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Ask the Readers: When Is It Okay to Spend Your Savings? Print
Friday, 16th January 2009 (by J.D.)This article is about Ask the Readers, Budgeting, Choices, Planning, Real-Life
Amanda wrote with a question this week that I think many GRS readers can relate to: When is it okay to spend your savings?
My husband is currently unemployed so we’re just living on my salary, but at least we don’t have to pay for child care. However, we are spending more than we make. We had a fair amount stashed away from savings and some inheritance, and we’ve been dipping into this to help pay for things like:
- Remodeling the house (my husband is doing all the work)
- Health care
- Sometimes even basic expenses
We haven’t been extravagant, and we have cut back on costs, but I wonder if we’re doing the right thing. If we didn’t have savings, the answer would be simple: don’t spend more than we make. But since we do have savings…I’m left with a lot of question marks.
When do we decide that even important expenditures are just too much and not worth spending our savings on? I’m thinking of things like health care, dental work, eating organic, cell phones. I would very much appreciate advice!
This question gets to the heart of many personal finance decisions. Ultimately, money is a tool. It’s used to buy safety and happiness. The challenge is knowing when to use it — and when to keep it. Here are a couple of questions I would ask myself if I were in Amanda’s shoes:
- What are the savings for? That is, when that money was set aside, what was its intended purpose? If it was meant as a protective buffer, as an emergency savings account, then it could be a mistake to spend it on non-essentials.
- How long is her husband expected to be unemployed? How easy will it be for him to find work? Is he actively pursuing a new job? An economy like this — with growing unemployment — would make me nervous. But if he believes he can find work again, it probably doesn’t hurt to spend a bit of savings.
You cannot spend more than you earn forever. If you do, you end up like I did — deep in debt. Without some plan or a set of goals, it’s easy to just keep spending.
Because of this, I think that Amanda and her husband should establish some clear goals. It’s not necessarily wrong to use savings to remodel the house or to eat organic — if these actions are helping them pursue their dreams, and they can afford to do it. But if by spending their savings they find themselves moving away from their objectives, it’s time to re-evaluate the spending.
What advice can you offer Amanda? What would you do in her position, where you had savings, but were dipping into them temporarily to fund your lifestyle? Would you be worried? Why or why not? If you have savings, is it okay to spend more than you make? For how long?
January 16th, 2009 at 5:09 am
There was a mantra which I learned in Mexico, “never withdraw from your savings, ever, no matter what”. I have taken that to heart and have not one single transaction in my savings account other than deposit.
I make it a point to only spend recently earned money. Dipping into savings means you’re spending more than you make. It is not sustainable because it will run out eventually.
The only part of savings which might be acceptable to spend in financial hardship would be the monthly interest, since that is new income.
January 16th, 2009 at 5:33 am
I would wait till crossing the point of having more income then expenses, even if you have to do it with with one income.
I don’t take to much stock in them, but economic forecasts aren’t pretty. Depending on what the savings is invested in, it will dwindle anyways in the next few months.
January 16th, 2009 at 5:39 am
I can understand the logic of remodeling the house while unemployed, since that’s when your husband would have the time to devote to the remodeling effort. But with the economy in the state its in, I think I’d make sure to allow a YEAR to find a job. If your savings won’t last a year at your current spending rate, I’d change direction.
January 16th, 2009 at 5:41 am
I have to say that it’s a juggle when you’re going into your savings to avoid making the sacrifices that others feel you should be making, i.e. remodeling, etc. Everyone has options, and it’s up to you to make those decisions for yourself. I’ve been there myself years ago and hot dogs with mac/cheese 3-4 days in a row isn’t the ideal option to take, but I kept my eye on the prize nonetheless. Decide what’s best for you and stick with it.
January 16th, 2009 at 5:42 am
For me, if expenses are greater than income, I’m not going to be comfortable with the situation. Unless there’s reason to think that the reader’s husband will be finding a job soon, I’d start cutting back anywhere and everywhere.
January 16th, 2009 at 5:50 am
Your savings should help you when you need it. Your savings is not for everyday expenses like ‘eating organic’ and cell phones. You need to have those things built into your budget. If you cannot afford those kind of recurring expenses, you need to figure out how to cut them. As for healthcare and dental, if they are unexpected expenses, this could be appropriate. Remodeling the house can be done anytime. Why spend unnecessary money when you are unemployed in a recession? It just depends on how comfortable you are with depleting your safety cushion.
Unless I knew that the reduced income was a temporary situation that would definitely be resolved before the money was gone, I would not spend like that. Because it sounds like you are tapping your emergency fund, so how will you be prepared for actual emergencies? What about when your car breaks down or crashes, or god forbid some huge medical bill? I think you would regret using your savings to pay for things like organic groceries at that point. You don’t want to end up tapping a credit card or loan that you wouldn’t have needed otherwise. When you are financially secure and not spending more than you are earning, that is the time to save the funds designated for a home remodeling job, and then spend it as such. As JD points out, if you had a budget for the remodeling project, and you saved money specifically for that, then this question doesn’t come up. You would also have an emergency fund saved that covers all your typical expenses such as phone bills, groceries, etc. for a very conservative estimate of how long it could take to find a job. (i.e. if you think it will take 1 month, save up 3 months)
January 16th, 2009 at 5:52 am
I love this site, but I get tired of reading the same “liberal” junk. Saving money to “eat organic”. Who are these people and where do they come from? I don’t know if they are trying to impress people by what they consume but it’s annoying.
January 16th, 2009 at 6:08 am
If hubby is good at remodeling work, instead of fixing your own house he ought to see if he can’t get paid to fix other homes. With all of the foreclosures out there, perhaps he could get some work getting them ready for resale.
Even if I had saved specifically for the purpose of remodeling and an emergency fund, I would put those plans on hold. While he seems to have extra time to do this work now, he needs to focus on getting to work.
If my monthly expenses cannot be covered by current income, then I would do everything I can to reduce that deficit. Switch cell phone to pay as you go, or dump it. Discretionary medical/dental expenses get put on hold. Organic groceries get replaced with Angel Food Ministries purchases AND if at all possible home grown - many communities have garden plots available for their residents.
No one knows how long hubby will be unemployed or underemployed.
January 16th, 2009 at 6:18 am
I simply must agree with JD and some of the other comments. The answer to this question is really “mu”, because the question is wrong.
http://en.wikipedia.org/wiki/Mu_(negative)
It’s OK to spend your savings, when you have it budgeted out to spend from your savings. If you were planning on remodeling the house anyway and were saving for it, then by all means continue to use those specific savings to remodel. If you are remodeling because your husband is bored at home and figured it would be a good idea, then you are spending money set aside for something else, and that is bad.
I think the key is to know exactly what the objective is for each dollar of your savings. This is why JD finds ING subaccounts so useful… They easily compartmentalize savings into specific objectives. I myself have a “flow” system, as discussed in the forums:
http://www.getrichslowly.org/forum/viewtopic.php?p=13926#13943
Without this, you will find yourself dipping into savings without first justifying it. Things like this will happen: “Well, we have always wanted that new TV, and we have enough in savings… Let’s get it.”
Luckily, you can still go back now and budget the money in your savings. That will then answer any and all questions related to spending that savings on specific items.
