Revising and Setting New Money Goals

Over the past few months, our finances have been in something of a “reset” mode. In the process of taking more control of the advertisements on The Simple Dollar’s website (which is my primary source of income), I had to change billing systems. With my previous primary advertising representative – Google – I would get paid the month after an ad runs – so if an ad runs in May, I would be paid for that ad by the end of June. In April of this year, I switched most of my advertising away from Google to Federated Media, which handles things in a different fashion. Since they run in a campaign-by-campaign fashion, if I run an ad in May, I have to wait until September to receive payment.

So, at the end of April, we made the switch. Thus, at the end of May, I received my last payment from Google – and then received essentially no income during June, July, and August (and much of September, too).

Ouch.

Now, this switch was, in the long run, worthwhile. My monthly income will go up. However, it made for a painful summer. We had to tap strongly into our “opportunity” fund to make this happen – I am very glad that we had such a fund in place to make this transition possible.

But, here we are, at the end of the summer. We now have a depleted “opportunity” fund and we’ve even touched our emergency fund a little bit, but our monthly income is about to return to normal – in fact, perhaps a bit higher than normal.

In other words, this is a perfect time to re-assess our financial goals for the near future.

Over breakfast several days ago, Sarah and I talked about our plans and here’s what we came up with.

By the end of 2009, we intend to replenish our emergency savings and our “opportunity” savings to the balance they held on April 1

Maintaining an “opportunity fund” is something that’s very important to both of us. It allows us to take advantage of opportunities that life throws our way without tapping into our emergency fund, since a great opportunity isn’t really an emergency.

In fact, maintaining our “opportunity fund” was the big reason we elected to finance a Prius early this year instead of paying cash for it. After a lot of thought, we decided that it was better for us over the long term to keep that cash on hand for other opportunities – and it turns out we were right.

However, that leaves us with a strongly depleted opportunity fund – we lived out of it this summer, since we viewed this transition as an opportunity, not an emergency – and even a bit of money taken from the emergency fund, too (to fix a broken-down truck).

Our goal for the rest of the year is to replenish both of these funds to the level they were at prior to this past summer. In terms of our day to day living, it doesn’t mean too much, but it does mean that our excess income will be put directly into savings before anything else. I think it’s very realistic to do this by the end of the year, based on what we expect to bring in over the last four months of 2009.

That brings us back to where we were prior to the “summer of transition,” as I like to call it, but leaves us in better shape than before by far. Our monthly income is higher and even if I chose to shut the site down for some reason, we’d still have three more months’ worth of income already earned to survive off of, which is a much nicer position.

At this point, we’ll turn our attention to our remaining debts.


By the end of 2010, we intend to be debt free except for our mortgage – and that includes replacing our semi-functional truck with a van – while maintaining our fund levels

Sometime in the next year – and it may be sooner rather than later – my truck, which is on the verge of complete breakdown, will be traded in for a late model used minivan and we intend to make up the difference in cash. We’re trying as hard as we can to stretch this out, largely functioning as a one vehicle home at the moment. So, one big priority is making that van purchase happen.

Obviously, my hope is to stretch that purchase out until at least near the end of 2009, at which point paying cash will be relatively easy thanks to our renewed savings.

Once the van is ours and paid for, our only outstanding debts will be our mortgage, the remainder of our Prius (after the down payment and several months’ worth of regular payments), and a single student loan. By the end of 2010, I intend to have the non-mortgage debts paid off, and I’ll celebrate each success right here on The Simple Dollar.

I’m going to essentially use a debt snowball to wipe out these debts, ordering them by interest rate minus any tax benefits. This means the Prius goes first, then the student loan, then…

Yes, the mortgage.

After the other debts are paid off, by the end of 2010 at the latest, I’m going to throw everything I’ve got at the mortgage. We’ve already

The big key is that none of this changes how we live day to day. We’ve basically done the same things day in and day out since 2007 or so. We spend less than we earn (excepting, of course, this summer, where income was quite low by choice). We don’t spend extravagantly. When opportunities present themselves – or we’re faced with emergencies – we just use the cash we already have saved for these purposes.

In short, for us, extra income just means we arrive at our big goals a little quicker. Our dream is to be living in our long-talked-about farmhouse before the kids are finished with grade school – within nine years.

