When we started this debt-free journey we didn't think it was possible to save our first £1000 for an emergency fund! Not only did we save for an emergency fund we did this in 2 months! For those who may be new to my story, let me give you some background into my journey to help put this post into context.
Between 2017-2018 our total household income was approx 40k. Our monthly outgoings were around £3000 which included bills, debts, and tithing. That’s a total of £36k per annum- so far so good, right? Until we take out 20% tax which tallied £8k per annum. In addition to that, our pension contribution was £1000. If you add that up, our total annual expenses were nearer to £54k, which left us about £14,000 short a year. Yikes! Halfway into the year, I was able to get a side hustle job with a personal finance company. This gave me about £300 on average extra per month. Even with this extra money coming in, I still didn't know how I was working save for £1000 emergency fund.
We had a challenging 12 months of studying and working part-time. This resulted in not being able to save for an emergency fund, attend events or go on holiday. However, we finally landed new full-time jobs in October 2018. During this period we definitely learned how to ‘cut out our coat according to our size’. We also learned that no matter how well we budgeted we still needed to increase our income. This lead us to take the plunge and change careers. To be honest, the career change wasn’t JUST about the money. Our new jobs also had to give us the work-life balance we desired as a family.
I know for sure what helped us during our year of ‘struggle’ (as I call it) was unlearning bad money habit. Also, learning new financial strategies and applying them to the little we have. We read financial books, listened to financial Guru’s, and joined a financial accountability program. We read books on saving and how to pay off debts quickly. Books on how to invest and how to manage money as a couple. The knowledge we gained helped us to put together our financial game plan. This was crucial for when we started working full time again and had more money coming in.
So you can imagine the look on our faces come October, when we saw our first full time salary in our bank accounts. I had all sorts of plans to go to the salon, get myself a well-deserved manicure and pedicure. Plans to buy new clothes (I had been wearing the same clothes for 12 months). Ideas to book a luxury weekend away. Let's not forget with Christmas on the horizon, it was “Let’s buy everyone a gift as we have money now!”. Basically, I wanted to do the very same things that got us into debt in the first place. Thankfully the months and months of education and discipline helped us to regain our focus. We were able to revisit the financial game plan we had created.
I had been using my personal Monzo account for all our bills. This gave me more options for banking and budgeting all in one place, which our traditional bank account did not. So, we decided to open a Monzo Joint account. With a Joint Monzo, we could manage our finances better as a couple. Our money would go to one place, with standing orders set up for savings and debt repayment. When it comes to managing personal finances-it has to be a walk in the park. You have to make it easy for yourself. Use a system that works for you, to minimise the stress of the process. Needless to say but if the system you have is a pain, you won’t do it.
In order of priority we agreed on the following goals for our family:
1. Stay on top of bills (avoid late payment charges).
2. Pay ourselves first (30%) each payday.
3. Save £1000 as an Emergency Fund before the New Year.
4. Become debt free by May 2019 (exception of car payment).
You can see that our goals are specific and timely).
Budget together once a month and have weekly updates as and when needed
I prefer the traditional way of budgeting pen and paper. I use a budgeting template I created called ‘Pay Yourself First’ (Get your free download here)
We implemented this from our very first full-time salary. Every month we give 10% in tithe, save 10% and Invest 10%. This is what Robert refers to as paying yourself first. You give a percentage of your income to yourself before giving money to anyone else. Obviously, this doesn’t mean you don’t pay your bills. However, you will be surprised to find out that you can pay yourself first by cutting out unnecessary expenses. The 70% that is left then goes towards bills, debt repayment and treating yourself.
It is critical that each financial goal has an individual account. By having different accounts, you can readily see how close you are to each goal.
Can you imagine, we have not been able to enjoy our hard earned cash for 12 months. Now that we are both working full time and managing our finances better we also want to enjoy life. This includes rewarding ourselves for being good every now and then. We decided that we will pay ourselves £150 a month as pocket money. This will allow us to do fun things such as buy clothes, go out on a date, attend events and buy gifts for loved ones. By doing this, we are enjoying life without the urge to have moments of splurging and feeling bad for it afterwards. However, there is a catch, the reward is on the basis that we follow the game plan. Consequently, if the game plan is not being followed then no reward is given.
Recently, we have been debating on whether or not to re-subscribe to Sky or Virgin media again. He misses watching football and I miss BBC live tv. We haven’t decided yet, but it’s so easy to re-introduce everything immediately and end up right where we have come from. I suggested that we hold off until May when we would have cleared all of our debts. We could then re-subscribe to Sky/Virgin as a way to reward ourselves. We have been without for 12 months so we can survive or another six months. He has decided that we both contribute from our monthly pocket money. Whatever we choose it will not impact on our giving, savings, investing, paying bills on time and becoming debt free.
In the past two months, we have been through every temptation you can think off. What’s helped us is exercising discipline and remembering where we were, where we have come from and what we want for our future. Successful people are successful because they are disciplined. They make sacrifices, they say no, they go without, and they stick to the game plan.
I will never forget when our car got hit by a stolen vehicle, and we could not claim on the insurance and had to pay the excess. A few weeks after having it fixed, it was hit again while parked. We didn’t have the funds to get it fixed again. This taught us the value of having savings. Having savings is essential and necessary for people living payday to payday. You want to make sure that you have a reserve for when Murphy’s law comes knocking at your door, and it will- it’s just a matter of when.
I hope this post helps you to see how easy but also challenging it can be to save £1000 as an emergency fund in two months. So decide now before the new year, what steps you will take to help you save £1000 by February. In fact, check out my next post coming out on Wednesday. It’s on how you can start the year off with a BANG and save £1000 towards an Emergency Fund by February 2019. Or alternatively, top up your emergency fund with an additional £1000.
Once our £1000 emergency fund was saved. We paused on savings, continued to invest in our pension and focused on becoming debt free. The amazing thing about having an emergency fund in place while aggressively paying off debts is that it gives you peace of mind! Should any thing break or an unexpected bill come, you will not be thrown off track with debt repayments as you already have your stash of cash saved up!