Daily Preparedness

We’ve all heard it–have a 30-day supply of cash on hand in liquid assets, six months of expenses in the bank or investments and a retirement account. Then, save for the extras and emergencies of life–new appliances, emergency repairs, vacations, cars, a bigger home. Why a 30-day cushion of cash? Investments are great and can form the foundation of a life long financial plan. But, most investments are not ‘liquid’ and their value (as we have recently seen) can vary drastically. Investments are for future planning, while your 30-day cushion is for immediate needs should your income be drastically reduced or even disappear. The average period of unemployment is 30 to 90 days, though that window is growing. Unemployment payments will not completely make up your lost salary and may not start for several weeks. That interim period of no income does not mean that your daily expenses stop.

Have you ever carefully analyzed exactly how much cash you need to have if tomorrow your income stopped? Do you know exactly how much money you need in readily accessible ‘liquid’ assets that you need to prevent foreclosure, repossession, loss of utilities, insurance cancellation, etc? What is a ‘liquid’ asset anyway?

First, a ‘liquid’ asset, for the purposes of this discussion, is cash that is safely stored (as in an insured savings or checking account) that you can access during any normal business day without paying an early cancellation penalty, applying to withdraw it or having to wait for a check to be mailed to you. Ideally, it is money held in a local, government insured bank or credit union. Having it in an insured institution that allows you to write a check against it or use a debit card is even better!

Second, how much cash do you have to have to meet your obligations in any given month? For this discussion, that does not include discretionary income such as eating out, shopping for anything but the bare necessities or entertainment.

Don’t know how much you need to have on hand? Pull out your last few bank statements and credit card slips. Write down all absolutely necessary payments. This should include your mortgage, any automobile loans, student loans or other loans that must be paid monthly. (Hint–the less debt you have, the fewer items will be on your list and that is a ‘good thing’.) Don’t forget insurance premiums for car, health, homeowners, medications, medical co-payments, etc. Now look for payments that are made for the previous month and are necessary to maintain. This category would include utilities, phone, average credit card bills, etc. As you write that list, which could you cancel and not owe for the previous month? In this category is often internet access, TV, etc as they bill you for the coming month not the previous month. Don’t forget garbage collection fees, HOA fees, car registrations & inspections coming due, as well as tuition payments. Finally, look at items that would require you to have cash, but might be more flexible in the amounts. This would include gas and transportation costs to get to work and food items. Also look at which payments could be suspended for a month or two without penalty.

Once you have your list with the amount of money needed, carefully examine it to see which items could be trimmed now. Ask yourself a few pointed questions, such as: Are you spending too much? Do you have your food storage in order? If you have food storage, your grocery bill is gone! Are your cars and home well maintained so that you won’t be hit with repair bills? How do your credit card statements look? Review them very carefully and analyze how you are spending your money. What items could you cut back on now?

Now that you have your list and your amounts, add it all up. This is your goal for a 30-Day supply of money that is readily accessible to you. Do you have it in the bank? If you do–hooray! One more goal completed! Of course, you will want to build on that reserve to surpass the 30-Day goal. The more ‘cushion’ you have, the longer you can safely remain solvent.

If you don’t have a 30-Day supply of cash, it is time to seriously tighten that belt and work towards meeting the goal. How can you do that? Look back at those bank and credit card statements. Look at them harshly. What can you cut out right now? Do you pay for items with cash? Do you know how much you spend?

If you have no idea how much you spend, carry a little notebook, a 3×5 card or piece of paper with you for a few weeks. Write down every single purchase you make. Write down every donation you make. Simply put, write down where every single penny you have goes. No cheating, no fabricating, no rounding up, no guesstimating, no saying, ‘that pack of gum doesn’t matter’ and no stopping your normal spending habits just to make the paper look good. Don’t fail to write down online shopping, picking up dinner on the way home, that fast food lunch — nothing can be skipped! At the end of your record keeping period, look at where your money goes. Nearly everyone’s budget has some form of excess in it. There is almost always room for economizing–even if it is only the $5 per week video rental.

A recent edition of Reader’s Digest included an article about a spending-free month tackled by a writer, his wife and son. Their experiences are enlightening and encouraging to anyone who wishes to curtail their spending. Check it out at: rd.com.

Other writers have suggested having ‘no-spend’ weeks or even a day at a time. Just remember, that those pennies add up to dollars and those dollars can add up to financial security. The simple act of saving your change daily can add up to surprising amounts of money. My 8-year-old grandson, Max, recently collected all of the spare change he could find in his house. The family was moving out of town and as they cleaned, Max put all of the change lying around in his bank. He had remembered the many times I had told him about pennies adding up and the words of Benjamin Franklin, “A penny saved is a penny earned.” While visiting me just before moving, we began rolling his ’stash.’ Our first rolling session with just the contents of his piggy bank totaled $109. He thought he had about $30. With this stately sum, he was motivated to go home and dig a bit further for more change. He looked in every nook and cranny of the house, raided every junk drawer, and checked under every cushion of every seat in the house. He brought his second round of change in a plastic bag. I asked him to guess how much he had and he estimated $25. As we rolled and rolled more coins, his eyes got bigger and bigger. He had collected an additional $35. The simple act of rounding up change netted him the princely sum of $144.

On a grander scale, a friend’s father collected his spare change for several years in a large glass vase that sat in the corner of his bedroom. When the vase was full, he began rolling his change while watching football. After several trips to the bank, he had added over $11,000 to his bank account.

However you choose to save, give yourself the financial cushion of at least a 30-Day supply of cash that will cover your necessary expenditures. And if you really don’t think you need to save those lose coins, I know an 8-year-old that will gladly keep them!