January 16th, 2009 at 6:21 am
In my opinion, I would be trying to get my recurring expenses down to the level where it could be sustained without dipping in to savings. In terms of the specific situation that Amanda is asking about, there’s not enough information to really give a meaningful opinion. We don’t know the level of savings, the outlook for her husband’s job search, or the amounts being withdrawn. On a general level, I’d avoid spending that money on “luxuries” like organic foods or decorative remodeling. Assuming that it was a low percentage of the overall savings, I would probably use some money for remodeling that fixes any costly problem with the house. Health care is a gray zone. If my husband and I had no kids and were very healthy, I would probably choose to gamble having no insurance, rather than pay the awful COBRA fees. If we had any type of chronic or recurring condition, I’d obviously keep the insurance active.
January 16th, 2009 at 6:25 am
Great comment about remodeling for other people - right now the remodeling market is stronger than a lot of markets because people can’t afford to sell their home at a loss.
I would pretend you didn’t have savings and live accordingly. Medical bills? Those you need to pay. Cell phone? If you are convinced you need one, go with a pay as you go, or consider dropping the land land. Cable? Gone. Home remodeling? No, unless it just involves $5 oops paint from Home Depot.
Even though you aren’t getting into the debt hole due to your savings, you now have a savings hole that you need to rebuild. Cut out non-essentials and focus efforts on the job search or a part-time job that is at night (I know there are child care issues).
January 16th, 2009 at 6:30 am
I think there are too many factors we don’t know about to make judgements about Amanda’s situation.
Personally, I consider health insurance an absolute requirement and yes, I dipped into my savings to pay for an out-of-pocket plan back before I was covered by my current job. I’d also cover dental work — doing dental work early prevents much more expensive work down the line. (I once took an archaeology class where the main takeaway was Take Care Of Your Teeth. A disturbing number of people in pre-antiquity died of complications from absessed teeth.)
There may be ways to compromise on other expenses without giving things up entirely. If a cell phone is necessary because of emergencies, a pre-paid phone may be enough. And there are places to save on organic groceries — Trader Joe’s in particular is great.
January 16th, 2009 at 6:40 am
I would put off remodelling until there are two incomes and your savings have been beefed up again. Often remodelling projects don’t go exactly as planned and come in over budget. Unless the home is not safe or livable, it is not a necessity.
Heathcare (including dental), a roof over your head and groceries are necessities; if you can’t pay for these items one one income alone, then using savings may be necessary.
Dip into savings as little as possible unless you know for sure how long he will be out of work - the savings will need to last and you will need to replace what you have used when he is working again.
Time to revisit your wants vs. your needs and be brutal.
January 16th, 2009 at 6:43 am
Seriously, if someone is laid off, what are they doing spending money remodeling the house? That is certainly not survival mode. Plus, to dip into savings to do it is very poor judgment. Instead of spending time and money remodeling the house, the focus should be time and money spent on printing resumes and looking for a new job.
January 16th, 2009 at 6:49 am
I can relate to Amanda’s question as I have been living off my savings on for the last year. I am single and 35 with no children. I have saved and an inheritance so I have money stashed away.
I think J.D. has asked the right question here, what is the long time goals.
In my case I wanted to finish a Ph.D. It usually takes 4 years, but I have used 5 so far. So for most of the last year I have been mostly living off savings. It was scary going without a pay-check but it has worked out very well.
My goal has been to pursue my dreams, and it has worked out very well. I took 2 months off my Ph.D. this summer to work for my parents on their house (and to earn more money), and now I have gotten 3 months extra funding to finish my work. So now the completion of my goal is in sight.
January 16th, 2009 at 6:49 am
@Ed–”I love this site, but I get tired of reading the same ‘liberal’ junk. Saving money to ‘eat organic’.” I’M NOT LIBERAL, AND I EAT ORGANIC. “Who are these people and where do they come from?” I COME FROM TEXAS. “I don’t know if they are trying to impress people by what they consume but it’s annoying.” I’M NOT TRYING TO IMPRESS YOU, AND I’M SO SORRY IF YOU ARE ANNOYED THAT I SHOP AT FARMERS’ MARKETS.
Sound like you have some issues, there.
Anyway, back to the actual topic of the post, I think JD is right about considering your husband’s job prospects. Is he actively searching and getting good prospects, calls for interviews, etc.? What is the demand like for a job in his field? What is the local economy like?
I would take a look at where you spend your money each month and categorize the areas by importance. For me, the most important expenses are food, shelter, basic utilities, and healthcare. If it was me, I’d continue eating organic, since you brought that up, but I know my husband and I eat a lot of “fancy” foods that we could cut if needed…artisan cheeses, wine, etc. We could eat meat less often, and cook more rice and beans.
Then next in line might be other bills–cell phones, Netflix, etc.–things we can live without.
If money was running low, I’d start cutting at the bottom of my list and move up.
It’s hard to give advice, though, since I don’t know how long your savings will last or what your husband does for a living. Also, if you’re using emergency fund money to remodel, I’d really reconsider. It’s nice that he has the time for the project, but money is money, and in your situation it’d make me nervous.
January 16th, 2009 at 6:52 am
Remodeling, if the hubby is doing the work, may not be a bad idea. Some remodeling can be done for very little money. When he starts working again he may not have time to do this work and hiring someone may cost more than his/your hourly wage - so it would be more beneficial for him to do it.
I have a friend whose husband does seasonal work - usually in the winter. From June to September he works on their house doing things that need to be done. They save a lot of money this way eventhough he isn’t bringing in income.
January 16th, 2009 at 7:00 am
Also, I don’t get why so many consider healthcare to be optional. After basic food and shelter, it’s the most important thing you could buy. One accident, one diagnosis, and you could be in hundreds of thousands of dollars of debt, possibly with ongoing medical bills.
I would cut back almost every other expense if it meant keeping health insurance.
January 16th, 2009 at 7:09 am
I agree with AD. You can be perfectly healthy and still get hit by an uninsured driver while you’re crossing the street. Health care is crucial.
January 16th, 2009 at 7:10 am
Not knowing enough about your situation (amount of savings, scope of remodeling projects), it’s hard to provide specific recommendations. If you’re living on the edge, then the stark “don’t spend you’re savings” might be right. If you’ve both been working and saving for years without a hiccup in earnings, and this is the “rainy day” you’ve long prepared for, then this is the time to intelligently and strategically use your savings.
I’d suggest that you get your basic expenses (including health care) in line with your current income. If you haven’t already, I would also suggest increasing your take-home pay by increasing tax withholdings and reducing retirement contributions (401(k) or whatever), at least temporarily. Given that you don’t know how long your current situation will last, it would be good to get out of negative cash flow on the predictable stuff, to make your savings last longer.
However, maybe you and DH have been planning and saving to remodel for a long time, and have a sizable savings account dedicated to that, in addition to your emergency fund. If that’s the case, and you aren’t in negative cash flow, I don’t see a problem with DH doing the work while he’s home. It’s nice to accomplish something concrete during a job hunt/household management gig (which is a neverending cycle of half-finished tasks). Sanity is worth something too.
Good luck!
January 16th, 2009 at 7:18 am
We are in a temporary financial bind carrying two mortgages while (our property manager is) looking for a renter for a house we own in another state. I am a SAHM and my husband’s job is secure in the Air Force. It is a monthly challenge to not dip into savings.
*I stopped buying organic.
*All house/renovation projects are on hold.
*I severely curtailed the kids’ activities.
*We don’t eat out as a family, ever. (My husband occasionally does for lunch.)
*We don’t order out family meals, not even pizza.
Our “splurges” are cable — love my DVR! And we will record shows we love and watching them is a “date” after the kids are in bed.
I do go out “with the ladies” once a month for dinner. That is my special treat I factor into the budget and is my reward for keeping to a grocery budget (using coupons, utilizing leftovers, and MEAL PLANNING - very crucial).
