How to Handle the Expected Unexpected Like A Pro

Life does not happen on schedule or according to plan.  However, one thing we can be certain of in life is that things will happen.  And they will cost money.

If you own a car, I guarantee you will pay for car repairs and maintenance.  Your tires wear out, brakes need to be replaced, and power locks fail.  Can I tell you exactly how much that will cost or exactly when the expense will occur?  No.  But I know that it will.

The same goes for home maintenance and repair.  If you own a home, at some point you will have to repair or replace your furnace, dishwasher, garbage disposal, garage door opener, fridge, etc.  Carpets, roofs, paint, and appliances wear out over time.

Do you have a body?  Chances are that body will get sick or injured at some point and need to see a doctor.  If you have kids, you will probably have to see doctors more often than you like.  (Kids are little germ monsters and accidents waiting to happen!)

The first step towards a more secure future is to set up an emergency fund.  This gives you a buffer against the unexpected.  However, if you find yourself needing to dip into your emergency fund frequently, chances are your monthly budget needs an overhaul.  You have forgotten to plan for the infrequent but expected expenses of life.

Examples of these items:

  • Clothes
  • Semi-annual or annual insurance premiums or taxes
  • Car repairs/maintenance
  • Home repairs/maintenance
  • Medical costs
  • Eye exams/contacts/glasses
  • New computer/phone
  • Dental work
  • Gifts (birthday/holidays)

So, what do you do?

Every Bill Every Month

My favorite financial advice is to pay every bill, every month.  When I say “bill” I don’t mean just the phone bill, electric bill, rent, etc.  I mean you calculate out the monthly cost of all bills and other expenses and put aside money each month to cover that.  If your annual life insurance premium is $436, then each month you need to put $36.33 aside so you have the money ready for the premium when it is due.

If you own a home, the rule of thumb is to plan on spending 1% – 2% of your home’s value for maintenance and basic repairs.  If you own a $250,000 home, that’s about $208 – $416 a month.  For car repairs, you find online estimator tools that estimate the cost of owning your vehicle and will give you a starting point to estimate how much to put aside.

If you tend to go overboard at Christmas and birthdays, you will especially want to make sure your gift/holiday budget is addressed.  One of my friends is really into holidays, birthday parties and gifts.  She has two kids and spends around $250 on each child’s birthday party each year.  For Christmas, she likes to go all out on gifts and averages around $1,000 for gifts.  During the year, for various friends and family members birthdays, anniversaries, weddings, baby showers, etc., she spends around $80 a month on gifts.  In order to pay this bill each month, she needs to save an average of $205 per month.

Open a savings account (or two … or five)

Ok, let’s assume you’ve gone through your budget and identified holes where you need to start putting money aside for the expected but infrequent expenses that life throws your way.  You’ve estimated the amount to put aside – now what do you do?

feed piggy bank giphy

I keep my money for these expected, but not yet incurred expenses, in a savings account.  I have an automated transfer each month for the amount that is being saved.  If I need to spend money for that category in that month, I can adjust the transfer or withdraw from the savings account as needed.  For example, let’s say you are my friend with a gift/holiday habit.   You have an automatic transfer on the first of the month to move $205 to savings to fund your gift-giving.  Then you get invited to a birthday party and need to spend $30 on a gift.  Since the transfer has already occurred, you simply withdraw $30 from the savings account.

Because I am a nerd and I like to quickly track how much money I have in savings for various items, I like to keep my money in separate savings accounts.  I have one for car repairs/maintenance, one for my house, one for gifts/holidays, one for insurance premiums, one for medical/dental, and one for big purchases (this lumps clothes, new computer, new phone, etc. together).  Whatever makes sense to you is the best way to handle it.  The important part is that you have worked money for these things into your regular budget and no longer need to dip into the emergency fund regularly for items that you are able to anticipate.

