Monday, April 30, 2012

Money Management: Part 5

     We're finishing our Money Management Series this week. If you missed the previous entries, then read Part 1: IntroductionPart 2: Budgeting and TrackingPart 3: Allocation and Payments Schedule, and Part 4: Debt.  This Friday, April 27, we'll fully conclude the series with a giveaway! The Lampo Group, inc. (Dave Ramey’s company) has kindly offered the book The Total Money Makeover and Deluxe Envelope System to be shared through a giveaway* here at Reviving Homemaking!  

      I consider three types of savings to be a great place to start in managing money (there is also retirement, investments, education etc, but we're starting at the beginning): emergency, nonemergency and envelope. The difference between emergency and nonemergency is expectation. In other words, when the washer and/or dryer need replaced the funds come from the nonemergency savings because you should expect that appliances will not last forever. The same idea is true for a replacement. It's often considered an emergency because it's frequently very sudden and very expenseive, but, again, vehicles don't function in perfect order forever and so it was simply a matter of time. And so, in a time when there isn't a screaming need it's wise to go ahead and put aside a few dollars or more each month towards such expenses so that you can avoid (some) of the shock of the impact when it does hit.
     An emergency is truly unpredictable. Losing a job can issue an emergency situation during the time you try to find a new one. The loss is far less severe if you had put aside a few months worth (amount typically dependent on the economy, but can need to be as much as 6 months) of living expenses. This scenario is actually a common suggested one in opposition to homemaking- the notion that it's insecure because it's based on one income avenue. Being prepared with an emergency savings is just one simple to this incident.
Envelope Savings
     Lastly, there is what I call envelope savings. It's the savings for big purchases or expenses. As much as we may want to think that we'll just leave it alone in the account, more times than not we'll find it spent somewhere. Therefore, it's best to go ahead and withdraw cash for these goals. For example, Christmas is a big expense no matter how you celebrate. It's much more manageable and enjoyable if by December I can purchase gifts with my envelope in hand of cash that I've saved over the last 6-12 months. There's no guilt, no budget starvation and best of all no debt. I also use this method for our annual vehicle taxes, birthday celebrations, more costly purchases, anything else that requires building up to buy.

    Carrying insurance on your residence, vehicle and health is a wise investment to make. This is your safety net for in the event of any related misfortune occurs you are not left with the burden of total costs. We can drive our cars or care for our bodies as carefully as we can, and yet still find ourselves with a serious matter to resolve. Altough unpleasant to consider, you are not above accidents or ailments.
     Many insurance plans work off what is called a deductible. A deductible is a determined amount that you (the insured) will be held responsible for paying prior to the insurance company paying their part in accordance to the policy. Let's say, for instance, you have a $1,000 deductible after which the insurance company will pay 70% and you 30% (plans differ from this). That means if you need to receive healthcare services then you will be expected to come up with that $1,000. You will then be asked for an additional 30% of charges (insurance paid 70%). If you haven't received health care in a while, then let me advise you that even the smallest treatments will have a big billing statement. Can you handle paying over a thousand dollars like that? Most people can't and the knowledge of such leads them to  either avoid necessary action or stressfully scramble for the funds.  Your home/renters and vehicle insurance deductibles are the same. You're signed policy is essentially an agreement you made that says you will pay 'x' amount when necessary to do so. You're made aware of this from the moment the policy begins and so there is little acceptable reason for coming up empty handed because you thought you could just get by without this aspect of the plan.
      Even with the high costs of insurance coverage there are some ways to save. If you do not use your insurance benefits often, then you may be better off choosing a higher deductible and lower monthly payments. You don't get your money back at the end of the year if you didn't use your insurance much, and so why give the money away when you could be saving it for yourself? In this case, you're much better off to make the lower payments and put the difference into a savings specifically for deductible payments. At the end of the year if you didn't use it, then you have a little more to your account not theirs. The tempting idea is that you have "extra" money each month, but don't be a fool. Again, you agreed to be responsible for that deductible and so take action to be prepared.

*Note: I’m not an affiliate of any kind with The Lampo Group, Inc. or Thomas Nelson publishing. These materials were given to me by The Lampo Group,Inc. and it was agreed upon that they may be offered as a giveaway.  
Please feel free to leave any tips you may have in the comment section below. This is simply how I've come to work with finances, but I'd be interested to know of other ways as well. :)

1 comment:

  1. Love the envelope idea....I has worked for me in the past for Christmas, vet, etc
    Thank you for the series


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