By Lori Atwood, CFP®, Founder of FearlessFinance.com
Hopefully you have some money set aside for unplanned —but required— stuff that happens, like root canals, and car repairs, I call that Rainy Day Savings. You should also have enough savings to cover 3-6 months of expenses in case you experience a total loss of income. I call that Emergency Savings. One of the best reasons to run Fearless Finance, my new software, is to see if you are “Savings Secure” in both of these categories.
Here’s why. Let’s say it’s tax time and you are looking forward to a nice refund check. How do you decide how to best use the money? Vacations, debt pay off OR savings security?
Make sure you have $3k for Rainy Day Expenses ($1500 if you rent) and at least ONE MONTH of expenses for Emergencies
Save for large upcoming one-off or Annual expenses (e.g. CAMP! or braces), because if you don’t have money when these expenses come up, you will charge them and you’re back on the cycle of credit card debt
Pay down credit card debt when #1 and #2 are satisfied.
Here’s the key: you MUST have some liquid savings for stuff that happens and big upcoming expenses to KEEP YOU OUT OF CREDIT CARD DEBT. There’s no sense putting your tax refund toward credit card debt FIRST when you’re going to have to charge more stuff as it comes up. Having liquid funds is the only way to get off the credit card/debt dependence cycle and it usually means putting off paying down debt for a few months to amass some savings. It’s seems odd to hear a financial planner tell you to wait to pay off credit cards, but it’s okay to do if you are trying to amass some liquid savings first. How do you go about this?
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Guest Contact: Lori Atwood
Website: FearlessFinance.com
Website: LoriAtwood.com
Twitter: twitter.com/LoriAtwoodsays
Facebook: www.facebook.com/fearlessfinance/
Guest Bio:
Lori Atwood, CFP®, is the Founder & CEO of Fearless Finance, a personal finance platform and app that gives users a complete 360 degree view of their financial situation with specific recommendations on how to improve their financial wellbeing. After working in the finance industry for over two decades, Lori discovered a need in the marketplace for a user-friendly financial tool that provides a whole financial wellness approach and that’s when Fearless Finance was born. Fearless Finance allows users to only track 2 expenses making it easy to implement and approachable for users that consider themselves not “budget” people.
Working with clients in her one-on-one financial planning consulting business, gave Lori first-hand experience and understanding of what people want in a financial tool. She saw that users want to understand and manage their finances better and know they are “okay” financially, which is what Fearless Finance does.
