Tag: emergency

First, Create an Emergency Fund with Your Tax refund

Posted on by Dawn Kennedy

This is the week that the IRS is estimated to process to filers. In the first quarter of every calendar year federal (and sometimes state) tax refunds are issued to qualified filers. In fact the average tax refund for the 2018 filing year (2017 return) was over $2,200.00. I’ve already spoken about how to ensure every dollar you can keep goes into your pocket each month, and not into the IRS coffers (until you file the next year’s return). Another issue, comes from the fact that the money received by many taxpayers is immediately spent paying down debt accrued the previous year. Some of that debt is from short-term overspending during the holidays, accounting for about 39% of Americans using the refund to clear that debt.

It is this cycle of annual debt that needs to be addressed, because if $1,000.00 of that refund was placed into a “baby” emergency fund, many Americans would not have to incur debt for “emergencies.” The stats are incredibly scary. The latest figure is that 78% of Americans live paycheck to paycheck. Almost 8 in 10. Following the logic, everyone knows at least a few people who are unable to cover even the smallest of budget hits without putting another bill in jeopardy. Additionally, a full 70% of Americans are in debt.

The recent government shutdown highlighted that for many Americans just treading water with money, they are one missed payday from being in financial distress. And we all saw the comments and memes about how government workers should have something put away or should be able to cover one month of expenses. Based on the statistics, 8 out of 10 cannot.

So, why am I telling you this? If you have a tax refund coming, and do not have $1000.00 saved for an emergency, you are not taking full benefit of the Uncle Sam Savings Plan. $1,000.00 goes a long way for car or home repairs, unexpected expenses, and other hits to the budget that throw a wrench in how the bills are paid. And once you put $1,000.00 away, be diligent in keeping it that way. Refill it if it gets used. Seriously. Mike and I had a pipe burst recently during the Polar Vortex, and we mopped up the water, grumbled a little, and called the plumber, knowing it could be covered from the emergency fund. (For Ramsey listeners, we are finishing baby step 2.)

Of course, $1,000.00 isn’t a “full” emergency fund, which is three to six months of expenses saved, but it is a good start to cover many, many of the instances where Murphy moved into the spare bedroom for a week. Of course, my next piece advice is to get out of debt as fast as you can, so YOU control your income, not some credit card company or bank. When you commit to payments, you promise to give them a share of your income each month, no matter what life throws at you. And I would strongly urge anyone getting the “average” refund to apply the $1200.00 over that emergency fund starter towards any outstanding debt.

What We Wish We Knew in 2013: Insurance for Self-Employed People

Posted on by Dawn Kennedy

NOTE: I am not an insurance agent, I don’t sell any policies, and that is best left to the professionals in the field. This is just mine and my husband Mike’s story. A story about what we wish we knew to protect our family as small business owners. I am sharing primarily because it is a money topic, and many, many people have small businesses that generate at least part of the family’s income each month. I am just going to share our raw story, and our mistake that closed our company, threw us into severe financial difficulty, and took three and a half years to dig out. Also, this post is not about life insurance, the most obvious, or even insurance for our physical business. I want to share the types of insurance that we didn’t know about but can perhaps prevent financial ruin for another family. 

When Mike wanted to start a consulting business in 2011, I was so excited. And it was great. It really was. Mike and I followed the state guide, took all the legal steps, got our licenses and set up our office space in our home. Then we took courses through the Small Business Administration, met with awesome advisors through SCORE. In short, we followed the “rules.” We had a business plan, a (now defunct) website, worked hard, read everything, learned a lot, make a ton of rookie mistakes, embraced them, kept going. After about a year or so, we thought we had it figured out. And for the business, we sorta did.

But today we talk about UNEQ Consulting (pronounced unique), LLC, in the past tense. Because it’s been gone since March of 2014. Because on November 1st 2013, Mike was working at a site in Eufaula, Alabama and fell head first 18 feet off of a ladder. Onto concrete. Yup. In three seconds, our life was changed forever.

Here’s why it’s important. Because what we didn’t do, and really never thought about, was protecting our family as self-employed small business owners. Mike survived the accident. Thank God. Had he passed? This is a different conversation. But Mike survived, with a severe head injury and years of rehabilitation ahead.

So, here’s the short list of what we wish we knew:

• What types of insurance we needed to protect our family- not just the business
• The importance of disability insurance on Mike, or “business continuity” or Key Man insurance.
• That in many states, unemployment insurance is for the employed- just not the self-employed
• And that Social Security has an “exclusionary” period for around five months, where even if you are approved, there is no back pay
• Oh, that we shouldn’t incur debt, because we had debt. For example, credit cards “we paid off every month” until the deductibles started needing to be paid, and I had to choose
• We wish that for all of the business preparation, that we would have been told to go and speak with someone about what we may need for this unlikely situation.

This November 1st 2018 will mark five years since our life changing event. Mike has made an amazing recovery, but it has taken years of digging in and working hard to recover financially. We paid it all in full, including the IRS lien on the house (for back self-employment taxes), and have sworn off debt. We hope that this post reaches just one person who needs to read it. Please share our story with every self-employed person and small business owner you know.

Dings to the Budget: Traffic Tickets and Criminal Justice Fines

Posted on by Dawn Kennedy

 

Fun fact! The first speeding law in the U.S. was passed in 1652 in the Colony of New Amsterdam which is New York today. Thou shalt not gallop thine horse or wagon. The fine back then would be equivalent to $150.00 in 2016 dollars. Yikes! Not much has changed.

The average speeding ticket still runs around $150 nationwide, but based on the infraction, fines can range wildly from $50.00 to $2,500.00 and from state to state. Americans shell out about $6 billion annually on our “need to speed.”

For the 8 out of 10 families living paycheck to paycheck an unexpected bill like this is a big deal. The startling reality is that 28% of us cannot handle a financial emergency of even $10.00. We are strapped as a nation and are not prepared for even the most mundane of surprises. And traffic tickets are really sort of a mundane surprise. Most people (ok, not YOU) receive a ticket or two in their lifetime. Between 2010 and 2015 about 1 in 5 drivers did.

Putting it together, most of us can’t afford a ticket, any ticket. And many Americans will reach for the credit card or borrow the money from friends, family, or a lender. Even a payday lender. Because, the consequences of ignoring a citation can be devastating. Let’s face it, fines can continue to grow and in the worst case, you lose your license or car and then how do you get to work? But borrowing the money can mean interest on top of fines. And if you already struggle to make your minimum payments? Danger, Will Robinson, danger.

So, what to do? My recommendation is to get a “baby” emergency fund, set aside in a bank account, as quickly as possible. Aim for $500 to $1,000.00. Another option is to utilize the “grace period” that time between the ticket and the court date, which is approximately 4-6 weeks or a few paydays, to pick up an extra shift, make some side money, or take another part-time job to earn all or part of the cost. If you do use part of your baby emergency fund, make sure you replenish it as soon as possible after you pay your fine.

For higher traffic and criminal justice fees and fines, this can be very difficult and create a huge hardship. So, you need a meticulous plan which requires a written budget, and cutting back on expenses, which may include cancelling unnecessary services such as cable or fancy ring tones, or a monthly subscription service for the short term. But you CAN do it.

Time to think about those dings to the budget that are unexpected, but really very likely to happen at some point. Take the smart step to put some money away “just in case” and get your monthly cash flow under control by knowing where your money is going with a written budget. Be the boss of your money.