We tried to change/get rid of some cell phone service but we are still bound by the initial contract we signed up for when we moved here less than two years ago.
To me, healthcare trumps house projects, hands-down. Especially routine dental, etc, for the kids.
We are definitely feeling the strain now four months after our last tenants had to move out; but I tell my husband so long as we are still able to contribute to his 401k (TSP in the military) then we are not at all hard-up. Before we stopped that contribution I would get a part-time job, if I could find one with hours that did not require me to need childcare.
January 16th, 2009 at 7:26 am
In the generic case, I think you’ve hidden the keyword in plain sight: Lifestyle. Unless your lifestyle is attached to your income (as it is in a few select cases), I cannot think of a good reason to spend savings on lifestyle.
As for Amanda’s specific case, unless the home remodel is with the intent of selling the home within a short time, that project is no longer a “need” but a “want” and should be deferred.
January 16th, 2009 at 7:27 am
It sounds like the husband and wife are not in agreement, with the wife questioning. My two cents — the last thing I would be taking $ out of my savings account in today’s economy, would be for remodeling and organic food. Foreclosure filings were up 81% in 2008 - that’s 1 out of 54 homes went into foreclosure last year, with even more expected this year! With a spouse out of work, you want to focus on needs and not wants. Recently I had a root canal done to the tune of $1,100. That is a need. I would advise that the husband and wife determine together at what amount do they want to keep in their savings account/emergency fund. I say this because we don’t know how much is in there. And then when they reach that amount, to quit withdrawing funds. Otherwise, you run the risk of depleting it over time with this type of foolhardy spending. And then what are you going to do? Start charging things and maxing out credit cards? And then what are you going to do?
January 16th, 2009 at 7:31 am
I think that dipping into the savings is a really bad idea unless it is for truly unexpected things. I did have to have an unexpected crown and subsequent root canal last year to the tune of nearly $1000. I did take out some money from savings for that. But I would NEVER take out savings for groceries or my cell phone bill. I don’t know what would be worse: charging them on a credit card and paying interest on it or taking out money like you have done so that you lose money on the interest. I also don’t see the point in renovating right now unless you have dangerous or hazardous things in your house that need fixing.
You can eat really healthy yet inexpensively. Only buy foods organically that are known to require a lot of pesticides (that list is widely available online). Eat less meat and more beans. There needs to be a balance and buying everything organic seems overkill. My area has a food salvage store that sells organic brands ridiculously cheap. Maybe your area does too.
If for some reason you lose your job, you are going to soon find that all the stuff you thought was necessary really isn’t.
January 16th, 2009 at 7:34 am
I hope I never am in this situation, but we have stored away 3 to 4 months of LIVING expences. We keep a good budget so it was easy for me to see what we need to live on. I hate the thought of EVER spending it (I am a hoarder of sorts when it comes to savings) but you need money for insurance; car and health. You need to eat, you need to keep the room over your head, and you need water and power in your house. Cable you dont need. Internet may need to be borrowed for the time being. Drop the home phone, use cell only. Or (and I dont know if they still do this) I used to work for a cell phone company. We had a plan we put customers on who fell on hard times. It was like 10 bucks a month and offered no minutes. It allowed them to keep the cell phone, not get hit with a contract break pentalty, and they could change their plan back when they got back on their feet. Dump cable for sure. If you must need entertainment, get a netflix account. We are hooked.
January 16th, 2009 at 7:37 am
At first blush, remodeling seems like a silly expense to take out of savings. However, a long stint of unemployment gives a rare opportunity for a normally fully employed adult: time. However it also costs money to pay for tools and supplies. Perhaps a good approach would be to make up a list of the remodeling tasks that need to be required, and tackle tasks that require a lot of time and not a lot of money to complete, and delay the more expensive tasks till later.
Having something to do besides looking for a job is key to maintaining sanity. Spending a few hours in the morning on a job search and spending the afternoon on renovations could be useful.
As for things like cell phones, eating organic and so on, switch to a prepaid plan (or cancel), and (gasp) buy conventional. Or, if you want to keep the organic, drop some convenience foods and have hubby use his ample time to make more things from more basic ingredients.
However, without a detailed full list of expenses, there is no way to tell what’s really going to get cut.
And, of course, if you aren’t doing a monthly budget and sticking to it, you should start doing one.
January 16th, 2009 at 7:47 am
Amanda doesn’t say if they were in the middle of a remodel or not when her husband lost his job. If not, I wouldn’t be spending money on one right now. However, if they were already in the middle of one and there’s a wall missing…hmmm, I might think spending that money was a good idea. If they are now saving the childcare expenses by his being home and he is drawing unemployment, they shouldn’t have to be dipping into their savings unless they were already living above their means. Cutting back on just a few things should allow them to “balance the books” so to speak. Amanda and her husband should sit down and evaluate their situation, decide what their goal is short term and long term, and make a plan. It’s tough, but it can be done.
My husband retired from the military 10 yrs ago and we took a HUGE paycut. He got his military retirement pay and worked for $7 an hour. Ouch! Luckily, we had savings and no debt. We only used the savings for purchasing our home and some furniture. We made a 2 year and a five year plan and saw them through. 10 years later my husband is working at a good paying job and we have set new goals.
January 16th, 2009 at 8:04 am
I don’t know the particulars of Amanda’s situation, so I won’t weigh in with advice. I would like to say, hang in there! Things will get better. Eventually, your husband will find work. Be as frugal as possible and remember to prepare for this when you’re back on top.
January 16th, 2009 at 8:14 am
What is the worst case scenario here? Is her job secure? What if she loses her job as well? In this economy, anything is possible. How quickly can hubby find a new job? Do they have a mortgage? In the event of worst case scenario, can they trade in their remodeling to make the house payment if they need to? Or is the remodeling putting the house itself in financial jeopardy by spending future house payments? After answering all of these questions, she needs to ask herself if she will have peace with using the savings for cellphones, organic food, and remodeling in the event of worst case scenario? Would she look back and feel good about the steps she’s taking to take care of her family? Or would she look back and see financial pride, arrogance and stupidity? (nothing personal. I’m living with the consequences of it myself. Assuming it will always get better than it is now so I can spend and I won’t get burned. Ha. Foolishness and rubbish.) Time and harsh circumstances tend to bring great clarity to our priorities. Things we think we HAVE to have suddenly become less important in light of true essentials. Does her family NEED the remodeling done NOW or are there other things that are more important? Is remodeling the best use of her husband’s time? Is unemployment a valid reason to live beyond her means? Are there ever legitimate reasons to live beyond our means?
January 16th, 2009 at 8:29 am
I agree that we don’t know all of the facts. My response to many of you folks who say she shouldn’t do the remodeling is that you folks are all contributing to our harsh economic times. If we all clam up and don’t spend our money, how will our nation escape these troubled times. Yes, please save money and live frugally, but at the same time, spend and help boost our economy.
January 16th, 2009 at 8:36 am
My husband and I are in a similar situation, except that when he was laid off we had about $30 in savings. By cutting our non-essentials and saving every extra dollar we had (or gifts from family over the holidays) we have been able to put almost $500 in our savings account until we need it. I would feel irresponsible spending the money on remodeling if you are also taking money out for essentials. I have to admit that we haven’t had to dip into our savings…yet. We may need to to pay the deficit in our bills (which is very small) for the next few months while hubby finds a job. But we are definitely not using that money for anything else as we have worked really hard to get it there in the first place.
I don’t know Amanda’s situation, but I wouldn’t take money out of savings for anything other than essentials (whatever she feels those are) until there is another income coming to pay back to the savings acct what you are taking out. That is just me.
