The Emergency Budget

I was reading an article on twocents.lifehacker and as I reached the comments section, I noticed two awesome inputs suggested by commenters:

1. Create an emergency budget
When I set my budget, I made one assumption. Ceteris Paribus. All other things constant. I would still have my job and all needs remain the same. But there are other scenarios that might happen like losing main source of income, a brand new member in the family, and so on. So, a quick way to live in a state of an emergency is to reduce and eliminate those that can be eliminated to prioritize the fulfillment of needs. Iheartbudget have a great article on this.

2. Have an emergency fund consisting of a "My Car Died" and "My Job Died" fund.
The second suggestion is to categorize emergency fund into two. An emergency if something happens to your car or appliances and an emergency because you lost your job from downsizing, quitting, or retiring. They are both straight forward and I feel by categorizing it, you have a clearer idea of why the money is lying around, and what to do with it once the situation calls it to action.

My Car Died fund should be a cash account fund because it's something that should be ready to use. My Job Died fund can be a mixed portfolio because in the long run, it doubles as a retirement fund. One caution is if the fund is not diversified and you happen to lose your job and the fund is affected by a greater force like inflation or stock market crash.

So, with both points in mind, I guess it's time for me to modify my budget into budgets, and my emergency fund into funds.

The Vehicle You Deserve To Have

I have a 20 (+/-) year old car and I've been thinking of purchasing a new one. It's time, maybe. The car is running fine with no issues, but the air conditioner and that it's a gas guzzler (Nissan Pathfinder). I've always been a firm believer that the car I need is the car that will get me from point A to B and fits my budget. The problem, I don't really know which car exactly fits my finances. Until I was given a recommendation to an article by the financial samurai about the 1/10 rule for car buying. It's simple, the vehicle you buy should be 1/10 of your gross annual income. If you make 50,000/year, you deserve a 5,000 vehicle.

And so, now I know that I am currently deserving a combination of public transportation and walking or a scooter.

Staying Motivated

Source: Wikimedia

I've tried to create a habit where I have a 20-minute exercise everyday. It worked. For a week. It was no different with money. So, I've kind of automated myself by spending on it immediately. Spend to save and invest. My money move immediately when it comes on payday. Then, I reward myself.

I spend on things like soda, strawberry smoothie ice cream and indulge after I do something for my financial well-being. The little things I love become rewards for myself. If you've seen animal trainers giving snacks as reward for the animals after they do something, this is basically using that technique.

The final two steps is about staying motivated, moving forward, and the importance of creating a healthy habit. And so, we have finally crossed the finished line, 30 steps to a better financial future. Let's go!

Financial Team Assemble!

Financial Team Assemble! Image: Marvel Avengers

 The one thing I've learned from past experiences of working in teams is that the best team assembled are those that include diverse talents. Step 28 suggests your team should consist of a tax advisor, credit counselor, financial planner and lawyer. Kiplinger suggests a dream team of a financial planner, investment adviser, estate-planning lawyer, and an accountant. The two only showing a slight difference depending on where you are with your money, one being in debt and the other with solid finances and ready to invest.

 It all sounds good when personal finance books suggests that you should build a team as if we're all Tony Stark's with money to burn, thus often forget to mention the costs associated with it.

 Spoiler: it's not cheap.

 Now, don't take this the wrong way. I'm not trying to sell the idea to readers that they should spend their hard-earned money on professionals. I'm having a hard time to convince myself to do that actually. So, this is actually me, trying to convince myself.

 According to the article from Kiplinger, financial planners come at a cost of $200-300/hour. There are online financial planners such as LearnVest offering combined services of financial planning plus technological support that starts from $89 one time fee, plus a $19 monthly fee. If I take the "5-year planner" plan, it would be $299 + $19/month, or about $527. That's probably the cost of a "free phone" plus a year contract phone plan or maybe a gadget. So, gadget vs financial planner.

I'm going to consider my happiness on making this decision. I'll categorize this financial planning purchase as a one-time, one-year subscription experience purchase. Am I sold on it? Not yet. I think I'll focus on how I budget my first year and what I achieve.