As I said, the advice is to pay every bill, every month.  Analyze at your budget and find the holes where there are expected, but infrequent, expenses that you do not currently capture.  Set up a savings account, and start putting money aside each month to cover these expenses.  You will find that your life has fewer money emergencies, your stress level related to money issues drops, and you can withdraw and spend money on these expected unexpected items guilt-free.  Take control of your money!

Have you been hit with an expected unexpected expense and kicked yourself for not having saved for it ahead of time?  Share your story in the comments!


Defend Against the Unexpected: How to Build an Emergency Fund

Life is full of uncertainty.  Cars break down, we get sick, layoff notices come, roofs leak, water heaters burst, and bones break.  These and other events strike without warning.  IDebt Cycle Graphicf you do not have money set aside to handle these situations, you will likely be forced to rely on high-interest debt such as credit cards or payday loans.  The high-interest rates make it hard to pay back the debt and you get trapped in a vicious debt cycle.

Your best defense?  Develop and maintain an emergency fund.  An emergency fund is cash that is set aside in a protected account that is used as a last resort in the event of a financial emergency.  Some people refer to the emergency fund as a “rainy-day account” or a “what if” account.

If you are just beginning down the road to better financial management and are struggling to pay off high-interest rate debt, it seems hard to justify cash sitting around earning maybe 1% (or less) in interest.  If you are trying to grow your investment accounts and see your investments earning 6% or 10% a year, it may seem silly to put cash into an account that earns only 1%.

However, the emergency fund is a highly liquid account such as a savings account or money market account for a reason.  If something happens and you need extra money, you do not want to take on debt (again!) or face penalties and time delays in accessing your money from an investment account.

How big should my emergency fund be?

Save for Rainy DayFinancial experts vary on this question.  Dave Ramsey says $1,000 as a minimum starting point and as you are paying down debt.  Paying down high-interest debt will often make a greater impact on your financial situation then building a robust emergency fund due to the low interest earned on the savings and the low frequency of needing to dip into the emergency fund versus the high interest being paid on debt each month.

The general emergency fund recommendation is 3-6 months of expenses, but some even say 9-12 months of expenses is ideal.  Note:  This is months of expenses, not income.  Calculate the minimum amount you need to cover bills, debts and living expenses for one month, then multiply that expense number by the number of months you want to have in reserve.

My answer?  Consider your individual variables.

Ask yourself the following questions:

  • Is my household a single income household?
  • Is anyone besides me dependent on my income?
  • If I lost my job, could I live on unemployment or would I need to draw down my savings to survive?
  • How fast do I think I could get another comparable job?
  • Do I have housing options (friends/family) if I can’t afford to pay rent? How viable are my housing alternatives?
  • Am I renting or do I own a home?
  • Could I get a roommate or rent a room out if I needed to?
  • Do I have any ongoing medical needs that I need to pay for?
  • How old is my car? Is my car due for maintenance or repairs?
  • What are the deductibles on my insurance policies? Consider auto, renters/homeowners, and medical.
  • What other savings do I have?

Someone who owns a home, is supporting a family on a single income, and works in a field where it is difficult to find a comparable job will need a much, much larger emergency fund than someone who could potentially move in with his or her parents and easily live off unemployment.

If you have a newer, very reliable car and do not own a home, then $1,000 is probably a good starting point.  When I began recovering from my rock bottom financial moment (read about it here), I personally wanted a minimum of $1,500 as my starting point ($500 for emergencies and $1,000 to pay my auto insurance deductible if necessary).  From there, I slowly built up my emergency fund ($20 a month) as I was also paying down credit card debt.

Pick a minimum amount that makes sense to you for your circumstances and then build your fund slowly with monthly contributions of whatever you can afford.  Stop funding the emergency fund once you’ve reached your pre-determined goal.  While an emergency fund is essential to healthy finances, saving too much in a low-interest account is not conducive to long-term financial health.

Where should I keep my emergency fund?

Penny Under Mattress Giphy

Not under the mattress!  All joking aside, keep your emergency fund somewhere liquid, but not in your checking account.  I like to have a savings account that is solely for the emergency fund so that I do not confuse the funds with anything else.  When setting up your emergency fund, you also want to find the best interest rate possible.