January 16th, 2009 at 8:38 am
There is not enough information here or as another poster said mu! : ).
Map out what part of your savings are emergency savings. Do not touch that money! As most will advice, in this economy better to make that a larger versus smaller cushion. Then decide what you are dedicating the rest to. Unlike some others, I don’t think that remodeling is that bad of a thing to be spending money on if it was planned, your husband has the time and it can save money in the long term. If you do want to dip into savings for miscellaneous “lifestyle” things, make it a set amount. Once it is gone do not take any more from savings. After that you will either need to rebudget how you spend, earn more money or both because you don’t want to be in a situation where month in and month out you are living beyond your means.
January 16th, 2009 at 8:39 am
Wow.
The first thing I’d do if my husband got laid off is go to the generic no-name brand grocery store, not to the savings account to buy organic foods!
I suppose that perhaps this is better than if she was charging it all to credit cards. Or taking out a home improvement loan. Not that a bank would make a loan right after the lay off.
I would say complete current home improvement projects with a frugal eye to the budget, and a priority chunk of his time on job-hunting.
Is he able to job-hunt when he is watching the children? Because if he is stuck at home while she’s at work, then he probably needs the home improvement project to keep him busy. If he can’t be out interviewing or completing applications, then he’d be stuck with at-home options including phone interviews (dangerous with screaming kids in the background) and internet applications and job searches. That isn’t the best he can do in this economy, either, and childcare should be considered at least one day a week so he can schedule interviews, etc., knowing he can have the children looked after during that time.
January 16th, 2009 at 8:40 am
I think you’re absolutely correct that goals have to be set. Without goals, aimlessness and non-focus are the order of the day. Financially, that means wasted money. Physically, that means wasted time. I’ve personally made some big strides in figuring out where I want to be in ten years time. That one goal alone accounts for everything I do now, each and every day.
As far as Amanda’s situation is concerned, knowing what I know now, I would not be spending significant savings on home remodeling with questionable return. That would have to wait until the husband found a new job. This economy is too unpredictable.
January 16th, 2009 at 8:53 am
“we Remodeling the house (my husband is doing all the work)”
“We haven’t been extravagant” huh?
Why are you remodeling when your husband is unemployed that is a no no
Emergency savings are for “emergencies”
Unless you are well off $400K or above, wait until he is employed before you do remodel
January 16th, 2009 at 9:01 am
@Ed,
I agree with you in principle, that there are many people who’s budgets are stable, who have stopped spending out of nothing but fear of the economy, and that has on overall effect of weakening the economy. Amanda’s case is different in that she already is spending more money then her income is providing. In that case she HAS to make sacrifices. To me, remodeling the house is a “want” not a “need”. Unless of course ,the remodeling is due to a deficiency in the home itself the NEEDS to be corrected, or will directly lead to greater saving in the future (insulation, more efficient heating, reduced water use etc.) My solution would be: Cut back on the remodeling to a minimal point necessary to complete the project, and cut back on other “wants” as well.
January 16th, 2009 at 9:12 am
I can very much relate to her situation. My husband lost his job one week into December and we were living off of my income (which, thankfully, was the higher one and the one with benefits). We had spent the first 6 months of our marriage creating our buffer in the checking account, now we knew that to cover our expenses we would have to dip into that. Luckily, within a week he had a new job lined up, but it didn’t start until the second week of January. Because we had a decent buffer that was set aside for a situation like this and he had a job lined up (which he just started last week) we were ok with dipping into it. But we also worked on cutting costs as well, we downgraded our internet/cable/phone drastically and kept Christmas very small. So yeah, it definitely depends on the individual situation. If my DH hadn’t had a job lined up with a person of high integrity (don’t count your chickens before they’re hatched) I would defintiely have pushed for much more drastic cost cutting.
January 16th, 2009 at 9:13 am
As we don’t know the particulars, it does seem hard to offer concrete advice. But what have I learned so far from this blog? That money is more about psychology and less about numbers than people make it out to be. Losing a job is incredibly stressful, and it seems to me that you can make it a lot more stressful by IMMEDIATELY switching to a sort of survival mode by cancelling all fun and switching to (what I view as) poorer-quality food….in other words, if they have savings that were meant for the case of someone not having a job, why not use it to maintain their lifestyle for as long as possible? This is of course a big “if” which also depends on various factors that have already been pointed out, i.e. how long hubby expects to be unemployed.
personally, I am trying to save 12 months of expenses where organic food and hobbies are actually budgeted in–I would be depressed enough in such a case and a sudden lifestyle-reduction wouldn’t make me any happier. (And going one step further: do depressed, poorly-fed people have lots of energy to go find a job? Um, no.)
January 16th, 2009 at 9:28 am
I tend to agree with most of those posting comments…organic food and remodeling is not something that is necessary and I personally would not dip into savings to do either one if either my husband or I was un-employeed. We would save that money for an emergency while there is only 1 income. Organic food can be good..but unless it is necessary for a specific health reason, it’s too expensive to buy while one of you is without a job.
Cell phone…does he have a cell phone? Does he really need it since he isn’t employeed and probably home most of the time anyway? Might be cheaper to cancel his service for now.
Remodeling….I agree with others…see if this is something he can do for others right now. Husband I have personally hired several carpentors from craigs list to do some odd jobs around the house that we weren’t comfortable doing (such as building deck stairs). I’m sure that are others like us out there.
I understand wanting to do some remodeling while he is home and has the time, it’s great that you were saving for it. But my thinking is that right now, you are down to one income when you were used to having 2, so it’s best to save that money in-case something comes up.
January 16th, 2009 at 9:30 am
Yes, there’s no indication if the “remodeling” is spending $100 on paint or $15,000 on a new kitchen/bathroom. Even unemployed, I could justify the painting (with some other accommodations from other spending — cut out Netflix, go to a prepaid phone, scrutinize grocery purchases, cut coupons, no meals/nights out, etc)
But this should definitely be a discussion between husband and wife, with spending priorities clearly outlined, the written budget, and tracking of expenses to ensure that it stayed absolutely on track.
And, of course, there should be a time budget set up for him to look for a job. If he’s watching small children and he feels some need to complete the renovation project (spoken or unspoken), there is probably not sufficient time to look for work — which can easily consume a few hours each day. At some point, you can only do so much, that’s where a project of some kind can be extremely helpful.
The overall goal, though, should be “how do we get by on your income alone?”. And if organic food is a priority, then something else is going to have to go — maybe the cable box or maybe the iPhone. Or perhaps the car that’s not paid off. People’s pains and pleasures are all different, the only way to “win” is to get things straight with your spouse. Sure, the rest of the world may consider you insane, but as long as your spouse is on the same page as you, then you’re likely doing pretty well.
January 16th, 2009 at 9:43 am
I agree with others that without more particulars, this is going to be very generic advice. Amanda’s question is when do they decide that even “important” expenditures are too much. I think the hiccup that most people have is what Amanda has considered “important” — remodeling, organics, cell phone. The part that concerns me is that they are dipping in their savings for “basic expenses.” My best advice is whatever your income, you should be living within your means. Because even with a “fair amount in savings,” eventually all the savings will be gone if you continue to live outside your means. Now for your amount of savings, it may be 5 years for all we know, but if it’s only for 1-2 years, and it takes that long for husband to find work, you might feel a little sheepish when you deplete your savings for non-essentials.
