Our journey to Financial Independence

Category: Financial Thinking

Money Talk

Money Taboos Cost You A Fortune, Time To Start Talking

“Money makes the world go round.”

“Don’t share your income.”

“Don’t talk about your money goals.”

“Spending money will make you happy.”

Money is part of my life whether I like it or not. Yet, I’m not supposed to talk about it. I need to be smart, invest, save, spend, etc. But by default, seeking advice is tough as people get cold feet when talking about this hidden divinity that is cash.

Just like everyone else I dream of Financial Independence. Imagine being able to work for pleasure not thinking about having to make ends meet. Money Taboos are counterproductive. 

How am I expected to reach freedom, if I can’t be open?

I was lucky, my family always talked freely about finances. Whether it from downturns to investments. It made money mundane instead of some kind of deity. We need it to live — but it’s nothing more than a tool. Vicki Robinson’s “Your Money or Your Life”, completely transformed my understanding of money.

What relationship do I want with it? 

Should it govern my life? 

How much do I need?

That last question hit me hard. When am I going to have enough? I’m not a dragon… No need to hoard as much as I can. What would be the point? Her book helped me realize that juggling multiple side-hustles, a normal job — isn’t making a living. We are dying at work. When do I get the time to live?

Money Clock

No More Shame - No More Taboo

How many times have you bought something on a whim?

How many times did you look at the object shamefully?

Yeah me too… 

The number of times I spent money on a “must-have”  is unmeasurable. When I started questioning why I didn’t share my expenses more. I realized it was because of this inherent shame. 

What are they going to think about me? 

Who spends that much on tech?

It was much easier to keep it for myself. At the end of the day it’s none of their business, is it?

That’s that I’m not sharing. But what if I did? I couldn’t shake the thought off. Some day I took the step. I started small. Talking about my overall rent with some colleagues. My gosh… it’s like a weight was lifted. By listening to their tips, tricks, and struggles. I felt like I was seeing light. Then the dreaded “Why?” came. Why do I spend this amount? Why not more or less?

This epiphany made me realize that not only am I not alone. But we are all going through this existential crisis. 

Opening up about my expenses allows me to understand why I’m spending. The need for a strict budget has passed me over. I must understand what my values are. As long as my spending reflects them — I’m doing well. No point in being ashamed either. Ridding myself of Money Taboos made me realize: What is spent is spent. Discover more about this thought process with my article Why I Was Wrong About My Financial Goals.

Monkey Money Taboos

What Am I Worth?

An intense yet important question. We are encouraged by society to keep our income to ourselves. It’s simply bad etiquette to discuss salary. Truly the most engrained of Money Taboos. But how am I supposed to know what I deserve if I can’t talk about it?

Another head-scratcher. The answer was easier. I didn’t want to sell myself short. How are the different roles compensated? Opening the discussion with my colleagues, friends, and family was a mixed bag. It was easier with my generation. We have similar roles. We were all in the same ballpark. On the other hand, it meant we had less to learn from each other.

Although starting a conversation with older generations was tough. It was beneficial when the shell started to crack. Not only could I learn about future potential earnings within my job. I learned a lot about multiple income streams. Whether it was rental income, dividends, or general freelancing.

This topic is paramount when it comes to blogging and freelancing. As we all adventure on our journey to creativity we are blind. The community and people being open about their revenue online is what gives us referral points. 

By opening up the conversation around income. I discovered options for future revenue streams. It set expectations for my financial future and a benchmark for my blogging. But most importantly, I understood my worth isn’t tied to my income.

Investments around the world

Let's Get Rid Of Money Taboos Together

Understanding money is a tough nut to crack. You can’t do it alone, yet sharing is frowned upon. By opening up about my finances – I liberated myself. I realized that I’m not alone. Sharing both my fears and my successes means they become real. The only way to deal with something is by acknowledging it.

Not only has it empowered me it has helped people around me. 

Having money talks is beneficial. It made me understand that my income doesn’t represent my worth. It is a building block I use to reach fulfillment.

I would love to hear from you. What helped you break the Money Taboo? How to you go around Money Talks?

money in a tissue box

7 Deadly Personal Finance Sins To Avoid In 2021

How do Personal Finance Sins impact you?