I like to keep my savings account at an online bank.  The money is federally insured and I can access the money within a day or two if I need it, but I can’t access it instantly.  Keeping the emergency money at the online bank provides a double mental barrier against dipping into the money:

  1. I don’t see the money sitting there when I log in to my regular accounts at the credit union, and
  2. I have a small built in “cooling off” period where I would have to wait for access to the funds.

These measures prevent me from impulsively spending my rainy-day fund.  Another benefit of online banks is that they generally offer higher interest rates.  Other financial experts recommend a money market account.  What should you do?  Find a relatively safe and accessible account that offers the best interest rate possible without a lot of risk.  On the day you need to access your funds, you don’t want to find out it suddenly shrank 20% because the stock market had a bad day.

Want to find out more?

Emergency lightEmergency funds are one of the basics of personal finance and the internet is full of articles about them.  Over the last few years I’ve read a lot about emergency funds and I’ve compiled some of my favorites.  The articles below present useful and unique perspectives on emergency funds that may help you determine what is right for your family and your situation.

  • Making sense out of competing expert advice

    • This article from the Lifehacker website compiles competing advice from various personal finance gurus.  This article offers a lot of food for thought to consider when setting up (or fine-tuning) your emergency fund.
  • Can you have too much emergency fund?

    • This article from Get Rich Slowly focuses on a problem most of us probably don’t have – an emergency fund that’s perhaps too big.  But I think this perspective offers important insight and will help you determine the ultimate size of the emergency fund that’s best for you.
  • What qualifies as an emergency?

    • Great article from The Balance that helps you redefine what, exactly, an unexpected expense is.  It has good reminders about making sure your budget accounts for infrequent, but expected, expenses such as annual premiums, annual eye exams, home maintenance, etc.  A reminder to use your emergency fund for emergencies.


Have you had any challenges establishing an emergency fund?  Do you have any tips to share?  Comment below!

The Power of Intentionality in Personal Finance

Personal finance is a fascinating topic because, well, it’s personal.  There are hundreds of books, blogs and celebrities out there espousing different philosophies.  YOUR money should be managed in a way that maximizes YOUR happiness, peace of mind, and security.  Money alone cannot buy happiness, but how you spend, save and invest money can bring you freedom from financial unhappiness.

I believe there are some general truths, such as living within your means, saving for the future, investing, and avoiding debt, that should be followed, but the specifics of what each person does is dependent upon that person’s values, interests, income and other circumstances.  People usually have a lot of emotions and baggage associated with how they spend money (or how they don’t spend money).  What works in one situation or for one person may not work for someone else.

Budget Calculator Paper

The Power of Intentionality

My money is a scarce resource – I only have so much of it to go around and a lot of opportunities to use it.  Managing my money requires me to make trade offs.  I can spend more now, but that will cut into my savings and may hurt my future goals.  Alternatively, I can save more now and have less available to spend in the present.  I do not enjoy being so frugal that I have to count every last penny, spend hours clipping coupons to save $4 at the store, or feel guilty when I purchase a few more expensive, ready-made ingredients at the store because it will save me 20 minutes of cooking.  The be-all, end-all goal of personal finance is NOT to amass the largest stockpile of wealth possible.  My personal goal for my finances is to maximize the life that I live and provide reasonable financial security for myself and my family.

The idea that money management involves trade offs (for any econ nerds out there – think opportunity costs!) led me discover the power of intentionality in my finances.  My goal for my personal finances is to be intentional.  What does it mean to be intentional?  It means that you are making deliberate choices and taking action on purpose – not by default, accident or merely as a result of a previous choice.  Synonyms for intentional include conscious, planned, calculated, studied, premeditated, and willful.

shutterstock_pathway choices

I realized that in order to make good financial decisions, I needed to understand my goals and preferences.  I also needed to understand my constraints.  I could not be intentional about my financial decisions if I had an incomplete understanding of my overall financial picture.  Armed with this information, I could make intentional decisions about my finances and proceed guilt-free to use my money in the way I determined was best.