Here’s my advice — all of your needs should be within your income means. I agree with another post that you need to be critical of what is considered a “need” — do you “need” organic food — well, no, you “want” organic food; but you do “need” food. And I believe needs includes health insurance. If you are talking about “big” medical expenses, I think that is what your emergency fund is for.
If you have discretionary income leftover, then priortize your “important” expenses. If it’s important to have organic food, then maybe cut an expense someplace else. If it’s important to remodel, then cut an expense someplace else. And so forth.
While I generally agree with others that if your savings was earmarked for home remodeling, then you can use it for that purpose. But I would tend to be over-cautious simply because husband is unemployed. When he finds work again, instead of starting the following Monday, ask for an extra week before start-day, and make it a full-time job for that week to get remodeling work done.
And the final added bonus — when husband does get work again, you will have the knowledge and satisfation that you can survive on one income. Then your second income will really allow you to have fun with even non-important expenses.
January 16th, 2009 at 9:45 am
I guess it depends on what the savings is saved for? If you were saving to pay someone to fix the house for you and now you can do it yourself for cheaper that’s less than you would have taken in the first place.
But if you’re cutting back in other areas (are you still on a $150 a month cable TV play?) and doing work around the house and not paying for day care, I’d feel better about it (if I were you).
January 16th, 2009 at 9:46 am
I think usually savings is for the future, and more for either a business venture, car, home, repair. That’s what I think of when I hear savings. Savings equals future. Emergency fund equals the situation the reader is going through.
January 16th, 2009 at 10:02 am
If she is asking for advice on the four items- i would say give up organic or learn to eat the least expensive organics at a coop-like grains and beans, get the cheapest pay as you go cell- and don’t use it except when needed(no chatting or texting nonsense)- but do not give up health insurance and do not skip dental work. We are learning how dental problems cause heart problems and a lot more- getting false teeth or implants later does not make up for dental work that should have been done when needed. People die from neglected teeth as happened to a child in a shocking story here in Md(and I am sure it happens more)
January 16th, 2009 at 10:27 am
I want to say to Amanda that I agree with all the commenters who say that goals must be set. I don’t agree that those goals are primarily financial.
What are your husband’s goals in life? Is his goal to be a stay-at-home parent? Is his goal to start his own home-remodeling business? Is his goal to take a longish break from corporate pressure before diving back in?
Once you and your husband have his goals in mind, Amanda, you should set your own work-life goals. Share your goals with your children if they’re of age. Encourage them to set their own goals.
Once your family’s goals have been set, confusion about incomes, expenditures, savings, and investments should be more clear. At that point, financial goals will be easier to define.
January 16th, 2009 at 10:46 am
It’s interesting how everyone’s first reaction with the question of organics is “that’s an unnecessary expense; don’t bother.” So to do a bit to offer some balance here, let me echo what Andrea just said: look for the most cost-effective organics. Buying organic blueberries in January at Whole Paycheck probably doesn’t make a lot of sense. Buying organic beets and cabbage from a local farmer probably does. If you’re looking at a potentially long time before DH goes back to work, maybe now is the time to include making space for a garden as part of the remodeling, and grow your own organic produce (which is definitely the cheapest way to go!)
Savings are for rainy days, right, and it seems like these are your rainy days. But now that you’re here, it’s probably a good idea to think carefully about every expense, how it fits with your overall plans and values, and explore creative ways of getting meeting your needs without sacrificing your values.
January 16th, 2009 at 10:47 am
Personally, I would plan for the worst. Unemployment for more than a year or two, possible health issue in the future, etc. It’s important to adapt quickly to the situation.
I’ve been saving up many years for a downpayment for a house, that’s my specific use for the money. The moment I lose my job, that fund becomes my emergency savings (for actual emergencies - I’d cut my cellphone, Netflix subscription, organic foods - unless I can grow it myself, and I’d start eating ramen 4 meals a week, just because I can).
I think it’s “ok” to spend the category as it was meant to be during a good situation. But when good turns to bad, you’ve got to adapt and make the money last as long as possible.
I think the question here is more about prioritizing. Prioritizing and preparing for the worst is always the best thing you can do when you’re uncertain about the future.
January 16th, 2009 at 10:51 am
I think that there may be something else to this story: the interactions between partners with regard to their finances. She is starting to ask questions, which is good, but it may annoy him or he simply won’t listen (so she posts on websites? ;-)). This might eventually end badly - for example: she quietly stops buying non-essentials and stops bringing it up, and he carries on spending. Maybe it is not relevant to this particular couple, but stuff like this can very easily happen. Imagine earning $75k each, but still racking up credit card debt, and not wanting to have another argument about about money so keeping quiet and never buying a thing that wasn’t essential while he spends like there is no tomorrow. That was me and my ex. I am a lot happier now and have savings and easily get by with much less than I was earning then.
January 16th, 2009 at 11:18 am
There are some good advice here but I would like to comment on organic food.
In defense of organic food (or eating good quality food), it it a choice that individuals make. I don’t eat 100% organic but I value good quality food more than cable TV, a nice car, cell phone etc. I know it is not important to others and that’s ok as long as you respect other people’s choices. I have found a way to eat good quality (mostly organic) food by growing my own food, signing up for a CSA, produce stands, farmers markets, and Trader Joe’s. I know not everyone has access to local produce but all I am saying is, please do not tell people that buying organic is ridiculous or stupid.
There is nothing like “real” food.
Thanks,
Charlotte
January 16th, 2009 at 11:19 am
I have been out of work twice. The first time around, even though I was collecting unemployment, we lived off my wife’s salary. I couldn’t tell how long it would take to find work, and sooner or later the unemployment was going to run out so we didn’t want to learn to rely on it. This was early in our marriage so we didn’t have a ton of savings to live off of.
The second time was more recently, in October. We had some debates about what we should do. The facts of the matter were that we had saved a lot in our emergency fund. But we couldn’t live off my wife’s salary because she puts almost all of it into retirement accounts. (she works for the government so she has a lot of tax-deferred savings options.) I would again collect unemployment, but in the last 6 years our expenses have creeped up such that unemployment isn’t quite enough to cover our expenses. We decided to wait until the end of the year to make any changes to her tax-deferred accounts. While unemployment wasn’t quite enough to cover our expenses, it was close and so we wouldn’t deplete our savings *too* much in 2-3 months. And I convinced her that that’s why we had the savings in the first place, though I had to call in a nuetral third party (a friend of ours) to help convince her. I ended up finding a new job after only 6 weeks, so we never spent more than what was in our checking account.
Still, either way, we always plan for the possiblity of a situation continuing on indefinitely. You never know what’s going to happen. If this really is the next great depression, you’re sure going to regret eating organic food when you can’t afford food at all any more. Extreme, but you always want to leave yourself an out.
January 16th, 2009 at 11:29 am
What is really annoying is people labeling you. For me this is the ground zero of thought.
If you eat organic you’re a snob.
If you use a Mac you only care about design.
If you’re interested in the environment you have been brainwashed.
If you watch tv you sure watch trash 10 hours per day.
And remember!
If you are frugal you must be a slob.
If you spend much money on something THOUGH you are irresponsible.
A nice label for everyone!
January 16th, 2009 at 11:40 am
My husband and I were in that situation 5 years ago. He was out of work for a year. In our minds, our savings were meant for exactly the situation we were in - a buffer for bad times. We had built enough savings that we were able to live on them for the duration. I went back to work during that time, first as an office temp, then secured a 6-month assignment (my kids were school age, so my husband was in the home when they returned home in the afternoon) and I also managed to find renters for our guest bedroom for a month. So JD is correct - know the purpose of your savings, and if one reason it is there is to act as a buffer in bad times, go ahead and use it without feeling guilty.