Whether you are religious or an atheist – you commit these Personal Finance sins. They have led to bad financial habits. You might not notice it but they wreak havoc over your future. 

Personal finance and FI/RE are about the path to independence which requires discipline and focus. Yet, along the path, traps are often disguised as great opportunities. Which all lead to Personal Finance Hell. They range from debt, an empty pension fund to overwhelming clutter. 

Any of these sound familiar?

We often don’t realize the situation we are in before we take a hard look in the mirror. For me, the realization came during a move… As I was clearing my room the number of unnecessary clothes, gadgets, and other “must-haves” appalled me. I had accumulated so many pointless items. 

As the saying goes “Hindsight is 2020”. It hit the nail on the head, all these purchases were made on a whim, to keep with society, or to have the latest tech. None of them were thought out or aligned with who I am. It felt like I had gone on a gluttonous shopping spree that left me with nothing but dust and an empty wallet.

Key Takeaways

  • Take your time before any financial decision at minimum 24 hours
  • Never make big decisions when you are emotional
  • If it sounds too good to be true it is
  • Pay it forward, match every dollar spent on wants with a dollar invested
  • Be humble, you’ll never know everything about finance (or anything else for that matter)

As I moved forward I started noticing different types of impulses and mistakes. It led me to re-categorize them as the 7 deadly personal finance sins:

1. Lust - The Impulsive Buyer

Have you seen the new iPhone?

How can you live without it? The only path to happiness is to own it now. 

How couldn’t you?.. everyone else bought it. 

Even your broke friend has it. 

It can’t hurt it’s just another $34 per month or maybe just $900 today. Not only do you need it but you need it now. Before, the hype has passed.

Lust makes you crave unnecessary things just for imaginary pleasure. Social Media and events, such as Black Friday, are tremendous enablers. They spam you with ads, reviews, and deals. You to fantasize about the amazing new features. 

Aaaah the “IT”, the purchase to rule them all, to satisfy all cravings. You just know you’ll be fulfilled once you have “IT”. For that reason, no point thinking much – let me enter my credit card.

The purchase has gone through – you own “IT”. The Amazon Delivery comes in the next day. My gosh is this what happiness feels like? You put the item in the cupboard – it can wait for now. 

The rush is gone it lasted all of 30 seconds. The fantasy was arguably the most enjoyable part of the adventure. Oh well, maybe the next iPhone will do the trick…

The first of the 7 Personal Finance Sins Lust is treacherous…

Tools against Lust

When your mind gets filled with dreams of a new marvel. Start a clock, give yourself 24 hours during which you don’t shop around for accessories, look up the stats, or research good deals. 

Take the time to discuss with someone you trust – explain why you must have it. Ask them about their opinion. How would they use it? Don’t try, to convince them instead of having a conversation.

If you still want it. Start researching for another day. How much does maintenance cost, how long does it last, and what’s the best deal. If you are approaching Black Friday or the summer sale be patient. You’ll be thankful to have saved 20+% on your purchase.

Shopping Lust

2. Gluttony - The Overflowing Wardrobe

I often feel gluttony creeping up when I go grocery shopping. I have a clear list of what I need. I have a distinct plan of which shops and where to go. 

Yet when I get to the shop it all goes through the window. The offers, sales, and yellow stickers draw me in. Another box of cereal of course. Obviously, the pack of 3 only cost $1.29. How could I not… there’re only 5 others in the cupboard.

The never-ending cycle of stockpiling. Suddenly I have an overflowing bag and a 30-minute walk home. 

If only it stopped here. As you go online to buy a new pair of running shoes you notice the nice looking shorts. You definitely could use more of those. Down the rabbit hole we go… 1 hour and $150 later you have bought 2 t-shirts, 1 shorts, and a football but you forgot your running shoes. It doesn’t matter the deals were so good. 

Now where to put them my wardrobe is full…Not only had you not bought these shoes would you’ve avoided clutter. But in 20 years these $150 invested in an ETF could be worth: $605.81. That small decision cost you over $450. Start your investment journey with Trading 212 (and get a free stock valued up to $100)

As discrete of a personal finance sin, gluttony is not to be underestimated.

Tools against Gluttony

Reverse engineer sales; do your research. My favorite habit to get in the right frame of mind is withdrawing the exact amount of cash I need for each trip and leaving my credit card behind. 