When managing your money, it is important to realize that you can afford almost anything – but you can’t afford everything.  Some people choose to moderately spend and save in all areas.  Other people like to focus their spending on one big thing – like a hobby or travel.  Being responsible with your personal finances does not mean you can’t take that amazing trip through Europe that you’ve been dreaming about – it just means that you are prepared to make the necessary trade offs in order to make that happen.  Maybe that means putting off the trip for an extra year to give yourself longer to save.  Maybe that means getting a second job to help save up.  Maybe it means you move into a less expensive apartment.  Or maybe it means that you slash your budget for eating out, clothes, and entertainment.

Be Intentional

Often people get into financial trouble because they get caught up in consumerism and spend, spend, spend with little thought about what adds actual, lasting value to their life and without thinking about what their present choices will mean for their future selves.  Being intentional is the opposite of being thoughtless, impulsive, foolish, careless, or on autopilot.

Below are three ways you can begin being more intentional with your finances.

  1. Give your future a reality check.  Ask yourself how well you are planning for your future.
    • Do you have enough savings to cover your car/homeowner/health insurance deductible?
    • Can you cover an emergency car repair without going in to debt?
    • What would happen if you were unemployed for one month?  Two months? Three months?
    • Do you have a plan to save for retirement?
    • Do you understand what your retirement will look like with your current retirement saving level?
  2. Do a budget check.  Review each of your budget categories and determine two things:
    • Could I cut back in this category if I had to?  By how much?
    • How much value do I get out of this?  Rank the budget categories that you identified as able to be cut in order from easiest/least painful to cut to hardest/most painful to cut.  Now you have an idea of your money preferences.
  3. Before you spend money, ask yourself three questions:
    • What are two other ways I could use this money?
    • Would I rather use this money for saving or for one of the other options?
    • Does how I want to use this money add real value or happiness to my life?

Intentionally Avoid Financial Unhappiness

When you are intentional with your money, you maximize your money and your life.  You are able to make solid financial choices and accomplish goals because you make decisions that take into account your entire financial situation.  You create and follow a financial plan.  Because you are intentional, you are better able to reign in consumerism and avoid debt.  Debt, especially consumer debt like credit card debt, is one of the main drivers of financial stress.  Through your intentional handling of your finances, you can avoid financial unhappiness.  With time and effort, you can achieve financial peace of mind and security.


What helps you be more intentional with your money?  What trade offs do you make with your money?  Comment below!


The Most Important Financial Number You’re Probably Not Tracking

So, you’re starting to make better financial decisions.  Maybe you are following a budget, saving more, or working on paying down debt.  How do you stay motivated?  How do you know what difference it makes in your overall financial wellbeing?  It’s simple – track your net worth!

In my MBA program, one of the sayings drilled into me is that you can’t manage what you don’t measure and that you only improve what you measure.  This is true in business as well as in your personal finances.  Using a budgeting system is essential to financial wellbeing.  However, there is another financial number – the MOST important financial number – that is often overlooked.  The number one, most important financial number to track is your net worth.

What is “net worth?”

Net Worth Formula

Your net worth is, simply put, the sum of everything you own minus everything you owe.  To calculate your net worth, first, you must add the balances of all accounts (cash, checking, savings, CD, investments, retirement, etc.) plus all assets (house, car, etc.).  This gives you the value of everything you own.

Side note:  What assets should be included in the net worth calculation?  For example, should I include my expensive camera, a wedding ring, or my beanie baby collection?  The rule of thumb is to only include items that are relatively easy to sell in a short period of time, that you are willing to sell, and that have an easily identifiable resale value.

The next step is to add up all debts (credit cards, car loans, student loans, mortgage, the personal loan from your uncle Bill, etc.) to arrive at the total value of everything you owe.  Finally, take the total value of what you own and subtract the total value of what you owe to arrive at your net worth.