That means daily extravagances keep us from our dreams. Every day we continue to live cheap between now and then is a day we march closer to our goal. Every day we’re able to take advantage of an opportunity that comes our way is a step closer to our goal. Every emergency that doesn’t require us to use plastic means that … well, we’re not closer, but we’re not going back any farther than we have to be.

Frugality underlines everything we do. Sure, we strive to earn more along the way, but if our efforts in that direction mean spending with reckless abandon, we’ll soon find ourselves where we were in 2006 – in a very rough place that takes a long time to climb out of and even longer to reach the things we want. And that’s a scary place to be.

Set goals. Take care of them by living frugally. Get there faster by earning more and taking advantage of opportunities. That’s what it’s all about.

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  1. I understand, and totally support the “opportunity fund.” We don’t have one, but we may start. But why wasn’t there also a “car fund” to buy the Prius with?

  2. Studenomist says:

    It’s interesting because as a college student I’m in a similar situation. I have a job where I can work hard and earn lots of money. Unfortunately during my final year of college I’m going to have to slow down the hours. Thankfully I have money saved up to help me get through this phase. Never called it an “opportunity fund” just call it “money in the bank.”

    What are your thoughts on how much of a financial buffer is needed when trying out entrepreneurial ventures?

  3. Tyler Karaszewski says:

    I don’t understand this fascination that people have with putting their savings into buckets. $25,000 is $25,000 and is going to affect your life in the same way regardless of whether you label it “opportunity fund” or “emergency fund” or just “savings account”.

    If your dream is to buy a farmhouse, and you’re currently paying off a mortgage, why not consider selling the current house now and just buy the farmhouse? You’re making mortgage payments either way, but you get the farmhouse you want now while prices, interest rates, and property taxes are all lower than they’re likely to be 9 years from now.

  4. almost there says:

    I also never understood parsing money into different buckets. I keep money in savings and draw on it for various debts. But if it helps one get a handle on debt, more power to them.

  5. Amanda says:

    First, kudos on Federated Media, I used to deal with them a bit…good choice. Second, I really like the idea of an opportunity fund be it combined with an emergency fund or no. Nice idea.

  6. Gabriel says:

    It sounds like you guys are doing a fantastic job! This may be the first time I’ve heard of an “opportunity fund” – what a fantastic idea, especially in regards to small businesses. I think I may have to set one up!

  7. marta says:

    There seems to be a bit missing after “We’ve already”…

  8. Mz Ruby says:

    @Tyler I totally understand putting money into “buckets”.Several years ago my brainy daughter (who flunked out of college after 3 years due to lack of interest)decided to go back to school after 6 years out in the world supporting herself in the tallship industry. We made it clear that she had to make her own way this time (okay, we carried a bare-bones health insurance policy for her, gave her our 10 year-old car, gifted a AAA membership every year and were generally supportive in other ways)so she got two jobs and went to school full-time, paying her tuition in cash. She survived the winter months when one of her jobs slowed down by, literally, putting all her summer tips in a glass jar and paying rent ahead every time she had enough tips for one month’s rent+ utilities. It worked. She graduated summa cum laude and is now in England pursuing her dream of a PhD in maritime archaeology…having won a FULL scholarship + living stipend. She kept her financial goals simple and separate – staying ahead on the rent, no school debt by sometimes taking on 3 jobs, and living extremely frugally (she also bought groceries with her tips – she drove a 16 passenger tour carriage powered by huge Belgian draft horses and was an assistant shipwright on a local schooner project). She is so happy with her life. We could have bailed her out with some retirement savings, but it has meant so much to her to finance her own dreams. Did I mention that she has a twin sister who is a Coast Guard helicopter pilot and has paid her own way since college? She has always used the bucket system for her financial goals. We could not be prouder of our financially savvy, and very happy, daughters.

  9. Laura says:

    Tyler has a good question – I imagine you have a reason for not wanting to sell and move now; mind sharing it? We’re still fairly new to the real-estate stuff, having lived in our first home for about a year, and I like to hear about that aspect of personal finance/budgeting. :)

  10. I really like the term “Opportunity Fund.” I think we are going to rename our “luxury fund” to this, and then when we are debating about an extravagance, it will be easier to think about any future opportunities we may be foregoing.

    In response to people not understanding the purpose of parsing money into different buckets: humans do better with organization and reminders of goals. When you have the money you’re allowed to spend in a checking account, and the money you’re trying to save for various goals in different savings accounts with automated contributions, you will meet your goals faster.