Ok… I add around $10 just in case but it means unless I find the deal of the century. I cannot give in to my gluttony and leave with exactly what I planned for. It might sound rigid but after a few times, I promise you will not think twice about shopping trips. 

Having built the habit, I no longer need the trick but my gosh am I grateful. So is my wardrobe…

3. Greed - The Vicious Circle

Greed is in the same vein as Lust. You can’t resist your appetite. It’s more than a fantasy you need it. You are willing to do anything for it. As a result, Greed is the greatest of the Personal Finance Sin. 

You are willing to sacrifice social ties, your credit score, or your emergency fund to get it. Greed is what sucks people into Multi-Level-Marketing (pyramid schemes). The promise of riches and freedom sound so good don’t they…

People that buy into these programs sacrifice their family ties, their dignity, and their financial prospects. Not only does the initial investment come at a high price. For even the smallest ROI  you must leech on your family. Down the line, you are left with an empty bank account and no social ties. 

Greed leads you to emptiness and hopelessness. The only thing holding you together is the object of your greed. Soon, that too fades away as you can no longer afford it…

Tools against Greed

The only tool against greed is patience. There are no get rich quick scheme you need to invest in today. There is no point in going into debt to buy a brand new car or to kick-start your MLM career. 

Take your time if you cannot afford it today don’t dive headfirst. As I explained in my article around financial goals understanding what you value will lower your greed.

Don’t forget to be humble and seek advice! It will lead you to review the objective impact of your decisions.

4. Sloth - The Lazy Text

From Takeaway to uneducated purchases… we all pay this tax once in a while. How often have you been sat on the couch thinking “I’m too lazy to cook: I’ll just get a pizza delivery.” Instead of spending ~$1 on your meal you’ve just spent $10.

We’re all culprits here and honestly once in a while fair enough. Indulge in a small pleasure. The trick is it quickly snowballs into a regular offense. Just like everything else… If it’s ok today it means I can do it again tomorrow. 

This leads to the $10 quickly transforming into $50 or more. Imagine that $50 a month… that would be worth $10,681.24 in 20 years

The Lazy Tax also strikes when purchasing new items. If you don’t take the time to shop sales or find deals with apps such as Honey (the US mostly) or Pouch (the UK only). This is a harder amount to put a number too. But if the purchase isn’t an emergency why buy it today?

Money Clock

Tools against Sloth

TAKE YOUR TIME. Personal Finance is all about the long game. If you aren’t in a rush shop around and wait for the next sale if you can. This not only lets you think twice but leads to you being ready for sales.

As far as takeaway goes, I’ve gotten into the habit of matching my spending with an investment. For each dollar I spend – I invest another. This has transformed takeaway into productive action. The easiest way to lower your food expenses is to meal prep and freeze your leftovers. You just need to fish them out when you feel lazy!

Sloth is the easiest of the Personal Finance Sins to get rid off all it takes is preparation!

Wrath - The Decision Maker

This one is going to be short. You make a lot of financial mistakes when emotional. A great example is the March 2020 market crash. Many rushed to selling and closing their positions expecting a bearish market for the year.

Yet the S&P 500, for example, increased more than 60% since then. With many other financial indexes reaching all-time highs. Whereas by selling and buying in once more. You pay the fees and spread twice. Without benefiting from Dollar Cost Averaging.

Tools against Wrath

This one is tricky… emotions are incredibly difficult to control.  I can tell you to stick it out. But if you’re in fight or flight mode you won’t remember. I’ve learned meditation and breath-work has helped me stay in control as my adrenaline rises. 

What are your tricks to handle wrath?

6. Envy - Lifestyle Inflation

Stop trying to “keep up with the Joneses”. Whether it is through credit cards or spending all our income on payday. We need to keep up appearances. What matters isn’t how our bank account and future looks but what our Instagram feed reflects. 

Social Media is consistently trying to sell you something. Whether it’s holidays on the other side of the world or a new car you need the likes. AT WHATEVER COST. Influencers in Russia have started renting studio space to make them look as they can afford a private jet…

We look forward to our next raise or bonus as it will allow us to have more. You need more right? You need that Tesla. Instead of seeing the potential of additional investments we see a new wardrobe. 

In the end, we are blinded by the likes and the clout. It’s all that matters. Whether the investment brings us value or not.

