Financial Challenge – Day 7

This challenge will mark the end of our “simple investing” plan. Just to reiterate, the reason we’re going for the “simple investing” plan is that saving money is the best investment that you can make when you’re just starting off. Once you reach $100,000 you can begin to spend more time researching different investing options, but until then you will be better off concentrating on saving money and putting the savings your receive into your “simple investing” plan. Here is a summary of the simple investing plan we’ve talked about thus far:

stocks: pick an index fund

1. The first place to invest the money we will save is toward paying down credit card and other hig

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9 Responses to Financial Challenge – Day 7

  1. Marissa says:

    Wow! I feel like I’m on the right track… right now, my emergency fund would be my CETIA (company coop) account, because I have been contributing to it since Oct 2003 and, I cannot touch that money unless I leave the company or resign from the coop (and then would have to wait 3 months to be eligible to sign up again)…my goal is to NOT touch this money unless I leave the company and, depending on the circumstances and my financial picture at the time, I would choose which use to give it …Other than that money, I have tried to cut back our spending as much as possible and, every stray penny goes towards debt repayment! While my financial situation is not good, it isn’t half as bad as it was when I first signed up for SavingAdvice!

  2. Gloria says:

    All these ideas are great. I would live to invest and so on, but even though my husband has a better paying job we are still having trouble making ends meet. So how do people like us save. We are getting our credit card debt down but we still have student loans. Between loans and bills we have no money left over. How do we save? There is no luxury we can cut out. We already don’t have cable. We already dont go out to eat. We already pinch pennies. My husband and I are both working our butts off to bring in money but the cost of living is so much. What is your advice?

  3. Cathy says:

    Great post, Jeffrey. The only thing I would disagree with a little bit is the emergency savings, since I think the peace of mind of having that money in the bank is worth a lot. :)

  4. pfadvice says:

    While I understand a lot of people like to have a savings account for “peace of mind” this is why I disagree: I feel it’s a false sense of security that costs you money.

  5. Pattie says:

    I agree with the emergency fund. Living paycheck to paycheck and winging it is poor planning. Many people take this further by using sales to add extra dry foods, canned goods, paper goods and other household supplies to their pantries. It’s just plain smart as you never know what is going to happen tomorrow!

  6. Big Mike says:

    The problem with this plan is that it’s boring, and if it’s too boring people would rather spend their money on a new car than the investment plan, and they’ll never get to that $100,000.

    I’m in favor of people who know what they are doing (which is only 1% of the people) to invest in indivudual stocks, and not even worry about diversification.

  7. Wilson says:

    Gloria wrote:
    All these ideas are great. I would live to invest and so on, but even though my husband has a better paying job we are still having trouble making ends meet. So how do people like us save. We are getting our credit card debt down but we still have student loans. Between loans and bills we have no money left over. How do we save? There is no luxury we can cut out. We already don’t have cable. We already dont go out to eat. We already pinch pennies. My husband and I are both working our butts off to bring in money but the cost of living is so much. What is your advice?

    Gloria, what I would suggest you do is set up a monthly budget. Write down all of your expenses for a typical month, including rent, car or mortage payments, credit card payments, phone bills, utilities, food, entertainment, etc. Using excel for this helps. Then, like Jeffrey alluded to in the first stages of this challenge, at the TOP of the budget, put ‘Savings’ or ‘Emergency funds.’ You are going to BILL YOURSELF every month a savings expense. And you are going to pay that bill first, before the credit cards and before the other stuff. The idea is that you pay yourself first. The amount you bill yourself should be realistic, and allow for you to still pay all of your other bills as well. While from a firmly mathematical point of view, paying all of your high interest debts off before you save would be an ideal (and quicker) way of going about it, that stance does not account for unexpected emergencies, which your savings should help cover. The result is two fold: (1) you feel a sense of accomplishment because even though you are in debt, you have savings! and (2) you have a budget, so you know exactly where your money is going every month. Now you can extrapolate how long it will take to pay off your debts. Bankrate has a really good calculator if you’re looking to do this.

    Big Mike wrote:
    The problem with this plan is that it’s boring, and if it’s too boring people would rather spend their money on a new car than the investment plan, and they’ll never get to that $100,000.

    I’m in favor of people who know what they are doing (which is only 1% of the people) to invest in indivudual stocks, and not even worry about diversification.
    Sorry to break it to you, Big Mike. But budgeting and saving aren’t exactly the most exciting things in the world. Good thing is, it’s not the hardest, either. A weekend a month or less to maintain your finances is a small price to pay for financial security. But the reward you get out of it is a solid sense of achievement, knowing you’re on the right track. As far as investing goes, I would agree with Jeffrey here in the sense that many people want to get started right away in their investing. I tend to agree that you should have 3-6 months of living expenses (remember that budget?) in savings for emergencies, but you don’t necessarily have to save all of that up first before investing. As long as you split your saving/investing money toward the 3-6 months worth of savings and investing, you can have your cake and eat it too.

  8. Linda says:

    I am very interested in your financial challenges and would like to respond to the “boring” e-mail.

    We earn a very modest living and have become multi-millionaires using the methods you recommend. It has taken less than 10 years. They are boring but they also help you sleep at night. The worst part about them is that you no longer have dramatic stories to tell so you will need to spend more of your time listening to others than you will telling your own stories.

    We began by paying off all debt including our home and our investment properties. We do not purchase any investment stocks, etc. on margin. We use our main home to mortgage periodically (we get the cheapest interest that way) and then pay it off before even considering another investment of any type.

    We talk about and dream of the “big one” which entertains us to no end and keeps us from getting bored, but we never implement it unless it falls into the above criteria.

    One of the biggest factors that have helped us is to begin focusing on our values and the way we CHOOSE to live – rather than setting the goals we think we should. We love our lives now.

    Also, we were told once to get 5 bids on any large purchase. We consistently do this and try to get the best value, which isn’t always the lowest price.

    And we keep a price book for all types of things.

    Further proof it works? We have a 30 year old who will pay her home off sometime in the next year. Another child has started on this path and won’t be far behind her.

    I encourage everyone reading these challenges to live a “boring” life and reach for the gold ring. These methods will put it within reach.

  9. Pingback: Credit Card Debt vs Emergency Fund - SavingAdvice.com Blog

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