I’m always amazed when statistics are released about how few people have enough in an account to cover job loss for more than a month, it becomes easy to see just how catastrophic a couple of emergencies can make a family. I know we all think that we have family & friends who would step in, for some that is the case, for others that assumption leaves them in a scary place.  I think one of the joys this credit crunch has brought is that people are finally realizing many of those family & friends who had good lifestyles of eating out, vacations, kids in multiple activities and new furniture & toys, well much of that was due to debt or at the very least got in the way of saving.

I used to think that an emergency fund of 3 - 6 months expenses was a realistic figure (for those that have to pay rent, mortgages, utility bills etc). Now I’ve revised my thinking. In the last 6 months most of my emergency fund has disappeared due to sick leave from work (unpaid) at the start of the year, followed by contracts backing out, an employer not paying me, major car trouble (£600 aka $1200), rent increases. However much I feel sadness that the fruits of my labor are now gone, I can see just how important that emergency fund was and even though I need to start again, I could *just* deal with all these difficult challenges thrown my way.

I now have a new plan, it won’t be easy but I really think when relying on one income with rent or mortgage to pay, you really need 9 -12 months of expenses saved, plus as always my mini emergency fund for car troubles, home repairs, dental etc.

Part of me feels scared at having to start all this yet again, but part of me knows just how important it is to not lose everything, not crash & burn, to be able to deal with those challenges that arise!

So you read it here:

New Goals

Mini Emergency Fund £1000 = $2000

Major Catastrophe Fund £12, 500 = $25, 000

Not to mention that adoption goal ;0)

For some this may seem impossible, and looking at my depleted savings I too have moments where I think this will be impossible as a single woman, working for a not-for-profit (charity sector) but really the impossible is made possible with hard work, sacrifice, determination, faith and time.

What about you? Have you thought about financial worst case scenario and how you would be able to cope?

Apparently there was a problem with the comments over the weekend, not to worry I know you’re still reading And the big giveaway begins tomorrow!

Today, I am going to start a series on living simply and downshifting by reducing stress. The reality is that we all have stress in our lives, it is a normal, somewhat natural part of living, particularly in a modern society which places many professional and personal demands on us. But how we cope with stress is crucial, I honestly believe it can make or break a person/family. We all have it in our power to reduce the stress we feel, to cope with situations that arise and to change our life, even through little everyday changes in order to reduce stress, increase our ability to cope with stress and live a happier healthier life.

So to kick off this series, I’m going to start by focusing on reducing stress by getting your finances in order. Here are my top tips for reducing your financial stress:  Please note, I am not an expert, I am just saying what I did as I’ve had a lot of people ask me how I got on top of my situation so quickly.

1. Spend a weekend getting your financial picture mapped out.  If you have a partner it is crucial that they are involved. If you have children see if a family member or friend can watch them for part or a whole of a day so that you can concentrate on figuring out what your situation is.  Bring all your statements to the table, phone your credit card companies, phone your mortgage company, speak to any repayment companies, bring info on your pensions, savings etc and begin making two lists. The first list is how much debt you are in (break it up into non-mortgage and mortgage debt) and secondly how much money you actually have. This is your realistic picture and lets you start looking at what you need to do.  The picture at the top, was the weekend I got my own financial picture and goals together, Cornwall early spring 2008!

2. Make lists of all your in-comings and outgoings and be honest with yourself about need vs. want. Do you really need cable, do you really need such a high mobile/cell phone package, do you need to spend £300 a month on groceries (I believe almost everyone who is just starting on the frugal life can drop their grocery bill by at least 15%), do you really need to eat out or get take away once a week? This is your time to get in control of you life and really really make a difference by distinguishing need vs. want. Do you really want to work 5 hours a week just to eat out each week? Doesn’t seem worth it to me! Now you can make a realistic budget with money for savings and repaying debt.  This means gone are the days spending £200 a month on stuff! Deal with it!

3. What is the most important short term goal? People like Dave Ramsay say to save $1000 (probably over here £1000) in a mini emergency fund and then focus on debt repayment. I decided this wasn’t right for me, really because with only 1 income I knew, if something went wrong, I didn’t have a fall back income. So, I focused on getting 3 months expenses saved by cutting out all unnecessary spending, as soon as possible. With the way the market is, I’m really glad I made that decision. Then I focused on getting my debt paid off as soon as possible. I still made payments on my debt while saving for my emergency fund, for example putting £150 a month towards debt repayment and £500 a month towards emergency fund. If you don’t have debt, then maybe your focus is building 6 or even 12 months expenses in an emergency fund, so you apply the same principles and make it your goal. If you have a healthy emergency fund, but no pension provision  – then saving for retirement becomes your goal. The point is that you goals have to be what works for you, what your needs are. I recommend going to the library and getting a good range of financial books out to help you create a system that works for you!