January 16th, 2009 at 11:43 am
@ #51girl from EU
Well said! The self-righteous judgment here is staggering sometimes.
January 16th, 2009 at 12:14 pm
@ Ed #30,
It is not our job to ruin our own finances in order to “stimulate the economy”.
If you have your financial ducks in a row, by all means, stimulate away. But helping the economy should play absolutely zero role in Amandas decision on whether or not to continue with the remodeling.
As for my advice, I agree with several others, not enough information to give a concrete answer. Another way for them to possibly make a little extra money on the side during the husbands unemployment is to offer to watch a few other families kids during the work day, charging a little less than they would pay for day care. Obviously it depends how he is with kids and their home situation, but he could make decent money while giving his own kids some entertainment from other kids.
January 16th, 2009 at 12:25 pm
I would be really scared to be dipping into my savings right now if I didn’t have to. Who knows how long your husband may be out of a job. People with graduate degrees and tons of skills are having a hard time finding a job right now.
I would cut back the spending until it equals out to what you’re take home pay is. If that means putting the remodeling on hold, then that’s what I would do.
January 16th, 2009 at 12:40 pm
Don’t dip into savings to sustain lifestyle.
I say this having been there. I did sit down and figure out how long my savings would last (including my severence when I lost my job) with my lifestyle as it was. But then I started cutting back on everything I could, for the simple reason that I didn’t know how long I’d have to live on it. It’s much better to have more money left at the end than you thought you’d need than to run out.
That even meant I ate like a college student for a few months. I didn’t like it, but did it help motivate me? Yes it did. I also did things like turn up the thermostat (it was summer) and everything else I could think of.
To me, putting off things like remodeling is a no-brainer. Those projects will still be there when the job is back. I’ve been putting off parts of a kitchen project until my financial equipment improves, and I still have a job.
Putting off health-related expenses is a tougher call and it really depends on your situation. I’m healthy, so yeah, I went to the doctor less when I was unemployed. My wife has a health condition and neglecting it would have long-term consequences so of course we didn’t cut back on her visits. We were the two extremes, there.
January 16th, 2009 at 12:47 pm
I think that Amanda should keep cash flow top of mind. I would put off the remodel now because even though the labor is free, the materials are not. She should conserve cash as much as possible. She just can’t know how long her husband will be out of work for. I’d encourage her to take whatever steps possible to get recurring expenses to below her current income;
1. Is it possible for Amanda to make more money? (we don’t know if she is only working part-time or what her options are).
2. Cut all non-essential expenses. That pretty much means everything other than food and shelter. I pulled my kid out of karate lessons when the economy hit the skids…she still seems to be a functional 9 year old.
3. The benefits of living within her means - as hard as that will be - are that once her husband does start to work, they’ll be able to really sock it away.
Good luck Amanda!
January 16th, 2009 at 12:52 pm
Amanda, if you lost your job, how long is the remaining savings going to last you after you remodel and how long will it last if you don’t remodel? We all have difficulty choosing between needs and wants. I would not spend the savings on the house unless it is a need and not a want, i.e. roof, furnace etc. After your husband goes back to work…and he will, then consider if you still want to remodel.
January 16th, 2009 at 1:29 pm
@Ed #30. Really?!? I am not responsible to keep the economy going. I AM responsible to be a good steward of the resources I have to manage for my family first.
I would not hire a financial manager that put a biz at risk for the sake of keeping the economy going. Why excuse it for a family?
This whole economy has been predicated on increasing amounts of debt until the whole situation became unsustainable. Had Americans lived within their means and saved for a rainy day, we wouldn’t be here now. The idea that we are going to continue to borrow against tomorrow in the hope of digging out of the hole is not rational.
January 16th, 2009 at 1:29 pm
Does anyone just have a month where everything goes wrong, where you have tons of unforeseen bills? garage door opener goes kaput, eye glasses, car tabs, etc? Sometimes I feel as though writers of these blogs don’t have those things pop up.
January 16th, 2009 at 1:33 pm
The advice I would give to Amanda is to sit down with your husband and create a budget. This means taking an honest look at your expenses and income and determining what amount of money should go where.
If you value purchasing higher priced food, that’s fine, but find the money in your budget to do so. My husband and I get a lot of value from shopping from farmers’ markets and CSAs; however, we budget for this expense and we can live within our means to do so.
Regarding spending savings on large purchases, that would really depend on my household’s financial outlook. If my household could not make ends meet on just my single income, I would not use savings for that purchase.
On the other hand, I can totally understand that remodeling may be advantageous now because your husband has time to devote to it while he’s looking for another job. Nevertheless, if I were in this same situation, I would assess my financial situation to see if there was room in the budget for additional expenditure on remodeling. In Amanda’s case, it will likely require re-prioritizing the household expenditures.
January 16th, 2009 at 1:34 pm
Go into survival mode. Ditch your cable tv, scrap the remodeling for now, eat non-organic…in otherwords, is it a “need” or is it a “want”? Ditch all “wants” until you can afford it without tapping into savings. Or else your “wants” will suck your account dry when you really face a “need”.
January 16th, 2009 at 1:49 pm
@ Bob:
I have had that month this month! Actually the last year or so has been pretty much that way it seems. I know what you mean about a lot of blogs looking at things as if it all goes perfectly…at least that is how it feels to us lowly readers
The middle of December my grandpa passed away in another state. I had left Sunday to visit him in the hospital and planning on going back to work monday…long story short he passed away that night and I was “forced” to take unpaid leave for 2 days that week b/c of our bereavment policy. Then when we got back my husband (who had taken the entire week unpaid) got laid off — apparently that’s why they didn’t mind him taking a week off w/o pay.
Instead of filing unemployment he got a job delivering pizza and then we had car problems. Then my check came in $250 short this pay period…it’s been one thing after another.
But even with all of that happening we have still managed to save more $ in the last month than we have saved in a year! We know what we need to do and how tight we can live now. It is actually been a very liberating experience and we have felt very blessed with what we have learned through it all!
January 16th, 2009 at 2:10 pm
I don’t like to judge, especially with the imperfect at best info from the email but I would have to say anyone remodelling their home and spending extra for organic foods is not in a particularly frugal mindset. Especially since “organic” doesn’t necessarily mean “better for you” a lot of the time.
If I were in a similar situation I’d be living pretty much without luxury of any kind before I dipped into my emergency fund. No cable, no internet, no cell phones, meals would be carefully planned and eaten at home without exception. In my case, living in the city I would likely sell my car that I rarely use and get some premium back from the insurer although a car is less a luxury and more a necessity for those in suburban areas.
Healthcare is a necessity as far as I’m concerned but living in Ontario we have government coverage (renewed my card today as a matter of fact) and I have a health plan at work for prescriptions and dental and eyecare and all your supplemental stuff like chiropractic or massage and the like so that’s not really an issue for me but it would be a priority if I lived elsewhere or didn’t have the work plan.
I’d pretty much pay for my shelter, a landline, a subway pass, food and as little heat and hydro as I could get by with before I dipped into any savings. Personally even if I had a seperate account for the reno (and I would, I’m big on compartmentalizing) I’d hold off on it just in case it needed to be converted to emergency funds in a worst case scenario.
January 16th, 2009 at 2:55 pm
Well, I know that it certainly is possible to live on one income because we’ve been doing so for years. My husband makes $10.50/hour, and he’s made less. Our 5th child will be born month after next, and I know all about frugal living. We have a couple thousand in cash on hand and plenty in each category of our budget. It CAN be done… but not if you go out and spend on every little thing you want to. I would be glad to help Amanda arrive at a workable budget, and she is welcome to contact me via my website.
