Monday, August 8, 2011

Fixed Income Living-The Emergency Fund

Not too long ago, I made a visit to the local Social Security Office. I figured it was time for me to figure out what I'll be living on as a base for the years to come. Because I'm a window, I'll have access to (my husband's) social security benefit as of next month.  Since I'm not afraid (most of the time) to let it all hang out here, I'll say that the total benefit from both that and my tine pension will be around $2600 monthly. Some might think thats a great deal, some might not. In my case Im still bearing a mortage so it's not as much as I would like it to be.

With the above figure I've been making up a working budget.  Remembering that I also have some home businesses/income streams, in the end it will be workable. I'll have to make adustments up and down and a few sacrifices here and there but over all, it will all work out.  However, that budget includes basic monthly expenses with a few extras, and that's it.

What isn't included in my budget, and what I need to come up with somewhere is an emergency fund, and what Dave Ramsey calls sinking funds.  In other words, when youre on a fixed income with little savings, you need to come up with some kind of emergency fund backup. I imagine this is also adviseable for retirees with more savings than I have, depending on where they take the money from. I also need a couple savings accounts/long term funds for things not in the budget such as travel.  In the working years, Dave recommends six months of expenses (not salary). In retirement, Im aiming for the same goals as well for the so called "emergency portion" of my savings. I'm fairly flexible with this because for the moment I see SS and my pension as pretty untouchable.

How to get there? It depends on the person/ retiree, their needs and abilities. In my case I have an immediate benefit-my studies will be at a local county college for the next year, with low tuition. I've been given a Pell grant for more than I need, and will sock that away into a special savings account. Note:  Someone somewhere recently mentioned that a student was less likely to invest themselves in college if they had a grant that they didn't have to pay back instead of a loan. To that I say baloney.  Knowing that I dont have a loan over my head decreases my worries and allows me to concentrate better.

What would I do without this little windfall? I'd commit a quarter of the moneies I bring in from books and crafting to the pot. Occasionally, I get gifts of cash from relatives and chilcren and I would put that in the pile. I do refunds and rebates which come in as dribs and drabs and accumulate those as well. Since I have a fairly large pantry and freezer, I would eat from that and spend little to no money on groceries for a month. If by some miracle I got a tax refund (doubtful as taxes are not taken out of my pension) I would save that as well.

The bottom line is that while it might take me awhile, eventually I would find a way to have this fund. Even with a small guaranteed income and good health insurance, emergencies arise. If we're not prepared for those issues, then we end up robbing Peter to pay Paul.  Do I have air conditioning this month instead of groceries? Or, put in less dire terms, do I put my planned gulf coast vacation aside to repair the roof after the hailstorm?  Sinking funds and emergency accounts take the need to make decisions like this off the table, for the most part.  Does getting there in the short term require even grater sacrifice?  Probably so. Is it worth it in the long term?  You bet!!!!

4 comments:

  1. Barb,
    You're a responsible adult. Of course, you will pay back your Pell Grant loan. Some kids may not.

    I like to have at least $1000 cash in my emergency of all emergency funds. This is if an appliance breaks, the dogs need medical attention, same with us humans. Dave Ramsey suggested $1000 is a good amount.

    I have other cash investments for a more severe emergency but I can't get to them easily. The $1K seems to work out just fine.

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  2. Morrison, Pell grants do not have to be paid back-ever. My son has received one for each year of college. They are his to keep. You are correct that dave ramsey advises a thousand bucks for a small emergency fund while paying off debt. After that however, he recommends a minimum of three months of expenses. I dont have debt to pay off first except for the mortage, so I will aim for the three months.

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  3. Barb,
    I totally misunderstood the Pell Grant. I thought the payback was optional, as in 'it doesn't have to be paid back' if you don't want to.

    Well then, that's a very good deal!

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  4. Morrison, it sure is, espcially this year and next. Ill get 2700 a semester and my tuition and books will only be about seven hundred. Im also getting loans but banking those and will probably not take any more.

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