4. Now that you have your budget, your emergency fund building and your debt repayment plan, make a 1, 2, 3, 4 and 5 year plan. Allowing yourself to actually see where you will be a year from now, two years from now, five years from now, well it is powerful. All of a sudden you can see that those dreams you have, a dream to have a baby or travel to Peru are really possible with a bit of work and creativity. Now you know what your long term goals are, you can have the energy and enthusiasm to reach them!

5. Focus on the positive, yes you may be in debt, yes that debt may be big, but you are on your way out. If you’ve done all these things, such as cutting back on petrol/groceries/activities/non-essentials, if you’ve acknowledged that you need to work hard towards achieving your goals and having financial stability for yourself and your family, then you will get there and you will reduce the financial stress in your life. You can do It!  BTW, if you need to write a sign on your fridge reminding yourself and your partner do just that, we all need a bit of daily motivation to remind us of the wonderful capabilities we have!

For Info on how to cut your grocery bill, please read this post and this one

An evening spent with little people – handing out Halloween treats, reading books and playing games, really does warm the soul!

Note the adorable solitaire pieces which are lined up! Each one represented a different character in our story!

Early Sunday morning walk along the Quay!

Watching the kayak negotiate the current!

The entrance to the cemetary across from the river!

Oh how I love that basket!

The Quay along with resident swans!

The Antique Shop & Tea Room!

Cosy little shop – so many interesting things!

Ladybird books – they bring back such memories of my childhood!

A little known fact about Frugal Trenches – I adore anything John F. Kennedy

Found this postcard, the Quay certainly looks different now! Despite finding lots of lovely things I saved my pennies and decided to get my fix by continuing on my walk instead!

A 2 mile walk along the quay was simply marvelous!

And I came home and made this for Sunday lunch – salmon fillet rubbed with mustard and herbs, scalloped potatoes, ozra salad, carrots & baby plum tomatoes!

This weekend was filled with some good & bad times. I supposed when you have a loved one in the hospital, no day is going to be wonderful, but even among lots of scary tests and illness there was joy. Friday night after a long day at the hospital a friend arrived with her little ones and I had the evening I needed; it was filled with laughter, stories and games. Saturday was a tough day at the hospital but we, my mum and I, laughed so hard we almost wet ourselves; today she is doing a lot better!  I’m heading back over there this afternoon and then will spend the evening doing things around the house and garden for her. I have plans to make her favourite homemade carrot & lentil soup, so that she has lots of frozen healthy meals when she is well enough to come home. I wish I didn’t have to head back to work tomorrow, but sadly I do. Today I was feeling quite upset about leaving her, so instead decided to focus on the three good things about heading back to work. To remind myself, here they are:

1. Work has allowed me to save £4500, meaning the £130 it cost me to get to my mum, was no problemo!

2. My good salary means I’ve been able to stock up on food for my mum (£43), petrol for her car (£28) and buy Grace some groceries and activities (£16) without a second thought!

3. While I feel tired to the very core of my bones (visiting people in hospital for hours each day, plus meeting with her team of specialists, is quite exhausting!) work will provide me with a distraction!

A few more hours of visiting, some soup making and gardening and then I shall curl up with a cup of tea, try my hand at knitting (I’ve found some wool & knitting needles in my mum’s spare room!), snuggle with a cat and catch up on all your blogs! Thank you for all the wonderful comments and emails, I’m sorry it’s taken me a while to respond – I hope to get around all your lovely blogs this evening!

I’ve mentioned how much I enjoy the book Love Is Not Enough: A Smart Woman’s Guide to Making (& Keeping) Money. One part of the book in-particular resonated with me; the author stated that having a substantial emergency fund gives you freedom, it allows you to cope with job loss, move, leave a bad situation etc. I’ve know too many women stuck in terrible situations simply because they didn’t have the funds to get out, whether that be a bad relationship or workplace environment.

For me, I’d like a cushion, a backing that I don’t touch for day to day situations but is there if I needed it. My version of “needing it” is job loss, illness, bad situation, if I had to move etc. I’ve thought long and hard about what the magic number is and I’ve set myself a goal of £10,000 which is just shy of $20,000.  This will be kept in a safe, easily accessible account, but I’d like to “forget about it” in the sense that it isn’t part of my savings for holidays or a house or car repairs etc. It’s earmarked for the mega emergencies that arise.