Tools against Envy

Take a break from social media. I’ve uninstalled Instagram for around 2 months now. My gosh have my purchasing impulses changed. No longer do I feel like I need all the latest tech. I’m happier to take time to discover what works for me and around me. 

I now invest in what I value instead of what others do. It has made a huge change in my life. 

Unsubscribe from brand newsletters. From Amazon to Converse they bombard you with offers and “1 time opportunities” opportunities. Worse they share the most popular discounted items. In an attempt to generate sales. As strong as we think we are, such spam unconsciously creates needs.

7. Pride - The Knowledgeable Ignorant

The biggest mistake you can make as a Personal Finance enthusiast is thinking you know it all. Because you go through blogs and watch a few videos you assume you know the market 

Remember that Monkeys have consistently outperformed fund managers. They generated higher returns for prospective clients. If you want to learn more about our Monkey Overlords I recommend this article.

By consistently taking more risks and assuming we know better we expose ourselves to great losses. I lack the knowledge to get involved with day trading and options. Therefore I avoid them entirely – they are akin to gambling.

It’s not to say that if you’re knowledgeable there is a lot of money to be made in that space!

grow your investments graphs going up

Tools against Pride

Be humble. It’s as simple as that. Accept that however figures you have in your accounts. There will always be someone more knowledgeable. If even Warren Buffet has been wrong in the past… How can we be certain of any decision? 

You’ll win some and you’ll lose some. Take risks appropriate to your knowledge, more importantly, ask for help.

Begone Personal Finance Sins

This article was long enough to warrant a short conclusion. Personal Finance sins are inevitable we all get caught up in them. Learn how to deal with them and every mishap will have a solution.  Never forget you must take your time!

Below are the Key Takeaways you found at the top of the article!

Key Takeaways

  • Take your time before any financial decision at minimum 24 hours
  • Never make big decisions when you are emotional
  • If it sounds too good to be true it is
  • Pay it forward, match every dollar spent on wants with a dollar invested
  • Be humble, you’ll never know everything about finance (or anything else for that matter)

What are your top tips when it comes to avoiding these 7 deadly sins? Are there any you would add?

Credit Cards in a pocket

Why Your Credit Card Can Be A Powerful Ally

DISCLAIMER

Before you read this article, if you are in any kind of Credit Card debt, stop here. I recommend you pay off debt before any investment

“Don’t use Credit Cards… they are a gateway to debt!”

How many times have I heard that sentence? Often from older generations, but also reputable sources such as Dave Ramsey.  Yet I’m here to tell you they aren’t all evil.

As long as you pay it in full every month your credit card is effectively a debit card with perks. Since moving to the UK, I have used my American Express credit card for almost everything. Whether I’m buying a flight, groceries, or paying for gas. 

Since then I’ve acquired 40,000 miles with British Airways, a cashback of 0.5% with my purchases, and had access to airport lounges on long trips. 

Have I succumbed to the marketing, maybe a little? On the other hand, throughout this article, we will explore the pros and cons of using your credit card every day. 

Pros and cons of a Credit Card

Of course, credit cards wouldn’t be such a controversial topic if they didn’t have downsides. I believe the cure to credit card debt is understanding how they function. They are not a “get out of jail” card. To quote Uncle Ben “With great power comes great responsibility”. 

Pros

Let’s start with why you should be using your credit card as much as possible within your means.

Most Credit Cards will offer rewards. Which typically come in 3 forms:

  • Points
  • Cashback
  • Preferential Rates

The credit card you pick will greatly depend on your lifestyle. I use both points and cashback. As AMEX allows me to collect miles for BA with the “Gold or BA Card” and earn 1% cashback on my purchases with my Everyday platinum card. Whilst also offering discounts with many brands!

When paying with a Credit Card you benefit from scam protection. If you contest a purchase they will reimburse your purchase. This is a great way to cover yourself when traveling or buying online as the Credit Refund will often be faster than that of the store. 

 In the form of travel insurance and a guarantee, your credit card acts as an extra safety net when traveling. When my friend’s wedding was canceled due to COVID-19 – AMEX’s travel insurance helped me with the refund process. It took my friend 6 months to get reimbursed I had the money within 2.

