Time to Save Again for Financial Emergencies

The year was great until we got into September’s financial emergencies. What the hell happened? Inflation, savings depletion, political turmoil, home prices, and the overall struggle; well, at least Q4 is here. Prices are up on just about everything, it’s ridiculous.

Fortunately, our quietly epic travel quarter is still happening. We have an impromptu trip through New England on the way to Montreal, Canada in October. Followed by the near-mandatory trip to Orlando to spend time with family. All leading into our wedding anniversary trip to South America (Argentina and Brazil).

With nearly $10k in-home repairs behind us and dwindling emergency funds; I guess it’s time to start saving again. So let’s get into the details.

Down Nearly $30k due to a 45-day Investment Slump

For context, we knew that this was coming. Specifically, Financial news people knew it was coming. Last year, the Federal Reserve Chairman warned us of up to 25 rate increases to combat high inflation.

What we didn’t anticipate is that people would still be spending. How is that possible?

Turns out, the average American home is saving less (near record lows) and spending more on credit (record highs).

That’s a recipe for long-term financial challenges.

 80% of US households have depleted their extra savings and now have less cash on hand than they did in March 2020, according to the latest Federal Reserve Board study of household finances. Add on Wall Street’s worries about sticky inflation and the Fed’s interest-rate hikes, voila the perfect storm for losses.

Following that news, people panicked and the selling ensured.

Stocks had their worst month of 2023 in September. The S&P 500 fell 5% and the Nasdaq dropped 6%. The global recession is either here (all the time) or on its way (yet again). All of this led to the market dropping nearly 7% over 66 days. Pandemic investment gains reset to zero. Home prices slowed (a tad) but interest rates rose north of 8%.

This might not be the end but it feels that way.

Our household net worth slumped a massive -$27.6k (see below). Nearly $20k 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 in Q1 (March 13) but went on a tear. Even with the recent losses, we are beating the general S&P. It’s been a drag but this is where winners buckle down.

To think, we started with a $500 rollover into my 401k in 2014 when I got to DC. The portfolio is around $610k now, the net/max financial plan and our strategy is still the same (see breakdown below):

1. Investing to match in the 401k,
2. Paid down credit card debt aggressively,
3. Increased my 401k contribution until max (ie limit $22.5k for 2023),
4. Started to invest in a Traditional IRA (i.e. limit $6.5k for 2023) and Health Savings Account (i.e. limit $3.85k for 2023),
5. Got more money back during tax season, and
6. Reinvested some more.

Emergencies Hit When You Least Expect Them

While 2023 hasn’t been the best, nothing could have prepared us for massive expenses in 2022.

Coming off the great trip to California in August (2022). 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.

By the end, we burned through about $10,000 in reserves with an extra $20,000 for home repairs through 2023. At this rate, we need to stick to our day jobs and build up our reserves again.

Last year, 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.

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 2023.

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, and hit the parks.

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:

• Continue to contribute $250 to our basic Bank Savings Account,
• 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 2025,
• 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 and repair costs added to our consumer debt this year. We are making some changes for the year to recoup the cost and recenter.

Time to keep things simple in 2024 with an extra $30,000 for home remodeling. It’s about time to sure up to the place for a new home purchase in 2025. The goal is to make the current primarily a rental for $2,000 per month.

It’s all about cash flow management.

Here’s the Monthly Wealth Summary:

This was an absolute disaster (in one sense).

We closed at $1,022,737. Hiring freezes, inflation rates, and higher credit balances. September was an absolute vodka mess. We saw a decrease in September of 2.67% or $27,340. When you look at the numbers per percentage, it’s not so bad. However when you count the dollars (eesh).

That’s the nature of the game. Sometimes you lose and that’s OK if you have a plan that works.

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 reaching record highs.

Specifically, we spend $2,600 on car payments and insurance for three cars. We have two and are paying for the one that my mom drives.

Our housing costs (for two homes) settle around $2,000. With food costs peaking north of $1,000. Our fixed expenses (home and auto) monthly are $3,000 with a variable of $1,500.

That’s a clean $54,000 per year. That’s a lot of money.

While I hope that this trend doesn’t stick around through 2024, I secretly know this is the new price of business.

We have an extra $15,000 to spend for Q4 on travel. The game plan is to reduce the total cost (apart from renovations) for 2024 by 12.5 percent.

Happy that the net/max plan is keeping us provisioned thus far.

What are our next wealth-building steps to close out the year?

I have to bring in more passive income and brush up on Portuguese and Spanish in two months.

Beyond that here are our overarching goals for 2023:

1. Keeping our expenses where they should be. All about, “Not equating happiness and social acceptance based on the money you spend.“
2. Add $12,500 in M1 Finance focusing on Growth and Passive Income that generates at least $5,000 in dividends in 2024. 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.
3. Shooting for a sustained investment contribution rate to reach $1 Million in investment assets in 2 Years (by YE 2025). To help monitor your savings, cash flow, net worth, investments, retirement, and more FREE with Personal Capital! Sign up with my link & get a $20 Amazon gift card. *Terms apply. https://pcap.rocks/lawrencegonz
4. Plan 2024 travel season switch toward a Peru trip vs. Europe since we have other family travels for the year. With a new nephew on the way and a few high school grads, we are shifting to midlife.
5. Head back to school in 2025 (maybe) 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. Right now I’m just happy to be done with Student Loan Payments.

---

About Author