Man Dont Panic

The younger you are, and the more debt you have, the more likely you are to have a negative net worth.  If this is you – don’t panic!!  This is simply your starting point.  The current value of your net worth is much less important than the change in your net worth over time.  Is your net worth growing or shrinking each month?  Is it steadily growing each year or does it grow and shrink sporadically?

Why is my net worth the most important financial number?

Your net worth is the most important financial number because it gives you a birds-eye view of your finances.  Your net worth is also affected by every financial decision you make.  If you pay down your debt, you are decreasing the amount you owe and thus your net worth will go up.  If you save more money for retirement, the amount you own will go up, which also increases your net worth.

When I was paying down credit card debt, it was sometimes discouraging because it was hard to see the impact that paying down debt had on my overall financial picture.  Sometimes, I would have preferred putting $100 extra in savings so I could see my account balances rise.  I was putting every penny I had to pay off my credit cards so I went a few years with fairly small balances in my checking and savings accounts (just enough for a small emergency fund).  It was frustrating to work so hard on my finances and feel like I never had any more money.  I was judging my financial wellbeing based on the money in my checking and savings account instead of based on my overall financial picture.


When looking at your finances from a net worth standpoint, you see your net worth rise when you save more as well as when you pay off debt.  Consider the following scenario:

  • Current Net Worth:  -$35,246
  • Monthly Savings:  $300
  • Student Loan Payment:  $450
  • Retirement Contribution:  $400
  • Mortgage Payment (Principal portion only):  $350
  • New Net Worth:  -$33,746

In this scenario, the person may only be putting $300 in a savings account.  However, the net worth will increase with each of the actions.  The total impact of each of these is an increase in the net worth by $1,500.

How to track your net worth

I recommend tracking your net worth at least quarterly, but I think monthly is better.  Each month you will see the impact of your financial decisions.  You’ll be better able to spot trends, stay more motivated as you see positive changes, and be able to quickly identify sources of concern if your net worth begins to dip.

Your net worth will fluctuate somewhat depending on bill cycles, large irregular expenditures (for example, semi-annual or annual insurance premium or property taxes), and fluctuations in asset values and investments.  However, over time you will see the overall trend.

I use a simple spreadsheet to track my net worth, and I update it at the end of each month as I finalize the budget for the next month.  The first column lists all my accounts, assets and debts.  Then there is one column for each month where I enter the current value for each item.  A simple example spreadsheet is shown below.

Net Worth Example Spreadsheet

I also use the app/website Personal Capital and love it.  It makes real-time tracking much easier!  However, I keep my spreadsheet around because I update it at the same time every month – and because I’m a nerd and love spreadsheets.

Additional Details

In addition to tracking my overall net worth, I like to track a few other numbers.  I think of them as subsets of my net worth.  Descriptions of these numbers are below.  If you are a nerd like me, you may find these numbers interesting.

  1. Cash Balance.  This is my cash, checking and savings total.
  2. Net Cash.  This the sum of cash, checking, and savings minus all credit card debt.
  3. Non-Retirement Net Worth.  This is calculated the same as the regular net worth, except that it excludes any retirement accounts.
  4. Home Profit.  This is the value of my home minus all amounts owed as well as the estimated cost of selling.  I take the current estimated market value minus the mortgage balance and the HELOC balance, then also subtract 9% of the current estimated market value (this represents the estimated cost to sell the house).

You only manage what you track

Your net worth is easily the most important financial number as it reflects the sum of all your financial decisions.  Tracking your net worth provides you with a view of the trend of your overall finances.  Every positive financial step you take will help raise your net worth a little at a time.  Remember, don’t panic if your net worth is negative – even if it is really negative.  The actual value of your net worth matters a lot less than the direction of change in your net worth.  Stick with your positive financial choices and the change in your net worth will reflect your hard work!

Do you use a spreadsheet or software/app/website for tracking?  Have you tracked your net worth before?  Why or why not?  Comment and let me know – especially if you have a great tool you recommend.