This one is straight forward a good history of full repayment will increase your credit score.  I have personally gone from 0 as a foreigner to almost 900.

I was able to get over 30,000 miles by referring friends to the American Express Gold card. I currently use the AMEX Everyday Platinum if you use my link you will get £10 credit the first time you spend £1. Thereafter you’ll get 5% cashback on every purchase up to £100 cashback earned. 

As you can see there are many benefits in kind for using a Credit Card. Additionally, it also makes it easy to track expenses and builds healthy habits. I have personally set mine to Payment in full and it keeps me covered as I never go over my threshold.

Credit Card or Cash?

Cons

You won’t catch me saying that everything is great with credit cards. Their companies would not exist if it were the case. To understand where the dark side comes from you must understand how they make their money. In this article, Peter Stephens goes in-depth about each stream of income. They earn money from

  1. Predatory Interest Rates
  2. Merchant fees
  3. Consumer Fees

This leads us to the 3 risks of Credit Cards.

It’s very easy to think credit cards are free money. Keep in mind you will need to pay back everything in full. I recommend setting up a limit on your Credit Card so you remain.

If you miss a payment you are quickly stuck in a vicious cycle. As interest rates are upwards of 15% you quickly end up unable to pay. To avoid crippling debt keep track of where you stand.

Withdrawing cash comes at a high cost with credit cards. In the case of AMEX, it is upwards of 2%. Spending money abroad might also incur additional charges.

 

If the temptation of free money is too high you should stay away from Credit Cards. To help you decide whether Credit Cards are for you, – keep reading as I share my experience.

What have I learnt using my Credit Card

As I said previously, I currently use the AMEX Everyday Platinum card. Previously, I owned the AMEX Gold but only for 1 year as it was free. My experience with American Express has been wonderful. I’ve had a few issues with COVID-19 and they were able to help me. No question asked. 

I have also been able to increase my Credit Score by more than 200 points. Which has allowed me to get approved for apartments faster and will surely help when I acquire real estate. My score was helped by paying my card off in full monthly. Additionally, I have accumulated £300 plus of value from British Airways Miles mostly through the referral program. 

On that note, if you decide to go for a credit card use a referral! You’ll get additional perks monetary or not. For example, if you use my link for the Platinum Everyday Card you will get £10 for free after your first purchase.

Share your experience with credit cards and how you use them in the comments! I would love to hear your tips & tricks and answer your questions.

I recommend checking out Graham Stephen’s video on the matter as it was very insightful at the start of my journey.

7 Steps To a Great Start With Personal Finance

Personal finance is just that. Personal. Yet there is a lot to learn from other people’s stories. It isn’t straightforward as a I learned when I graduated.

Everything changed the day I left University. I left Switzerland for the UK. A new country meant a new financial system. It also meant losing my financial security net.

“But Lionel, you are Swiss of course you can manage money”

My gosh, have I cursed, the reputation the Swiss bankers gave us… Yet I can’t deny it, I have a passion for personal finance. There I said it… a walking stereotype that’s what I am. The good news is I’ve learned some stuff along the way. Keep reading to start your journey with Personal Finance

1 Download a Budgeting App

Personal Finance through expense tracking

The first thing you should do is get an expense tracking app. It’s stores all my current accounts, credit cards and saving accounts. I’m able to visualize all my expenditures, find the hidden money sinks, and track my overall wealth.

I personally use Emma, it categories my expenses automatically! As soon as I get close to reaching a budget –  I receive a notification. I had no excuse for forgetting to track an expense. Not only could I visualize my expenses – I got to know myself.

I have now set up an external sheet for my budget but I still use Emma daily. It keeps me on top of my finances with one quick stop.

2 Apply the 50-30-20 Rule

At the start of my personal finance journey, it was difficult to grasp what my spending targets should be. After learning about Elizabeth Warren’s 50-30-20 rule. I had found a framework on which to base my decisions.

It suggests you should spend your after-tax income as follows:

  • 50% for needs (rent, food, transport, insurance)
  • 30% for wants (entertainment, gym, holidays)
  • 20% for savings (investments, paying off debt, saving accounts)

This rule helped me when deciding which country I should move to when graduating. And whether it was financially sound to do so. Since moving to the London, I’ve aimed at decreasing the 50% to grow my savings.

