Showing posts from January, 2011

The Money Makeover - Milestone 3: The Emergency Fund II

At this point, we are totally rocking and rolling with our makeover. We have got the fundamental tools in place (like the budget and emergency fund I ), we are continually reviewing and cutting unnecessary expenses and we have cleared our debt . So what’s the next step? Well, we need to get a safety net, a big safety net to offer us increased security and peace of mind. The Emergency Fund II. What is the “Emergency Fund II”? Like the emergency fund I, this is money in the bank “just in case”, but rather than act a a buffer against unexpected “casual” expenses, this exists to help shield us against something potentially far worse, unexpected job loss . Unfortunately (especially in recent times) this can happen, and when it does, it can hit hard and have a disastrous “rippling effect”. In a nutshell, the fund: .. is 1 years salary ( gross ). .. is allocated meaning we do not touch it unless we absolutely have to . So, take your salary (not your take-home). That’s what we are a

The “Money Makeover”– Milestone 2: The Debt Snowball

At this point, we should have created our budget , allocating savings and have our emergency fund 1 to prevent surprises and naturally cutting expenses where we can . So, what’s the next step? Well, we really need to own our responsibilities and clear our debt . What is the "Debt Snowball”? Put simply, it is a list of all of the debt that we have. Loans, credit cards, money owed to friends/family, overdrafts whatever. The only debt it doesn’t include is the mortgage. The aim of the snowball (at a high level) is to simply provide some visibility and focus on the money that we owe to other people . As you can see, a central theme to our makeover is removing surprises and setting expectations of our money . As people in command of our cash, we should always clear debt before having our own fun with our cash (and we never borrow again once we have cleared it). Why have a “Debt Snowball”? For me, I love the idea of the snowball for the following reasons: It’s sim