Spend 'Til You Drop

Broke Monopoly

I had always been taught and told to save. Save for the things I want to buy. Save for my goals. I did exactly just that. I became proficient at saving. Once, I brought a bag of pennies to Toys R Us to buy a handheld game. You can imagine the horror that the clerk went through of counting pennies. By the time I was a young adult, I had developed a habit of saving and spending it all at once. But my spending was of useless spending and brought me to my financial demise. It is like a winning poker player who chooses to go all-in at his last hand and game, then ends up losing it all and being a loser. So, for a long time, I never saw the real lesson of spending when I always feel like a loser in the end.

And spend of your substance in the cause of Allah, and make not your own hands contribute to (your) destruction; but do good; for Allah loveth those who do good.

2. Surat Al-Baqarah (The Cow; 195)

And [they are] those who, when they spend, do so not excessively or sparingly but are ever, between that, [justly] moderate

25. Surat Al-Furqān (The Criterian; 67)

The focus should be balanced. Saving is important but, spending is equally as important. But the word that we all should be more focused on is "spend". The reason is, only through spending can we actually realize a benefit (or destruction!). Think about it. What benefit is there through saving if no spending actually occur? Even the money that WE SAVE in the bank, the BANK SPENDS for benefit. Benefit to the people working for the bank and society. It is the purpose of banks to gather money and redistribute them as loans. The bank profits, and those who borrow for purpose of business profits from income. Or if it is a car loan for example, the bank, the car dealership or person receiving the money benefits. The reminder of excessive spending is, as we all know, what happens on a bigger scale when everyone stretch themselves too thin.

Going back on the topic of step 17, saving for our goals. If you remember "The Priority Pyramid" teaches us the foundation and goals that we should build on; spending less than earned (no additional debt), consumer debt free (no credit card debt or car loans), and building an emergency fund. They are part of what Dave Ramsey calls "The Seven Baby Steps". All of these require spending, than actual saving. Now, there's nothing wrong with spending all your monthly income, if you spend it all your required expenses and the seven baby steps. Once you receive your paycheck, you automate yourself to start spending money to pay for your emergency and future expenses fund, debt, investment fund, college fund, a home, retirement fund and charity. In the end, you're left with nothing. You have spend 'til you drop. But this time, it's okay.

What benefits can you actually get from hoarding and not spending money anyway?

O you who have believed, indeed many of the scholars and the monks devour the wealth of people unjustly and avert [them] from the way of Allah . And those who hoard gold and silver and spend it not in the way of Allah - give them tidings of a painful punishment. | The Day when it will be heated in the fire of Hell and seared therewith will be their foreheads, their flanks, and their backs, [it will be said], "This is what you hoarded for yourselves, so taste what you used to hoard."

9. Surat At-Tawbah (The Repentance; 34-35)

Yikes! Okay, okay. That ayat is about embezzlement of funds, and not redistributing it. But, hopefully the importance of proper spending stands.

In Every Debt That Must Be Repaid...

Image source http://www.starpulse.com/
Mary Poppins © Disney. All Rights Reserved

There once was a beautiful lady that floats down from the clouds with an umbrella to answer the call of people who are in a financial mess. She help their households by being firm and lay the ground rules for them to succeed financially. But, she doesn't forget that in all of us, their lies a child who yearns of play. She reminds us that  "in every debt that must be repaid, there is an element of fun. You find the fun, and -SNAP- repayment's a game!"

I wish such lady or at least a reality show called financial literacy nanny exists. Would it be possible to find the fun in repaying debt? Sure! In order for it to be a game, you must divert your attention from it being a burden to being an activity that is a challenge waiting to be conquered.

Let's call the game "ZERO!" The race to zero debt.

The Rules of ZERO! :

1. To win, players must have zero debt.
2. Players start with a certain amount of debt. Players must know the outstanding balance, interest rate and minimum monthly payments required.
3. Players must assign a person as witness/supporter making sure that you play the game until it's finished.