    The exception to this is if you are a black belt tightwad, ala Amy Dacyczyn of the Tightwad Gazette. In this case, you’re not wasting a penny any way. But even Amy and her husband would wait until they had enough extra money and then purchase CD’s. Obviously they did that for extra interest benefits, but it also helps to not have it sitting in there.

  11. bethany says:

    what great timing for this post. I just got out of a summer living off of savings too, and my fiance just made a decision to live with his parents until our wedding (saving quite a bit on rent and utilities). We should have a chat about our financial goals headed into our marriage at this juncture too. Thanks!

  12. Louisphilippe says:

    You got that right while you said extra income reduce the time before you reach your goals
    and I understand it now myself

    It’s easier for me to spend less and live with what I earn and already have than to try endlessly to earn more and more income to support my current lifestyle

  13. Jojo says:

    “[E]ven if I chose to shut the site down for some reason…”

    Don’t even think it!

  14. CB says:

    Parsing money into different buckets–It’s a way to create a fund for concrete goals, such as a vacation, new car, down payment. Having a specific goal to target extra funds makes the object more real, and gives a purpose for saved money. Provides a psychological advantage for some people.

    That being said, mine is spread out in two accounts. One pays one-tenth of a percent more than the other, but the one that pays less is easy to access online. The other one requires an in person visit.

    I like the way ING direct allows us to set up specific accounts, and I’ll probably add a few accounts as motivators later on.

  15. Andrea says:

    I was just thinking about this sort of situation, and I was wondering if you might consider going into it in a little more depth in another column; something similar (though involuntary) has happened to me this last summer.

    I’ve always been a saver, and took many “frugal” steps (emergency fund, generics, scratch cooking, seldom using AC) even before I started thinking about seriously saving. Since then I built up six months’ emergency fund, have a separate account for the regular large but infrequent expenses (vet bills, my deductibles, termite treatment, car insurance lump sum, etc.) and set aside $1200 to have someone *else* besides me sand and refinish my floors. (I wasn’t lazing; I retiled the bathroom, installed a pedestal sink I got from Freecycle, and repainted the kitchen, hallway, and spare room.)

    But I have also had a constant set of minor emergencies which have drained a month out of my emergency fund. New bifocals ($500, not fancy frames, but it is a tricky prescription) because my old 8 year old frames disintegrated. $1500 of car repair and maintenance (it’s a Subaru, only 175K on him, and has been maintained). A very sick cat ($1200). Refrigerator repair, roof repair, and a new fence … none of it planned, all of it necessary. The 401K isn’t getting much funding this year, and while the Subaru’s going to last for quite a while yet (God willing and the crick don’t rise), the New Car Fund also needs some attention.

    So I’d like to know more about what happens when you face a period of sustained draining of your resources. How do you handle it? What strategies do you use? How do you keep from kicking the floor and screaming when everything you’ve worked hard for drains out in a flash? (I look at it as 1) not nearly everything, and 2) think how bad it would have been *without a cushion!)*

  16. Regarding putting money into different “buckets”, I think some people just like to be more disciplined and organized when it comes to savings. Some people may be less like to squander savings if it’s specifically earmarked for a purpose like buying a car.

    Where as some people would rather just lump everything together and go from there.

    -Gen Y Investor

  17. Julia says:

    Speaking to the idea of ‘buckets’ of funds, I think that I fall somewhere right in the middle.

    I guess I technically have three funds of savings. I love the idea that the emergency fund is separate from everything else and only gets touched when there is an actual emergency. My savings fund is simply my savings. I have a third, much smaller fund that I tap into for small, unplanned expenses like dinners or day trips with friends. I don’t keep it with savings because I do like to keep track of exactly how much I am spending on it so that it doens’t get to be too much.

  18. Is it possible to get an idea of what kind of advertisement income is generated on this site? 67,000 readers X 2 page impressions X a 2% CTR X 25cents =$670/day X 30 = $20,100/month in gross income or $240,000 a year?

    Am I in the ball park? If so, I don’t think you have to worry about an emergency fund, or paying off debt no?

    Someone please correct me if I’m way off. I’m just curious, and i’m sure many others are too.

    Thnx

  19. Oh, and I firmly believe in creating buckets and not co-mingling funds. That’s why RB and I have at least 3 separate bank accounts each. Easier to track savings and maximize our returns.

    Co-mingling is temptation everyday. If you have say $500,000 saved up in cash, you will be tempted to spend it in one bank account and fund. But if you sock it away in another bank and never see it, temptation goes away.

