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With the holidays around the corner, many households are saving up for gifts, family and friends get togethers and more. This means many people are not saving for the unexpected expenses, which may force them to cut into their gift giving budget in the event of emergencies.
So what happens if the car breaks down? Or if the heater conks out during the winter and needs repairing? Safety-Net Expenses can eliminate the worry of where the money is going to come from to repair that car or HVAC. But what exactly are Safety-Net Expenses?
Instead of the standard three known categories of a budget, I like to think of expenses in four different categories, or buckets, by order of importance:
Non-Negotiable Expenses help to meet our basic human survival needs of shelter, transportation, food, and water. Expenses like mortgage/rent, car payment, electricity, utilities, groceries, and water are primary expenses that must be paid on time to sustain a comfortable lifestyle.
The NBD’s (or Necessities by Default)
NBD Expenses are not as important as the non-negotiable expenses, but these expenses enhance the quality of life. NBD’s include expenses like a cell phone bill, cable bill, primary insurance (health, homeowner, auto), personal loans, student loans and credit cards
Enrichment Expenses are activities and expenses that enrich our mind, body, and soul.
According to ABC News, “40% of Americans could not come up with $400 in the event of a financial emergency.”
Unfortunately, many households forget about or ignore this category. However, these low cost expenses can be the most important to protect our financial stability. Safety-Net Expenses are a set of expenses that don’t cost much upfront, but can save massive amounts of money in the long run.
So which Safety-Net Expenses should we pay attention to protect holiday shopping budget and financial security throughout the year?
Emergency Savings Fund
Set up an automatic direct deposit of a certain amount or percentage of your pay into a savings account. Establish the savings account in a financial institution that is separate from your primary checking account. Having a separate savings account will eliminate the ability to transfer funds from your savings when hit with spending temptation. Having this savings fund will protect your family’s financial stability in the event of an emergency or accident during the holidays. Check out this budget bundle
Vehicle Service Contract
One of the most significant unexpected expenses that is the biggest holiday budget buster is a vehicle breakdown. According to a survey done by Toco Warranty, “Around one-third of Americans own a car that is at least seven years old, which means a breakdown is inevitable.”
Instead of committing to thousands of dollars and years for an extended dealership warranty or dishing out thousands of dollars for unexpected repairs, consider a low-cost, month-to-month vehicle repair coverage contract like Toco Warranty.
What I love about Toco is that it is a pay-as-you-go vehicle service contract that fits within any monthly budget and can be canceled at any time. It can protect your budget from significant car breakdown expenses that happen during the holidays and throughout the year. It can also be cheaper than an extended warranty from the dealership. *For 50% off your first month, use code BOSS
Home Warranty Coverage
Many things that are not covered under a standard homeowner’s policy as a result from neglect or failure to properly maintain the property. Damages from termites and insects, bird or rodent damage, rust, rot, mold, and general wear and tear are typically not covered. Damage to appliances and HVAC (heating, ventilation and air conditioning) breakdown is also not covered. The worst time for the HVAC system to breakdown is in the summer and winter during the holidays. These are the times that repairs cost the most.
Investing in the right home warranty coverage will protect your budget from the excessive expense of appliance or HVAC repairs or replacement during the holidays and throughout the year. These and other safety-net expenses will protect your family’s financial stability with their affordable monthly payments, and can help you budget to spend even more during the holidays. If you find that you need to reduce expenses to fit your monthly, consider reducing usage-based expenses in the other categories, specifically curbing energy use or pulling back on auxiliary expenses, like include eating out, credit cards, or enrichment expenses.
What are some Safety-Net Expenses that protect your budget from excessive unexpected expenses?
Guest blog from Tarra “Madam Money’” Jackson check her out here.
Tarra is an award winning International Speaker, best-selling Author, Spokesperson, Brand Ambassador and Financial Expert Contributor, Tarra Jackson inspires her audience to overcome financial challenges by giving simple strategic steps to help them reach their personal, professional and financial goals. Individuals and corporations have been impacted by her engaging and energetic messages.
What would it mean for readers of this blog if they could retire at age 30? Is that something you think is an unachievable dream or too challenging to execute? Here we explore the story of someone who just did that. She decided when she was 25, that she wanted to retire at 35. She made the required changes to her lifestyle and achieved her dream half the time at 30. Here we explore the story of "A Purple Life" who achieved this feat and will go through her story of how she achieved it
How do you figure out the math to retire at 30?
So, the first question that needs to get answered is, how does the math work out when someone decides to retire at a certain age? For "A Purple Life" when her partner introduced her to the concept of FIRE (Financial Independence Retire Early) definition from Investopedia, she put it on the backburner for a couple of years. When she reached 25, she finally decided to plunge into this and calculate how she could retire early and live a fulfilling life.
At the age of 25, "A Purple Life" was living in Manhattan, making about $65k a year and spending $35k because, as everyone knows, rent in Manhattan is not cheap. Based on her retirement requirement, she calculated she needed to save about 25 times what she was spending at the time, which was approximately $35k. And it was going to take ten years to accumulate that money. Hence, she originally planned to retire at 35. But then she started optimizing her life, which led her partner and her to move from New York City to Seattle. So, they got a better experience and better quality of life for about half the cost. She increased the salary by about $20k just for moving and cut her expenses in half ( as the rent was cheaper in Seattle). After that, she had a couple more job changes, which increased her salary by $20k each. So, the increase in income coming in and keeping her expenses low at $18k helped her cut her time to retirement by five years, and she could retire at 30.