How to Rebuild from Rock Bottom: 2 Powerful Financial Lessons

Have you ever found yourself drifting through life without direction or purpose?  Drifting is how you get nowhere, fast.  When you’re drifting, directionless and without goals or a plan, you can fall, unprepared, right off a cliff.  This happened to me.  In my mid-twenties, I fell off a financial cliff and hit my financial rock bottom – HARD.  This is an abbreviated version of my story and the 2 powerful financial lessons that I learned the hard way.

Experience is mistakes Quote

My Rock Bottom

I hit rock bottom in 2011.  I was a single mom to a baby boy, living in a tiny efficiency studio apartment, drowning in medical bills, credit card and student loan debt, and unable to pay my bills.  One night, after I put my son to sleep, I sat down on the couch to pay bills.  I had avoided opening my mail because I knew bills were overdue and, yet again, I didn’t have enough money to make the minimum payments on all the bills.

My credit cards were maxed out and the credit card companies lowered my credit limit each time I made a payment, so I never had any available credit.  I was alone, living far from my family.  I received no child support payments and received no government assistance.  My dad was not employed, my siblings had no money, and my mom had passed away several years earlier.  I didn’t know what to do and had no one to turn to.  I didn’t know how I was going to buy groceries or gas to get us through the week until payday.  A friend had bought me diapers that week or I wouldn’t have even had a clean diaper for my baby.

I slowly opened the dreaded credit card statement.  I noticed, for the first time, the box that said something like, “If you only make the minimum payment, it will take you 26 years to pay this off.”  In shock and horror, I dropped the bill.  26 years!!!!  I could not imagine my life staying the same for 26 years and having this debt hanging over my head for that long.  In despair, I broke down crying.  This stressful moment was my financial rock bottom moment.  After lots of tears, tantrums and some theatrics, I committed to getting serious about my financial situation.

How did I end up at rock bottom?

I had graduated from the University of Washington at age 22 and immediately got my first full-time “real” job.  Most of my college friends were moving away because they got new jobs, were attending graduate school or were getting married.  I had no clear idea of what career I wanted, so even my job was just a placeholder – it was a vehicle to a paycheck, nothing more.  I drifted financially.  I contributed a small amount to a retirement account, just enough to receive the full employer match.  I had no credit card debt and made more than the minimum payment on my student loans.  I had a small savings account, paid my bills, and avoided taking on debt, but I lacked a financial plan.  I had no strategy for paying off my loans and had no future financial plans beyond just paying my bills.

“Experience is a hard teacher Quote

About 15 months after my college graduation, my mom suddenly and unexpectedly passed away.  We were very close and her death threw me for a loop.  My emotional and mental health suffered.  What followed were three exceedingly difficult years.  During this time, I decided to go back to school to be an elementary school teacher.  I was accepted to a Masters in Teaching program at the University of Washington.  However, I ended up needing surgery shortly after beginning the program.  After surgery, I received the devastating news that it was unlikely I would ever be able to get pregnant without significant fertility assistance – if I was able to conceive at all.  As I had always wanted a family, this news was hard to bear.  Still emotionally fragile from the loss of my mom, I went into an emotional tailspin.

Graduate school was very expensive and added significantly to my student loan debt.  Although I was working part-time, medical bills began piling up and I found myself ignoring my financial situation.  The credit card was the easiest way to make my problems disappear while I desperately tried to focus on school.  After about 6 months, I realized it was not financially feasible for me to remain in school at that time.  I was granted a one-year leave of absence from school and returned to working full-time.  Although I had not technically dropped out, I felt like a drop-out and a failure.  (I have a streak of perfectionism and very high expectations of myself!)

My emotional and mental health were completely eroded at this point.  Between feeling like a failure and dealing with my mom’s death as well as the news of likely fertility problems, I was a mess.  I found out that I am an emotional spender.  I never splurged on really expensive things, but I made a lot of little purchases that added up over time.  My uncontrolled spending and apathy towards handling my finances combined into a perfect financial storm.  I racked up close to $20,000 in credit card debt in a very short period of time.