January 16th, 2009 at 3:06 pm
I don’t think I would ever feel right dipping into my savings. But if you can’t make ends meet, it could be needed. However, I wouldn’t use the money for anything that isn’t either a life need (basic food, rent) or going to help later (a course to be able to find a new job that pays well).
The only time I dipped into savings was when I got married. And it took some effort before I could stop feeling bad about it. And we’re talking about money I saved especially for the wedding and honeymoon!
I think each person is going to be different about it. When is it okay to spend your savings? I would say, when you’re in the situation the savings were intended for.
If you saved money especially has a fund in case you lost a job, then they’re here for that. Don’t feel too bad about using some of them. Do realise that they’re an /emergency/ fund though. Any way you can think of to avoid spending it at all, try it.
Remodeling a house might sound like it’s unneeded. however, if your house is in such a state that it compromises your health or your happiness, then it’s important enough. And you said your husband is doing the work, so no salary to pay. Could be a good thing to spend on it, an investment. Using a bad situation (unemployment) and spinning it into something good (enough time to remodel).
I’d suggest going further and seeing if your husband can help other people remodel their houses - for a price. This way he can split his remodeling between your house and others, and use what he makes that way to pay for your remodelling.
That’s one idea, but I’m sure you can come up with others like that, to fully take advantage of the situation.
Good luck.
January 16th, 2009 at 3:50 pm
what the heck does remodeling mean? In this environment, if you are not trying to sell your house, and if it isn’t something that is going to save you on say energy costs, then there is no need to “remodel” when you can’t live off of one income and are dipping into savings for basic expenses.
these generic questions are fruitless, because there isn’t a real picture like numbers to go off of. What advice to give Amanda depends on their actual expenses and income. Savings are there to pay expenses when you really need to do so; however, we know nothing to determine whether Amanda really needs to do so. My guess is that they are spending money that they don’t need to, and are hooking themselves into spending savings because they know they have it. First action is to balance the books without having to dip into savings. If you have to dip into savings, then you need a plan to stop dipping into savings–that is, husband getting part time job or whatever, even at minimum wage to offset the costs.
I go back to what the heck remodeling means. If you are selling the house, you don’t need to spend money remodeling when you have no money to spend. If you aren’t say installing a new furnace or windows which will immediately start to generate cost savings, then you don’t need to spend money remodeling. If you aren’t fixing something structural or something that will lead to further damage thus costs, then you don’t need to remodel.
January 16th, 2009 at 3:53 pm
discretionary spending = lifestyle
no discretionary income = meet basic needs until you have discretionary income
basic savings = meeting basic needs
discretionary savings = lifestyle
January 16th, 2009 at 4:47 pm
When is it okay to spend your savings? Simple: when it’s time to buy whatever it is you were saving for in the first place.
Or the expanded version: if you were saving for retirement, then it’s okay to spend it when you’ve retired. If you were saving for a “rainy day”, then it’s okay to spend it on a “rainy day”. If you were saving for a down payment, then it’s okay to spend it on a down payment. Etc. (And presumably one has more than one savings “bucket”).
January 16th, 2009 at 5:03 pm
Well, “eating organic” sure gets a lot of ridicule here but my sense is that many people by that simply mean “not eating at MacDonald’s”. And that is something I would support, even if it meant dipping into saving ’cause it is related to health hence general quality of life.
As far as remodeling, lion’s share of costs for every remodeling projects (and close to 100% of change orders / cost overruns) are due to contractor’s labor costs. Well, not counting large scale HVAC work and electrical work, I guess. But most everything else can be done by a handy homeowner and the cost of labor? Zero! The husband has an incredibly valuable resource that many of us employed don’t have - time. It is hard to put a value on it but it is probably between $30~$60/hr, depending on what he’s doing and how good he is at that. Clearly less efficient than a pro but my guess is that he’s saving as much as he’d be earning at a job picked up in a hurry amidst recession AND he won’t need to pay taxes on money saved.
Since this is about economics, I’m not going to bring up the value of time spent with kids, which you cannot buy for money
Also, on the matter of the remodeling: yes, we don’t know the extent of work being done but I have a feeling that it is not extravagant or frivolous. In such case the couple would not have sought any advice on how to better spend their money. So, my guess is the remodel may be reasonable and may even be mostly on the “repair” side. You know, those pesky small repairs you put off when you don’t have time because you are busy working for ‘da man’.
So, I’d say eat healthy while you can and do work on the house where you can.
Lastly, about spending more time looking for a job: what kind of job you are most likely to land in a recession? Filler of a job for the husband just so their budget is not so tight may not be exactly the thing the family needs right now.
January 16th, 2009 at 6:07 pm
I agree with most people here. It’s ok to spend your savings when:
1) It’s an emergency (the battery in your car died and needs to be replaced right now)
2) The money you saved is earmarked for a specific purchase.
For example, I was really excited about the Blackberry Storm. I did have the money in savings to buy it, however, I opened a subaccount and automatically deposited $50 per check into the account. Now it’s 3 months later and I have enough money to buy it, but I’ve decided I don’t want it anymore.
January 16th, 2009 at 7:06 pm
I found a peace with all of this recently. It has taken me 27years. I read for the last 5 years on this very subject since I have never been able to find the answer within myself.
First, let me say this, you did tap on something when you wrote if we did not have savings the answer would be easy.
Second, my research has concluded this is the answer.
Everyone has to have their own personal top three reasons to tap an Emergency Fund and or Savings or even Retirement Fund, in this economy.
Overall two of the answers for everyone will be the same.
#1. Tap it for Transportation reasons… reason being without transportation your life does not move forward and everything in life is about moving forward.
#2. Health … Serious health problems for anyone in your immediate family… I personally define this by Hospital type illness and or time.
#3. This one would be personal but should rank right up there with the top two.
Reasons not to tap,
We need to get out of debt
We need groceries, I have learned the hard way, You can cut grocery cost for even a fammily of four to as low as $40 per week, and that kind of money can be made even on odd jobs. So this is not a reason for further debt and or tapping a Emergency fund.
We need to help out our child with college,this one I have also learned the hard way is wrong, a child can borrow money for college a parent can never borrow money for retirement.
As 20,30,40 and 50 plus year olds we need to start thinking about the days when we are no longer able to work. For every penny we spend while we are young we are likely to be that much more of a burden on someone else later in life.
Best of luck with your dilema I hope you find your own personal peace with this.
PS: Many of my friends have noted that their personal number three is to tap the money only if they are going to put it into a personal business that will grow more money for them one day.
January 16th, 2009 at 7:21 pm
We’re in exactly the same boat. I lost my job and now’s the only time I have to do some household repairs. I don’t want to spend money on repairs right now, but waiting until I have a job again means I’d end up paying three times the amount because I’d need to hire someone else to do the work.
January 16th, 2009 at 11:27 pm
My partner has been unemployed for several months, but we still have some income because of EI (here in Canada). We have been saving up for home renos for over a year, so we are going to proceed with them, even on a single income. We have an emergency fund of a few thousand, plus my income, so we feel pretty secure.
Because my partner is the ‘homemaker’ at this point, at renovated kitchen would make his job/life much better and more productive. With this bit of positivity, the job search becomes less of a burden. In the current economy, jobs are understandably scarce. So whatever we can do to make our home even better is worthwhile to us.
Focusing on savings for specific needs in different accounts - ING is ideal for this! - makes this question ‘mu’, as they say.