As I read more and more personal finance blogs and see people’s emergency funds depleted due to dentist visits, car repairs, money owed in taxes etc, I’ve also decided I’d like a mini emergency fund which would cover the more minor emergencies that arise. I’d like to get this to approximately £1000, once I’m reliant on a car again or am a homeowner (and therefore leave London!) I’d like it to get to £2,500.This account I’d like tied to my current account so that transferring money is easy. I also plan to have a cheque book for this account so that emergency day to day expenses can easily be paid.

I don’t think £10,000 is the right number for everyone, so much depends on the costs of living where you live. I have a friend in the US who can live for $1000 a month as his rent is low. Realistically here in the South East a pretty realistic figure based on average rent is £1300-£1500 a month, that’s a big difference. Dave Ramsay and other financial experts have mentioned that single people need a good emergency fund as they are completely reliant on one income, they can’t “muddle through” when they go down to one income (because for us job loss = no money), it is harder for them to get out of debt because they can’t put a whole salary to debt repayment etc. This has really made me think about the future. Right now, as a single with no dependents £10,000 seems a good cushion, in the future I may feel more comfortable with £15,000 to £20,000. Ideally I’d like to know I could go a year with no income.

I don’t keep my emergency fund in an ISA, I’ll blog more about my ISA plan when I do a post on my retirement plans. I keep my emergency fund in an ethical savings account that I can access electronically and through branches nationwide.

So where am I now? I currently have £2000 in the emergency fund and another £618 to go in next week. I have also set a goal to put £1000 into my emergency fund by the end of the month. Once I opened up an account earmarked as my emergency fund, saving became so much easier as I started to see it as paying myself. I hope to make my £10,000 emergency fund goal by May 1st which would be the one year anniversary of my new job and seems like a pretty realistic time frame. I may not have a large sum in my account right now, but I’m amazed at the financial peace it has already brought me.

Do you have an emergency fund? How much money in an emergency fund is the right amount for you and how did you make that decision?

Deepali asked about my emergency fund. I currently have £2000 in my emergency account, when I add in the money from the tax man, this will be £2,600. My goal is to have a total of £10,000 in my emergency fund. I think having this money in a safe account means I will always have a good fall back. It won’t be used as a down payment on a house nor will it go towards travel, it will solely be used to cope with loss of job/major emergency. I’d also like to have £1000 in a mini emergency fund which would be used for more minor emergencies like the need for dental work, house repairs etc. Those are the goals related to the emergency fund. I’ll do a post soon on what my financial goals are across the board.

The numbers for today stand as follows:

Daily Speed Walking session: 2/20

Vegan Day: 2/30

No Spending: 1/20

Water 10 glasses, which means I met my daily goal!

In case you’re interested I enjoyed a homemade smoothie for breakfast (with flax seeds),  cut up veggies dipped in pumpkin butter and a fruit salad for lunch. Finally for dinner I had almost the exact same meal as yesterday (leftovers) – falafel, rice, salad and grilled veggies! YUMMY!

So, today was Day 1 of the vegan challenge and of course it was also day 1 for all the other goals I set myself!

The day started out tough, I had a bad night’s sleep and really didn’t want to do my speed walking session at 5:45 this morning, somehow I got my rear end in gear and accomplished it. Then at lunch time there were biscuits, which of course contain dairy and while I’ve never ever been tempted to eat them since I started @ my office of course now I’m on a vegan challenge, I wanted them. I didn’t of course, but the temptation was there :0)

So, the numbers so far!

Daily Speed Walking session: 1/20

Vegan Day: 1/30

No Spending: 1/20

Water 8 glasses, which means I met my daily goal!

My food today included a large fruit salad for breakfast, yummy fake cheese on crackers with a nectarine for lunch and rice with falafel, broccoli and salad for dinner.

So, why do I want to thank the tax man? Well remember this letter I wrote as one of my goals for August? It was posted August 23rd and today I received a cheque for £618 =$1113 US or $1188 Cdn! Yes 10 minutes work gave me quite the reward!!! I do love you tax man (bet he doesn’t hear that often!).

I have to say that since I started on this downshifting journey, luck has begun to find it’s way to me. When I was spending what was left from my salary, I never had any winfalls or any extra money come my way, this simplicity journey has allowed me not only the time and motivation to change my spending, but it has also allowed me to get in control of my paperwork, taxes and pretty much everything else in my life. I guess it just shows, luck doesn’t find you, instead you have to make good choices that help luck on it’s way!