I was not making smart choices in any area of my life.  In early 2010, I found out I was pregnant with my medical miracle baby boy.  By late 2010, I found myself homeless with a newborn baby and staying with friends and relatives.  When I had found out I was pregnant, I began making changes.  After returning to work from an unpaid maternity leave, I managed to rent a small efficiency studio apartment.  The efficiency studio consisted of one room, a bathroom, and a teeny-tiny kitchen with a small sink, a two-burner stove, and a mini fridge.  Three months later, I had my rock bottom moment.

Mistakes Best Lessons Dale Turner QuoteLesson 1:  Don’t be an Ostrich

Ignoring your financial problems and acting like an ostrich putting its head in the sand will only make your situation worse.  Wishful thinking is not a money management strategy.  I know from experience that it is so easy to ignore the rising balances on credit cards, the dwindling (or non-existent) savings account, and the cash that disappears faster than you can stash it in your wallet.  However, ignoring your money management and debt problems will not magically make them go away.  In fact, ignoring the problem is guaranteed to cost you additional money as you thoughtlessly spend, squandering money on consumerism and on interest payments.  It can be overwhelming and seriously intimidating to take charge of your finances, but the rewards are worth it!  The hardest part is getting started – from there you take it one step at a time.



Lesson 2:  Take Baby Steps

My biggest lesson in money management has been that I need to take baby steps.  I did not overcome my financial mess through making just one change.  I could not change my spending and money management habits overnight – I had to take it one step at a time and I recommend this approach to anyone just getting started.  Begin by organizing your financial papers and getting an overview of your current accounts, balances, interest rates, and recurring bills.  Set up a system to track your spending and then create a budget.  If you are like me and find budgeting overwhelming at first, then don’t focus as much on long term goals or try to change cold turkey.  Instead, set multiple short-term goals.  Maybe put $100 extra per month towards your debt, or start transferring $25 every paycheck straight into savings.  Go from eating out three times a week to eating out only twice a week.  Every couple of months reevaluate where you are and where you want to be.

When setting your goals, really get to know yourself.  Maybe you could go cold turkey and switch from buying your lunch every day to brown bagging it daily.  But, maybe you can’t resist the latest bestseller or are a compulsive clothes shopper.  Allow yourself some small luxuries, but slowly rein them in until they are in line with a spending level that fits within your income and financial goals.  It will be easier to stick to your changes long-term if they are made gradually and realistically.

Rock Bottom JK Rowling Quote

Fast Forward to Now

It has been almost 6 years since my rock bottom moment.  I am still a single mom and have a wonderfully funny and happy little boy who is the light of my life.  I paid off all of my credit card debt, bought and paid off a car, and bought a house.  I also returned to school and earned my MBA.  I do still have some student loan debt.  As a single income household living on one modest salary and paying the high cost of childcare, I still have to manage my money carefully, but I am able to meet my current needs and am planning for the future.

I am glad that I experienced my rock bottom moment and had a serious financial wake-up call.  If I had not hit rock bottom, I may have continued drifting financially.  The benefit of getting serious about my finances is that I now have a financial plan.  I still create a monthly budget and track my spending.  I believe in being intentional with my finances.  I have a limited supply of money and unlimited choices of how to use that money.  Each choice I make involves trade-offs.  My philosophy is to find the way to maximize my money such that I use money in ways that add real value to my life and limit using money in ways that do not add value to my life.  My emergency savings account adds value to my life because it provides security and peace of mind.  Saving money for retirement adds value to my life because it also provides peace of mind and allows me to dream of the day that I can retire.  I don’t spend a lot of money on clothes or electronics because I prefer to spend money on travel and restaurants.  My financial plan provides security and direction for my financial life.


Have you experienced a financial rock bottom moment?  What financial lessons did you learn?  If you have a financial plan, do you think it has saved you from having a rock bottom moment?

I’d love to hear your experiences and lessons.  Please share in the comments section.