I have managed to shift take it down to around 40% in a couple of years. I cannot say I have achieved my goal but I am on my way.

Currently, I’m saving 43% of my income mostly supported by lockdown diminishing my expenses. Thankfully, it has lead me to increasing my investment rate to 25%. I mostly invest through Vanguard and ETFs although I also invest through Trading 212. (You can get 1 free share worth up to £100/$100 with my link.)

Wealth consists not in having great possessions, but in having few wants. — Epictetus

3. Paying off debt is an investment

Debt is like a weed. It will grow especially if you ignore it. Paying off your credit card debt should be at the top of your priorities. Most of the money they make comes from the predatory APR interest rate they charge.

When you pay off a debt you do not only increase your credit score. You lower your future debt as you curb the interest growth.

4. Build an emergency fund

Since COVID-19 hit I have become a massive Emergency Fund advocate. I keep upwards of 3 months of expenses saved at all times. It allows me to keep my mind at ease. When the ghost of unemployment comes looming — I have breathing room.

Whenever I need to tap into this fund my priority is to refuel it as soon as possible. You can learn more about how to build your own with my article “How to Build an Emergency Fund in 2020“.

5. Check your finances daily

Every day, I take a couple of minutes to go through my budgeting app. It helps in making the money real. I know where, when, and what I spent.

Of course, I end up letting myself down every now and then; but my impulse purchases have gone down tremendously. Instead of treating “mistakes”. they are now learning opportunities.

6. Educate yourself

I try and read as much as I can about financial law, investment opportunities, and saving tips. The world of personal finance is ever-changing and different from 1 country to the next. Researching what applies to your area will help you grow and be critical about what you read online.

“Winning at money is 80 percent behavior and 20 percent head knowledge.” — Dave Ramsey

7. There is no "get rich quick"

When I started reading about personal finance; every other article talked about the X trick. I quickly learned that there is no such thing as easy money. Passive income is not a myth but it takes a lot of work before it becomes sustainable.

Take your time, let your money grow, and be disciplined it will all come eventually. Remember that passive income although it’s attainable is often looked at through rosy lenses. You can learn more here “Passive Income It’s All a Lie“.

Here’s the major problem with going on strike for more money: You cannot get rich by demand! — Jim Rohn

Personal Finance Is Worth It

Starting off with personal finance isn’t an easy thing. It takes rigor, discipline, and courage. It means tracking expenses and making every penny count. Yet, I find it freeing. It gives me control over my life and lets me decide where I’m going. You’ve now seen a few of my tricks. I hope they will help you begin this exciting journey.

Share you experience of Personal Finance and what gave you the bug! I would love to hear your thoughts and tips.

How To Build An Emergency Fund in 2021

You need an Emergency Fund. Whether you like it or not. It’s easy to feel safe and comfortable in our job. If 2020 taught me anything it’s that nothing is as it seems.  Preparing for the worst is the only way to protect yourself.

 Whether, it’s a solid job, parents, or social security nothing is ever guaranteed. Before COVID-19, I felt unstoppable my job was going great. I used to think “I work in hospitality and people would never stop traveling.”

All of a sudden, the unimaginable happened everyone was stuck at home and on furlough I went. 6 months… Not knowing if I would do my job again. Thankfully, I had prepared myself for it. 4 months of expenses saved up spared me from liquidating my investments.

It’s easy to get excited about potential investments and forget about covering our rear. One thing has become apparent the true priority is to have a financial safety net. 

illustration of trolley with gold as part of fund

Pros & Cons of an Emergency Fund

You’re probably thinking is there any negative? And also “we get it you are safer with it.” Stick with me you won’t regret it I promise. There is a reason why an Emergency Fund is the first step in “5 Ways to Stop Living Paycheck to Paycheck“.

PROS

Peace of Mind

Living on the edge always sounds like more fun than it’s worth. I started off wanting every penny I made to have a purpose. That could only be putting it to work right? Right… An emergency fund is not only purposeful, but it’s also vital. Knowing you are financially secure will make taking risks all the more enjoyable.

A Back-Up Plan

Whatever happens, you can always get out of a pinch. Of course, this fund should only be used for emergencies. I’ll plead guilty here. I’ve used it to pay a deposit on a flat in the past as I was running low on cash. In this case, you should always make it a priority to replenish the fund. Hopefully, you learned from GME that GameStop options aren’t an emergency.