How do you prepare and analyze to achieve your goal?
So when "A Purple Life" and her partner first realized that they wanted to follow the FIRE philosophy, they had to look at all their life choices objectively. They had first to figure out how to move out of the most expensive city in the world. So they made a spreadsheet and listed every major city along with salary probability, cost of living, rent, sound public transit system as they didn't own a car, and the ability to get jobs if they lost a job. After a lot of analysis, they landed in Seattle, where they could get comparable salaries, the cost of living was half, and jobs were plentiful with good public transit. She also looked online at Numbeo www.numbeo.com to see the available prices and the price differences between New York City and Seattle before deciding.
The other thing, "A Purple Life," had always done even before deciding to go down this path was to keep a budget. So, once she moved to Seattle, she tracked her budget closely and saw that she did even better than forecast. She only spent about $18K instead of the $35K she had planned. This change in expenditure was one of the primary reasons she got into retirement at 30 rather than 35.
"A Purple Life" used a tool called YouNeedABudget for budgeting. She has been using the platform for almost six years now, and she relies on it and likes it a lot more than Mint.com, which she was using earlier. Budgeting was critical because if she did not know what she was spending in New York, it would have been difficult to calculate when she could retire. The other things are being consistent with budgeting over multiple years. Knowing and tracking it allows you to see the patterns and the exceptions and create a realistic retirement budget calculation.
One of the reasons she likes YNAB is that it does not criticize you for not sticking to a budget. It is not about like sticking to a number at all. It is about making choices. For example, if she decides to splurge on a friend's birthday that she just got invited, she should be able to do that. Even if she overshoots by 50 bucks her eating out budget for the month, she can compensate for that by buying fewer new clothes for that month. So budgeting is not about restrictions, but it is about making choices. If you like budgeting using one and paper or an editable document you can find a couple versions here: budget sheets.
How did she come up with half a million to retire number?
Once "A Purple Life" was able to see that living in the middle of Seattle downtown, she could spend $18K, living a wonderfully comfortable life. She decided to calculate what would be her total expenditure in retirement. She raised her yearly cost by like 11% based on what she read online and came to the figure of 20K on average, each year. So usual baseline to figure out how to retire over 30 years is to 25 times your annual spending. So that is how "A Purple Life" came up with a figure of half a million dollars needed for retirement.
This number works for "A Purple Life" and her lifestyle, and it will be quite different for someone else reading this blog. The only reason she is comfortable retiring at 30 with half a million dollars is cos her lifestyle is entirely flexible. She does have a partner, but they have separate finances. So, she is only responsible only for herself. They do not have or want children, do not have a house, do not have a car. So literally, she has no fixed expenses month to month. And that allows her to be completely flexible.
Pre COVID, she planned to use her flexibility and travel to Australia, New Zealand, Argentina, and Thailand this fall. That has changed because of the pandemic, but she hopes to use her flexibility and use geo arbitrage the same way she moved from Manhattan to Seattle. If she keeps moving around to different places, she can choose where she is going and can spend a lot less based on the cost of living, say in a place like Thailand.
Maintaining a Nomadic Lifestyle
“A Purple Life” considers her to be a proponent of Nomad Life, which means not having a place of their own and moving from place to place. She has a partner who is not retired yet but has a remote work schedule, which means he can join her on her travels and still work remotely. They have been doing remote jobs for the past few years and are well versed in that lifestyle. They have been living in monthly Airbnb’s for the past two months, but they are still in Seattle. They are in different neighborhoods and are like slowly moving farther and farther from the life and people they know. These moves are like practice runs and getting used to living in an Airbnb in a city that you know and speak the language fluently is much more comforting than just dropping into Bangkok like right now. Next month they will be moving to Georgia and stay and work in a nomadic fashion from there. So, they are only slowly getting farther and farther away, and then post COVID can restart being nomads around the globe.
What were the difficult parts of executing this plan?
Creating the financial model and putting in the numbers was the easy part. The tricky part was taking action to make those numbers real. Once she figured out how much she needed to save how long it would take her, she had a reliable roadmap and added a countdown.
The hardest was moving across the country away from family to a place where her partner had never gone. She did not know how that would go, so it was a leap of faith and challenging to execute. To find a job on the other coast where she and her partner had never lived, where they did not have any connections, was also really challenging. Continuing her daily work life in marketing because it is very demanding and 70-hour weeks are not even blinked at really. So just keeping that up to get the salary that she had projected for the plan to work.
So yeah, it is simple to get the program together. But the steps she took were not always easy to execute.
"A Purple Life" where does that come?
"A Purple Life" is a blog that she started writing six years back and is found at A Purple Life. Purple is her favorite color, and it always has been, and she has been a little obsessed with the color. Since she was about 16, she has been dyeing her hair purple and used to have purple contacts. A lot of her clothing is purple.
She had been writing her blog in private for a year, and one fine day while talking to another blogger, she decided to make her blog public. So, she went home to find a domain name for a blog, and she was looking at herself with the purple hair and decided to name the blog a purple life. But a Purple life to her means like a slightly different life, not worrying about what other people will think basically and just doing what you want to do.
I encourage you to take a listen to my discussion with A purple life, check it out here: Episode 64 or on any other platforms where you listen to audio podcasts.
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