We have the funds set aside for specific goals, and can makes those goals, even if they are ‘wants’ rather than ‘needs’, a reality.
Fabulous post, JD! Got the people talking!
January 17th, 2009 at 12:04 pm
The idea that working full time means that you have to hire out home repairs is puzzling me.
Can someone help me understand this?
January 18th, 2009 at 10:06 am
#60, Bob: of course everyone has to deal with unexpected expenses and repairs. This is why you have that emergency fund, or should.
Your examples are poor: if the garage-door opener dies, pull the release and open/close it by hand. Need new glasses? If they’re broken, get them repaired or use your old ones; if your vision has changed, fine, but this isn’t an emergency. Car tags are an annual expense and not a surprise.
Amanda needs to get her priorities straightened out. She doesn’t provide much detail but what she’s said tells me that having hubs preoccupied with home renovations is more important to her than him looking for work, and that’s kind of messed up. Renovations may help home value, but only if you consider your home an investment instead of shelter, and right now that’s a bad idea. Get the income stream re-stoked and to hell with the house stuff.
January 19th, 2009 at 8:59 am
I’m not sure it makes sense to dip into savings to remodel a house when one spouse is out of work. But on the other hand, if the husband is doing the remodeling himself maybe it makes perfect sense to do it now.
Its hard to give the poster good advice without more info. It sounds like they have kids so it probably doesn’t make sense to cut back on health insurance, one major medical expense and they would be in real trouble and the husband is likely at higher risk of injury while doing house projects.
Is the husband looking for work or focusing on the remodel project? Can the husband take on a part time job at night to help cover basic living expenses? How long can the family go before they exhaust their savings?
January 19th, 2009 at 9:12 am
I had to comment, that it is a real shame that it costs more to eat healthy than it does to eat crap. A suggestion to the OP, we buy our produce through a CSA (community supported agriculture) and the produce is actually less expensive than regular produce at the grocery store. Not all of our produce is certified organic but it is locally grown (the farm is located in our county), we are supporting local farming and we reduce our carbon footprint because we are not buying produce grown half way around the world.
January 19th, 2009 at 10:33 am
As always, it depends.
How much money have you saved?
$10000 ? Stop right now, you are in trouble.
$100000 ? Be careful, you can carry on for a year but have to have a plan.
$1000000 ? For bunnies sakes, why are you bothering us with such questions.
At the end savings are there to be spent when needed during the mythical rainy day. That day is now, not when you are dead.
January 21st, 2009 at 9:17 am
#75: Jan - Working full time does not necessarily mean that you need to hire someone out to make repairs. However, it may make sense for some people in certain situations. For instance, you do not know how to perform the repair (or may not feel comfortable doing it - some people are more handy than others), you may not have the equipment to do it, the job may be too big for you to do, it may be too time consuming for you to do (whereas a professional might be able to do it in a very short period of time due to experience), or it would be cheaper to hire someone else to do it than to take time off for you to do it. Also, some people are better than others with following through on projects in a timely matter.
As an example, my father believes strongly in doing something yourself if you can. However, he also chooses to work 3 jobs (one full time and 2 part time - even though he doesn’t need the extra cash), so he doesn’t have a lot of spare time. So at one point growing up, my family ended up having 2 out of our 3 bathrooms unusable for well over a year, because my dad had too little time to work on them when he was at home. They only got finished at all because my mother ended up paying someone to finish them. They were done in under 2 weeks.
Generally speaking, most common repairs are something a homeowner can handle because most are small and simple. However, a renovation can be far more complex and costly, and they tend to make the home a bit unlivable while they are in progress. If you are working full time, reducing the amount of time that your house is a mess may be a priority. Also do-it-yourselfers tend to make mistakes the first time they attempt any particular task; it can be far more costly to do something wrong and than fix it than to pay someone to do it right the first time around.
Again, it depends on the job and the person, but working full time can make it difficult to find the time to devote to a project.
January 21st, 2009 at 11:07 am
While I feel for her family, Lord knows my family has been in that spot, its a little hard for me to relate. I don’t buy organic, as much as I’d love to. Instead, I’m planting a garden this year. Its more time intensive, but will provide me with relatively cheap organic produce. And I enjoy gardening anyway.
I have some serious dental problems, but I don’t get them worked on. I went into the dentist to get fillings on 25% of my cavaties, but that cost me a thousand dollars after insurance covered their share, and I can’t afford to get the other 75% of my mouth fixed now! It could take me years to pay off that $1000! To top it off, I think one of those fillings failed, because it sure hurts, even worse than it did before the filling. I’m in a lot of pain, but I just deal with it.
I’ve spent the majority of my life without health insurance. I just got my first job that provides health insurance a couple of months ago. I’m excited.
I do have a cell phone, but its the only phone I have.
I know what they’re going through with the lay off, my mother has been laid off 7 times in the past 8 years. We had our home foreclosed on, my mother had to file for bankrupcy, I joined the Army National Guard and deployed to Guantanamo Bay in an attempt to help her. We still live together, because thats the only way we make ends meet, and we do without a lot of things that Amanda considers necessities. As a result, we were able to buy a new home earlier this year (the first house I’ve ever lived in! Yay!) and for the first time since I joined the Army, I’m driving a car that has a fully functioning transmission!
Maybe Amanda and her husband and children should welcome a family member into their home. Team up, like my mom and I did. I could probably afford to live on my own now, and so could my mom, but it wouldn’t be a lifestyle either of us want to live, so we choose to live together.
Maybe they should be really good at doing miserly, frugal things like reusing baggies and trashbags (we do things like that). Maybe they should turn the heat down to 65 in their house, and don’t run the air conditioning in the summer. Maybe they should unplug all their appliances. These sorts of things add up and make a big difference.
Or maybe she should start buying conventional food and living without health insurance, which is what millions of people do every day. There was a period of my life when we ate nothing but ramen noodles. Was it fun? No. Was it healthy? No. But we survived.
January 21st, 2009 at 1:29 pm
Organic food. Organic food. Cutting ito your safety net for “organic” food? (As opposed to rocks, I guess.) How about buying pedestrian, ordinary food for now, and a couple of bottles of vitamins, instead?
I’m sorry, I think that’s a really poor use of resources. I’m pretty skint myself at the moment, and trying to pay off my debt this year - the economy worries me. I manage this by buying bagels by the dozen (because they’re cheaper that way). This is important, because they’re what I’m living on. Plain bagels (that is, no butter, cream cheese, fillings, etc.) and vitamin pills. It’s boring, but at least I won’t get scurvy. I don’t anticipate having to do it for much more than a year. I hope. But it’s not as if there’s going to be money to fling around after that, either; it needs to become an emergency fund. One that I probably won’t dip into for organic food.
January 22nd, 2009 at 7:53 am
Everyone has to do what’s best for them. It will differ from household to household. As long as you feel good about it. I don’t judge others. My wife and I do what we think is best for us. We’ve drastically reduced our lifestyle and we’re paying debt like crazy. We hate our kitchen right now. We’d love granite countertops and a new sink. But it’s just not feasible or wise. We’re doing everything we can to save and pay down debt.
September 16th, 2009 at 2:08 pm
That’s what you have an emergency fund for. The other savings you ABSOLUTELY do not touch.
My grandniece and her husband both absolutely have to work. Neither one of them makes all that much money, but with care, they make it.
My grandniece recently lost her job and was out of work for four months. Because they had their emergency fund, they were ok.
I’m impressed with them both. They’re such a nice couple. She babysits on weekends for extras such as clothes and money for gas, for her older daughter’s school trips and such.