    Shogun

  20. MoneyEnergy says:

    Wow, congrats on being able to make it all the way through the summer on that fund. I can imagine how painful it might be to watch your opportunity fund get depleted like that, but as you say, if you knew your income would be higher in September, that would help to get through it. I love the opportunity fund idea – I have something similar at work right now with several savings accounts.

  21. SP says:

    I like these posts — where you talk in vague detail about your own finances.

    I too am a fan of funds, way beyond what is necessary. I guess I just like to make my monthly budgets as smooth as possible, so if I know I spend an average of $100/month on car stuff, I just create a fund and put $100 in it. Then when I need a $400 repair, it doesn’t affect my budget. It helps me think about how much I really have to spend and how much I really have saved (versus money that is just waiting to be spent).

    [note that I don’t actually create accounts, I just track it in my budget spreadsheet)

  22. Trent, I think you bring up a good point. It always bothered me when I heard that phrase that went something like—your spending habits will always live up to if not surpass your income level.

    Bascially, it said that no matter how much money you make, you’ll still spend it.

    Well, to me, that’s a bunch of crap. It demonstrates a complete lack of discipline.

    A perfect example–in two months, my wife’s car will be paid off. That’s a monthly $227 bill I no longer have to pay.

    So, what are we doing, figuring out now how were going to spend the extra $225 or so we’ll have every month?

    Absolutely not…I can’t wait to enjoy the fact that I have that much less in monthly bills, and will more than likely invest most of it.

    Why? because its the right thing to do at this point in our lives…

  23. Cheryl says:

    Trent, thanks for your daily encouragement to be frugal. We have a 98 Intredid with 122,000 miles that has been paid off for years. It’s been hard to resist the temptation to “cash for clunker” it, but we just put $500 in it to avoid a new car payment. (yes, we tapped our emergency fund, it died on the way home one day). It will make a nice car to teach my son to drive on this year. Having your daily e-mails helps keep my brain on the frugal track and resist the “new cars don’t need lots of repairs” temptation.

  24. MattJ says:

    Count me as yet another person who saves in buckets (7 buckets I keep track of on a spreadsheet)

    It’s not so much about willpower or paying off debt (my only debt is a mortgage right now) but about bookeeping and budgeting. I’m saving for a car – I can see at a glance how close I’ve gotten to my goal. I have a separate bucket for large non-monthly bills (car insurance and tags) so that I don’t have to deplete my long-term savings to pay them. Another bucket is for Christmas gift and travel money. I have a ‘Misc’ bucket that I can spend on whatever I like. My next purchase out of that bucket will be a new bed.

  25. Steven says:

    @3 Tyler Karaszewski
    Buy at a house at the lowest time ever, and also sell at the lowest time ever.

    @14 Julia
    Exactly what I do for dinners/hanging out with friends. I budget a certain amount every pay check that I allow myself to use. Therefore, unexpected expenses are accounted for and not going into savings.

    @21 Matt J
    Are those actually 7 separate accounts? or are you splitting 1 giant account into 7 separate “piles” in the speadsheet?

  26. Richard says:

    I am curious how much would a Advertisement rate from blog like this would generate. Could someone care to explain. Thanks

    Shogun:
    Whats the “2 page impressions X a 2% CTR X 25cents”. How did you arrive at that numbers?

  27. TheDiligentProsper says:

    I love the idea of saving into buckets too. I think it’s important to have just a few though. For example, right now I just have two buckets in my ING account, one for the 6-month emergency fund and another for a house purchase. I believe that too many saving funds takes away your intensity and drive for those goals.

    Trent, I’m going to have to think about starting an opportunity fund too. I can see how that can really be a benefit. For example, buying something in bulk might require more money now, but can save a lot more in the future. I can also see it if I need to go back to school and take a class or two on a skill that can significantly increase my income.

    Great advice like always!

  28. Russ says:

    Great story.

    I do have a suggestion. Do not trade in your van, instead sell it yourself. You will get more money. Put this money with what you have saved and you’ll be in a good position to bargain for your van. I’m not familar with your states tax laws but here in Geogia if I buy a vehicle from an individual I do not have to pay sales tax.

  29. Nice post– I believe budgets and goals are dynamic, not static. Further, after achieving some goals– new ones need to be set. Finally, flexibility is paramount– surprises arise.

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