Why You Need to Seriously Save for Financial Emergencies
It’s been a rocky year, made worse by several financial emergencies. We have no time to lick our wounds from a rough September 2022, Q4 is here! At this rate, the best alternative is to close out 2022 stronger. Or as strong as we can.
The quietly epic travel season is still happening. We have a trip to New Mexico (and maybe Mexico) in October. Followed by the near-mandatory Thanksgiving in Orlando for November. All leading into our wedding anniversary trip to Lisbon (Portugal) in December.
With $10k in repairs, $10k in emergencies, a new puppy, and trips; this year turned out expensive. So let’s get into the details.
Table of Contents
Down $50k due to a 45-Day Investment Slump
For context, we knew that this was coming. Specifically, Financial news people knew it was coming. The Federal Reserves Chairman warned us of up to 25 rate increases to combat high inflation. He also anticipates job losses into 2023.
Following that news, people panicked and the selling ensured.
The global recession is either here or on its way. All of this led to the market dropping at least 9% over 45 days to a new low of -25% YTD. Pandemic investment gains reset to zero. Home prices slowed (finally) but interest rates rose north of 7.5%.
This might not be the end but it feels that way.
Our household net worth slumped a massive -$55k (see below). Nearly $40k from our portfolio losses. However, the good news is that this presents a better opportunity to dollar-cost-average (DCA) into quality companies.
For new investors, a unique opportunity to buy Pandemic proof stocks at low prices. The name of the game is to hold for future wins. Chant with me BUY LOW and #HODL.
Investment Performance for the Year, So Far
As you can see above, our household portfolio dropped at the start of the year. But at least, we are beating the general S&P. It’s been a drag but this is where winners buckle down.
To think, I started with a $500 rollover into my 401k in 2014 when I got to DC. The portfolio is around $500k now, and the net/max financial plan and our strategy are still the same (see breakdown below):
- Investing to match in the 401k,
- Paid down credit card debt aggressively,
- Increased my 401k contribution until max (ie limit $20.5k for 2022),
- Started to invest in a Traditional IRA (ie limit $6k for 2022) and Health Savings Account (ie limit $3.75k for 2022),
- Got more money back during tax season, and
- Reinvested some more.
Emergencies Hit When You Least Expect Them
While 2022 hasn’t been the best, nothing could have prepared us for what was to come.
Coming off the great trip to California in August. Minus gas prices, I thought the worst was behind me. With a week til #FinCon22 in Orlando, a family member’s health took a turn for the worst.
When it was all said and done, nearly $7,500 was spent to stabilize the situation. I plug in the numbers here because for me that’s my data point to help prepare for the future.
Last quarter, I posted that my family had an Emergency Plan versus Emergency Savings. Time tested this theory and the strategy held. From credit card points and HSA reimbursements, we were able to cover the cost. All with minimal direct impact on our overall wealth goals.
Even crazier, we recently replaced our HVAC and our puppy contracted kennel cough. It was cost after cost.
Disasters strike and unfortunately, they will strike again. It’s unfair but like a hurricane, it doesn’t discriminate. Cut back on unnecessary expenses and double down on getting an emergency savings plan. You deserve more than to struggle.
So What’s New to TNFG? And Q4?
If you are new to my content, this blog post showcases the TNFG monthly Net Worth Breakdown for September 2022.
There are always usable financial nuggets and aha moments that might help you along the way.
High prices outside translate to spending more time indoors. I’m taking this opportunity to add kinetic weekend activities for the family. It’s high time we walk about DC, hit the park, and take a stroll next to the Wharf.
This is still a great opportunity to build better habits. Check out TNFG’s Top 3 Best SMART+ER Goal books for inspiration.
Moving beyond September’s Emergency Mode
Personally, I don’t like to play too close to the edge. So here’s TNFG’s game plan:
- Move $750 to reach the $5,000 Bank Savings Goal for 2022,
- Work with extended family for Wills and Estate Planning,
- Get a Term Life Insurance policy outside of work,
- Start re-stacking credit card rewards and miles through 2024,
- Boost +$5,000 into the Savings Plan for 2023,
- Add $10,000 in 2024,
- And settle with an extra $15,000 in 2025
My goal with this is to float savings for emergencies, rental real estate coverage, and/or dry powder for investments. Either way, having $40,000 on the side seems like a lot but emergencies are costing more and more.
Rule of thumbs for savings:
- No more than 3x months of expenses. For example, if your average monthly expense is $3,000, you would need $9,000.
- For families, especially if you rely on one income, that’s 6x months.
- If you are considering starting a business and quitting. I would highly recommend 1 year of savings. The caveat is that you go leaner on expenses in a demo year to feel what it’s like first.
Even though the game is unfair, there are always rules.
If there are rules, there is always a trick to the game. Hard and challenging times are “par for the course.” They will happen. To mitigate them, you have to stay vigilant and work towards better outcomes today.
Cutting Down Debt and Being Debt Free
The health emergency costs around $5,000. We are making some changes for the year to recoup the cost and recenter. Time to keep things simple in 2023.
Here’s the Monthly Wealth Summary:
This was an absolute disaster.
We closed at $715,000. Hiring freezes, inflation rates, and higher credit balances. September was an absolute vodka mess. We saw a decrease in September of 4.74% or $33,922.
All pandemic gains were wiped out with the final straw.
Wait and the UK Queen died. Yep, that’s the whole month just before Putin annexed Ukrainian territory.
What’s working toward wealth creation and what’s working against it?
Yeah about those expenses
With prices going up just about everywhere, expenses are settling into highs.
Beyond the emergencies, we spend nearly $3,000 on housing costs and $3,000 on transportation and shopping. Food is peaked again and I guess it’s going for $900.
Hope this trend doesn’t stick around through 2023.
We have an extra $20,000 to spend for Q4. The game plan is to reduce the total cost for 2023 by 12.5 percent.
Happy that the net/max plan is keeping us provisioned thus far.
What are our next wealth-building steps to stay ahead of financial emergencies?
Got to bring in more passive income and brush up on Portuguese in two months. We are headed back to Lisbon for our wedding anniversary.
Beyond that here are our overarching goals for 2022:
- Keeping our expenses where they should be. All about, “Not equating happiness and social acceptance based on the money you spend.“
- Add $12,500 in M1 Finance focusing on Growth and Passive Income that generates at least $4,000 in dividends in 2023. Check out the portfolio in real time. If you like the platform and want to start investing, I have the $10 for $10 referral if you need it. *Terms apply – https://m1.finance/SYdqDJ2SyADC.
- Shooting for a sustained investment rate with the push for a $1 Million net worth in 2 Years (by YE 2024). To help monitor your savings, cash flow, net worth, investments, retirement, and freer with Personal Capital! Sign up with my link & get a $20 Amazon gift card. *Terms apply. https://pcap.rocks/lawrencegonz
- Plan 2023 travel season with a puppy since we can’t over-tap our friends for puppy sitting. We are headed to Mexico and likely do some winter or summer glamping.
- Head back to school in 2023 to eventually study for the Certified Financial Planner designation. I’m sure I know this stuff but this will add more credibility to my online news features.
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