Debt-Free

 With an emergency fund, you’re protected from Credit Card (CC) debt. Although, CCs can be a great tool. Who doesn’t like a few miles?

They also come with extremely predatory interest rates between 14% and 35% APR. They might seem like a good solution to solve problems in the short-term. Yet,  you soon end up in a vicious circle. With a few months of expenses set aside, you always have a safe solution.

CON

You might be wondering, how can there be any CONs? Well, there is just one – it’s a bit of a first-world problem though.

Inflation

Your emergency fund can be too big. What does that even mean?

Well once you have 6 months of expenses set aside the extra cash will lay prey to inflation. If you were to transfer additional savings to a high-interest saving account the money would be growing (Although less than 1 percent). You could also look into investing in market tracking funds like Vanguard’s VUSA which tracks the S&P 500. The market has seen a growth of 7% annually on average over 100 years.

Additionally investing your extra cash is a great opportunity to make use of your ISA allowance.

How much do you need?

There isn’t a one size fits all answer. How much you need in your Emergency Fund will depend on your circumstances.

 

Let’s say you are working in an at-risk job and live abroad. In that case, you will want to save 6 months worth of expenses. Whereas if you still live with your parents and have a job within a stable industry 3 months probably will be enough. 

 

Furthermore, the country you live in will impact the amount you need to save. I live in the UK therefore I benefit from free healthcare. Whereas if you are based in the US, you’ll need to get closer to 6 months saved as a medical emergency could hit you hard. 

 

When you are establishing your total sum. You should focus on the following expenses.

  1. Rent
  2. Utilities (WIFI, mobile phone, energy)
  3. Food (Groceries only)
  4. Transport

Everything necessary to survive. You shouldn’t include outings to the movies, your gym membership, or a shopping spree in it. Focus on what your essentials cost you.

 

Once you’ve answered the questions above you should have your number. Keep in mind that it isn’t fixed. As you move house, country, or have a family – costs will change. I review my needs on a bi-annual basis and adapt my fund as I go.

Don’t forget any additional savings can go to building up your investment portfolio whether it’s with Trading 212 (Get a free share valued up to £100/$100 with my link) or Vanguard.

List of sums representing emergency fund

How did I set my Emergency Fund up?

  1. I calculated my monthly expenses and reviewed the conditions of my work package (Severance pay) so I knew what I was entitled to. It led me to a targeted total of 3.5 months of expenses.
  2. I opened a separate bank account at my bank. Although it is easily accessible it makes sure I don’t tap into my fund inadvertently. I personally recommend Virgin Money’s Current Account. As you get 2% interest rate up to £1000 and 0.5% on the remainder of your money.
  3. Track your spending and round up. As I track my daily spending with Emma (AFL) I can track how much I spend weekly and round it up to the next £5. That way, at the end of the month I transfer the total to my Emergency savings. If you use the cash you could put the coins aside when you break a note.
  4. Automatic Transfers. I can save a minimum of £700 a month so I set up a standing order to my emergency account on payday. I make sure no matter what that money is set aside.
  5. Do you get a bonus? I’m lucky enough to get a yearly company bonus. You know where I’m going with this it goes straight into the piggy bank.
  6. In the first year of setting up this account, I would check the balance quarterly. It took me around 18 months to build my safety net. I know can invest the money elsewhere! 
  7. Priority Number 1. If ever I need to call on to the emergency fund my priority is to refill it as soon as possible.

What have we learnt about Emergency Funds?

Well, quite a bit so I decided to summarize the key points for you below.

 

Key points:

  1. Keep 3 to 6 months of expenses as an emergency fund.
  2. Review it frequently.
  3. Keep the money in a separate account.

I hope you enjoyed Cent by Cent’s first guide! I truly believe Emergency funds are often overlooked. Hopefully, you never need to tap into it, and peace of mind is priceless to achieve your financial goals. Feel free to share how many months you’ve set aside and how you built your Emergency fund. 

A chair in a gray room

Financial Goals: Why I Was Wrong

The fulfillment curve changed my outlook on wealth.

“Lionel, you should always strive for more”

How many times have I heard this? Whether it was from parents, teachers, or managers. The common advice always seems to be you need more. Whether it is money, possessions, or likes. I was taught that if I want to win at life — I must be rich.

