numbers are legal!