Strategy I recommend on winning the game :

• Make niyyah to win the game!
• Don't accumulate new debt.

• Repay from debt with highest interest, but put an effort into negotiating a reduction on your interest rate. You can spice up the game by assigning a number to each of your card, and your spouse or friend acting as a witness and supporter rolls the dice to see which card you get to repay first.
• Know what is required of you in terms of monthly payments.
• Stick with the plan!

Regardless whether you prefer in repaying debt with smaller outstanding balance or based on the highest interest rate, the most important thing is to stick to whatever strategy chosen to win the game. The focus should be on the necessary steps needed to be taken. Taking the thirteenth step is about the step to be free of debt, especially consumer debt. Remember, it's all a game. A game you can win.

And the worldly life is not but amusement and diversion; but the home of the Hereafter is best for those who fear Allah , so will you not reason?

6. Surat Al-'An`ām (The Cattle; 32)

Building A Foundation Of Righteousness

Image credit: wikimedia

When we read stories of Prophet Nuh, Yousuf, Musa (alayhi-salaam) and many more, we are not given a timeline of how long the events occurred. How long did it take Prophet Nuh (alayhi-salaam) to build the Ark and collect animals in pairs? How long did Prophet Yousuf (alayhi-salaam) stay in the well or imprisoned? How long did Prophet Musa (alayhi-salaam) struggle against the pharaoh?

And Fir'aun (Pharaoh) said: "O Haman! Build me a tower that I may arrive at the ways, | the ways of the heavens, and I may look upon the Ilah (God) of Musa but verily, I think him to be a liar." Thus it was made fair-seeming, in Fir'aun's eyes, the evil of his deeds, and he was hindered from the (Right) Path, and the plot of Fir'aun led to nothing but loss and destruction (for him).

40. Surat Ghāfir (The Forgiver; 36-37)

If Haman had built Pharaoh a pyramid, it may have took 10-30 years to built. That would have been a long-term goal to disprove Prophet Musa (alayhi-salaam), stop his campaign, and maintain the status of god. But, clearly Pharaoh had short-term goals to meet his long-term goal. He ordered a kill on Prophet Moses (alayhi-salaam). Short-term goals are the foundation to meet the medium-term goals and reach long-term goals and success.

Then is one who laid the foundation of his building on righteousness [with fear] from Allah and [seeking] His approval better or one who laid the foundation of his building on the edge of a bank about to collapse, so it collapsed with him into the fire of Hell? And Allah does not guide the wrongdoing people.

9. Surat At-Tawbah (The Repentance; 109)

Those before them had already plotted, but Allah came at their building from the foundations, so the roof fell upon them from above them, and the punishment came to them from where they did not perceive.

16. Surat An-Naĥl (The Bee; 26)

We all know how well the Pharaoh fared. What we can learn from the story of Pharaoh and the ayats above are; if we build a weak foundation, everything will collapse.We must act on righteousness.

When we look back at our priorities (from step 10), we should put forward those that may erode our foundation toward prosperity. Based on the Priority Pyramid, we put our focus on creating a positive cash flow, paying off of consumer debts, and freeing ourselves from riba as short-term goals.

Image source MoneySense

Step 12 discusses setting up short-term, medium-term, and long-term goals. This refers to time required to achieve the goal and they must be SMART goals. But, all goals can be broken down in shorter time fragments of achievements. A short-term goal in repaying a debt of $1200 is broken down to saving just $100 a month after receiving a paycheck. We are creating a monthly guidance and small wins  for ourselves, to move toward the big picture. Prosperity.

They are on guidance from their Lord, and it is these who will prosper (be successful).

2. Surat Al-Baqarah (The Cow; 5)

Image credit Internet Entrepreneur Connection

Off-topic fun for discussion: since pyramids are tombs, and the Pharaoh thinks that he is god, it would contradict Pharaoh's goal to create public perception that he is god. Therefore, it would not have been a pyramid that Haman built. Thus, we are back at where we started with the mysteriousness of time and events.