There is no such thing as enough.

The baseline of our society. Yet this constant race for more left me feeling empty. More = Happy right? I will be fulfilled the more I have. On the other hand, every new purchase makes me feel guilty. As my Financial Goals became clearer – I found fulfillment.

I never understood this feeling before I read “Your Money or Your Life” (the link is an affiliate link to Amazon to find the book). Vicki Robin introduces the concept of the fulfillment curve.

Fulfillment Curve, a tool to set Financial Goals

The idea is that fulfillment progresses along the curve before it hits a point of diminishing returns. It serves the idea that money=fulfillment no longer works. It works against us.

What happens after the peak?

Clutter strikes. Although, I have enough coats for 12 seasons, 1 more won’t harm me. It’s impossible to have too much money, right?

One thing leads to another, with more income comes more taxes, a larger house, and new “needs”. Yet at each upgrade, I feel less satisfied. I need to spend more to get a tenth of the thrill. As a teen, receiving a new phone felt exceptional. Last year, I bought the latest smartphone — the thrill lasted a day or two. 1 thought was on my mind once I left the shop. Have I really spent this much when my previous phone was fine? The familiar guilt was creeping in.

All these new luxuries and must-haves ended up crowding my flat. I recently moved and was appalled by the things I bought and never used. I was ashamed. How much money had disappeared?

I don’t want to know…

Not only was I losing money. I quickly realized that I could replace “money spent” with “time spent”. I started looking at how I spent my time. Forgetting an item on my weekly grocery run meant an additional trip. When I get passionate about something new the clutter is never far. I enjoy running. You’d think a pair of shoes would suffice. I quickly add all “recommended” paraphernalia. Not only did it have a financial cost, but it also took a lot of research time.

The ideal amount of money is that which neither falls within the range of poverty nor far exceeds it. — Seneca

Why I tied my Financial Goals to my values

I realized that when I fix a problem. I don’t ask what can I do but what can I buy. Materialism is more than wanting shiny things. Vicki Robin says it’s an easy substitute for problem-solving. I feel like I’m losing my resourcefulness.

Not only does “more” not lead to fulfillment. It has a terrible impact on the environment. Every purchase has an environmental cost. I decided that if I were to buy an unnecessary item it would be second hand. I’ll clutter my life but help the environment.

Row of hangers a representation of Financial Goals
Photo by Rene Asmussen from Pexels

When is it enough?

Sorry to disappoint, I don’t have an answer. Enough is different for everyone. It’s also constantly evolving. What is enough as a single 25-year-old is not the same as a married 40 something.

Great isn’t it? Not only am I supposed to stop wanting more but it isn’t clear when. Vicki Robin defines it as:

“It’s appreciating and fully enjoying what money brings into your life yet never purchasing anything that isn’t needed and wanted”

To figure out what my Financial Goals are; I had to get to know myself. More precisely my spending habits. I divided my monthly expenses by category (food, shelter, clothing, etc.). At the end of the month, I review my expenditure and assess whether it brought value to my life. It has led me to save money without guilt.

When I spend time/money — I wonder if it aligns with my values. Not only did this approach quickly make the need for a budget disappear. It took the shame away from shopping. Every purchase is meaningful. When it isn’t I learn and change my habits.

Consistently thinking about the fulfillment curve led me to understand my patterns. I found peace of mind. I realized a treat loses its value if bought every day. If I want my Matcha Latte to feel special I should buy it less often. 

Am I fulfilled?

I’m getting there. Understanding what your Financial Goals should be – is tough. Especially when you leave your home country. I had to find my financial “enough” alone. On the upside not having any l influence meant I could explore freely.

It led to me realizing — I don’t need to be rich. What is the point to have everything. What would I do with all of it? It’s liberating to have a new objective. I’m no longer aiming to be rich. My goal is to achieve an amount of wealth that lets me be true to my values.

Fulfillment might not be a given. Relearning what society teaches isn’t easy. Yet, this evolution feels wonderful. I feel lighter and the pressure has been alleviated. Join me on my journey to enough!

I would love to know how you have been setting your Financial Goals! Please share them in the comment box below. If you want to know more about Cent by Cent and what we do go to our homepage!

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