The plan for the £618 is to put it straight into the emergency fund!

p.s. I know the picture is an American version of the tax man, but with the election heat in US politics @ the moment my mind has the land of Freedom & Liberty for all weighing on it! I know this is a PF blog, but I may have to branch into US politics @ some point!

On the one hand now I’m out of debt people might thing I could ease up. Yes, I’d like to be able to buy a new top eventually, yes I’d enjoy meeting friends for a couple of drinks at an expensive bar and I could really use a haircut, manicure and pedicure, but, right now I’m keeping my eye on the goals I need to reach by “living like no one else I know”. Goal 1 was paying off debt, goal 2 is getting my 6 months emergency fund and goal 3 is getting 15% of my income into a pension. Once and only once those are done will I “ease up a bit”.

Changing your finances doesn’t happen overnight, it takes months and for some years of dedication. All I know is that I’d rather live like no other single London gal in her, gulp, late 20′s for these next 6 to 9 months then spend years paying for and stressing over the choices I made.

First, I checked an old lottery ticket and found out I’d won £73

Then, I got a check from my old work for 1 months pay £1560 (they owed me this and were notoriously bad for paying, at times being 3 months behind – yes this was not good for the finances!)

Then, I got another payment from my old work for £142.44 for essential car user costs (apparently this is a new scheme from Jan and as I was there until April, this is my share!)

Finally, I got a £4.00 rebate for overpayment for my car!!

So, in the space of 24 hours I’ve received £1687.37

HUH????? How does this happen?!?!?! I never get money for nothing (granted I worked very hard for the £1560!). You know when your friends get cheques from godparents for Birthdays or cars from relatives or inheritances from great aunts they never knew? Well that was never me, so this money is very welcome indeed.

A comment from Sandi made me think carefully about what I’d like to do with it. I hate debt, hate it hate it hate it. So, I’ve decided to put the £1560 right onto paying off my £2000.50 credit card debt. I’ve just deposited the cheque and my credit card debt will now be £440.50. WOO HOO! (when everything clears!)

I’ve decided to put the £73 from the lottery into my emergency fund.

I’ve decided to earmark the £142.44 and the £4.00 into my travel fund for my Asia trip at the end of the year. This is a trip I’ve been waiting for (I’ll be visiting long lost family) for over 2 years. I’ve also found some very very cheap flights for £380 plus tax, so decided not to put it off this year, as, I’ve been saving my change jar for quite some time!

So, total emergency fund now: £225 from previous savings plus £500 from pay this month and £73 from my lottery win. Plus, I’ve sent in complaint and asked for a refund for a course I was on which was terrible. I’ve spoken to the fees office and I will get at least £280 refund, although it may be slightly more. So, hopefully soon I have another emergency fund update to share!

You know what the most amazing thing is? Despite having various cheques arrive today, I’ve not even thought once about what I could buy instead I’ve been thinking “oh I can’t wait to save this”

I’ve been hit hard twice with unexpected financial costs, both times were due to lack of employment due to health, schooling and moving, and I used all my savings to tie me over. I didn’t have anything “ear marked” so to speak, so I pulled money from every source I could find. I was under the allusion that pulling out money was what savings & credit cards were for; how I’ve changed! Of course savings are there for a reason, to use them in times of need, but the concept of having long term savings that aren’t touched wasn’t something in my terms of reference. 

I’ve decided that my emergency fund needs to hold 8 months worth of expenses or 12 months worth of extreme frugal living if I was without employment. My plan is to put the £1000 in an extra paycheck my current employer owes me to start me off. After that, for the first 6 months of my move to London I plan to put £400 a month into my fund. In November I hope to move to a cheaper flat and then should be able to put £800 a month away (just shy of 1/2 my take home income) for the next 14 months, with the aim of ending up at £15,000 by December 31, 2009.

This is going to take a great deal of sacrifice. I will be living on £80 a month for groceries and £20 a month for all other needs like washing up liquid, soap, toothpaste etc. I will not have a land-line until I move to cheaper accommodation and I will also not have sky or cable or the internet (GULP!). I will also start to look for a part time job and will probably try to do things like online surveys from September onwards so that I can earn another £200 a month. The way I see it desperate times call for desperate measures.

Plonkee wrote a great post about emergency funds today, I for one am ready to grow up!