The Trouble with Having an Emergency Fund

Emergency Fund- Bad Advice?

I have read on many personal finance blogs that the way out of debt starts with building a cash emergency fund, with a goal of being able to cover several months of expenses using your emergency fund.

Although this may work well for some, for me there are several problems with this approach.

First off, I don't want to park this kind of cash in a savings account making 0% interest!  Let's say several months of living expenses amounts to $10,000.  If you keep this in savings account for 30 years at 0.85% interest, you'll end up with $12,903.  If you invest this money instead and get an 8% return, you'll end up with $109,357.  So having the cash emergency fund would cost you around $100,000!  You can run the numbers yourself on my savings calculator.

Not everyone who recommends having an emergency fund recommends keeping $10,000- I just wanted to pick out a number to make my point.

The next problem I have with building a cash emergency fund while you have credit card debt- if you have credit card debt at 20% interest, paying that down seems to me to me to be the best use of any available funds.  It would be hard for me to look at money sitting in a savings account and not pay down high interest credit cards.

My third major problem with advising people to build up lots of cash and keep it around- it would be tempting to spend it!  Even if you have credit card debt, if you have $10,000, or even $2,000 sitting in a savings account, I think many people would be tempted to spend it if the right opportunity came along.  Maybe a fun project car to fix up, or getting in on a special vacation offer, etc.  If you have $0 savings and mostly maxed out credit cards, it is harder to spend more money and you won't forget that you are in debt.  If you have money sitting around not being used, I think it would be at risk for unplanned spending.

In Case Of Emergency...

So, what if you don't have an emergency fund and a financial emergency comes along?  No matter how much you have in an emergency fund, something could happen that would take more money than you have saved up.  In this case, you would end up using credit or borrowing from your retirement fund to pay for the emergency.

This is not good, but I think most people would be further ahead focusing on paying down credit cards and building investment funds rather than parking cash in an emergency savings fund.  Hopefully that emergency won't happen, but if it does happen while you are still paying down credit card debt, you'll have some funds build up in investments and some credit cards paid off that will be resources to get through the emergency.

Is Putting Money In an Emergency Fund Bad Advice?

I discussed my concerns about emergency funds with a popular blogger, Chris Peach at Money Peach.  He replied that from the math perspective, my objections to advising people to set up an emergency fund make sense.  But from a behavioral perspective, getting people to develop the discipline to save money and watch that savings account grow is powerful and can change behavior.  Plus having a cushion can help people avoid charging more on their credit cards.

I think Mr. Peach had a nice comment when he said I can be right on my blog and he can be right on his blog.  Nicely said.  From my perspective, setting up an emergency cash fund when you could be paying down high interest debt or investing with a historical average return of around 9% doesn't make much sense.  But if you are trying to change your behavior and get away from depending on credit cards, maybe setting up an emergency fund could help.

Even with my reservations about putting a lot of cash in an emergency fund, I do keep cash around.  What if the electronic networks go down and credit cards don't work for some reason?  I like to have enough cash to cover a couple weeks of food and gas at least in case of a disaster.

In conclusion, having cash at home or in a saving account has a cost.  If you have credit debt, you could be getting a 20% return on the money.  If you invest in stocks, you could be getting a 9% historical average return over the long run.

From the perspective of optimal financial results, I would recommend people with credit card debt to pay into an emergency fund only if this will help control credit card spending.  Otherwise, use all available funds to pay down the high interest debt and at the same time invest some money in stocks.   I would suggest saving up enough cash to cover basic expenses for a few weeks to survive a disaster.

Penny Pincher Journal

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Straw Bale Garden- Does It Work?

Can You Really Grow Your Garden In Straw Bales?

Straw Bale Garden Jalapeno Peppers
Image Source: Dr. Penny Pincher

If you want to learn all about straw bale gardens, you can learn everything from planning through harvest:

• Starting a straw bale garden
• Conditioning the straw bales
• Straw bale garden timeline
• Does a straw bale garden work?
• Straw bale garden harvest

I was a little skeptical when I started my straw bale garden back in April.  I was looking for an easy way to get a garden started at my new house without a lot of hard work breaking sod and building up the soil.

I bought 25 straw bales from a local farmer for $5 each.  I used some metal stakes that I found in the garage to stake them down, and used some landscape fabric between the bales to prevent weeds from growing between the straw bales.  You can learn more about starting a straw bale garden in my earlier posts.

The big question I had, of course, was "Would this really work?"  Based on what I have seen through mid-July, I can say that it is working!

Straw Bale Garden Cucumber

Image Source: Dr. Penny Pincher

We have harvested a few things so far- spinach, peas, and cucumbers.  As you can see in the photos, the plants are growing like crazy.  It is hard to even see the bales under the cucumbers.

Benefits of a Straw Bale Garden

The main benefits of a straw bale garden are that it is easy to start without breaking ground or roto-tilling, and provides easy raised garden beds without building anything.  Also, there are very few weeds to deal with in a straw bale garden.

Straw Bale Garden Broccoli
Image Source: Dr. Penny Pincher

Drawbacks of a Straw Bale Garden

Some of the negative aspects of a straw bale garden are that you need to buy a lot of straw bales and get them to your garden.  It also takes a couple weeks of work to condition the straw bales before planting.  

I have also found that the straw bales don't hold water as well as soil, so they require more frequent watering.  I have set up soaker hoses right on top of the straw bales so I can let this run occasionally.  Believe it or not, I also found the soaker hoses in the garage so I didn't have to buy them either.

Straw Bale Garden Tomatoes
Image Source: Dr. Penny Pincher

Some crops do not work well in straw bales- growing sweet corn in straw bales is not recommended, and I planted my zucchini in a small patch in the ground instead of in straw bales.

Even though I have listed more drawbacks than advantages to straw bale gardens, I think a straw bale garden is a good solution in some situations.  If you want a small garden and don't mind watering it frequently, a straw bale garden could work well.  The cost of the straw bales and amount of watering could be prohibitive for a large garden.

I plan to use the straw bales to make compost and transition to some garden in the ground and perhaps some new straw bales again next year.

Does Straw Bale Gardening Work?

Straw Bale Garden Herbs
Image Source: Dr. Penny Pincher

The harvest is just getting started, and it has been great to have some fresh vegetables growing right outside the back door.    I wanted a garden that would be fairly easy to get started and not too expensive.  So far, the straw bale garden is working out very nicely.

Check back for more updates on how the straw bale garden turns out.

Penny Pincher Journal

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Pants Are Not Optional At Work!

When Pants Are Required... Quickly

What To Do If Your Pants Fail At Work!
Image Source: Dr. Penny Pincher

Sometimes at work I get a memo with a dress code for a meeting that says something like "shirt and tie".  I always joke that pants must be optional...

Last week, I was wearing some 20 year old pants at work and they failed badly.  I don't like to spend money on clothes, but my career is my most valuable asset, and I couldn't very well go walking around with my fly fully open all day!

I briefly considered some options to repair my pants with office supplies such as tape or staples.  I saw lots of opportunities to make a bad situation worse and decided not to repair my pants with office supplies.

The next option I considered was to drive home and change pants.  There were two problems with this.  First, I didn't have that much time- it would take me at least an hour to drive home, change pants, and drive back.  The next problem was that it would take a couple gallons of gas and put about 40 miles of extra wear and tear on my car.

So, I decided to run to the Kohl's store that was a few blocks away.  I had a Kohl's coupon in my car, and Kohl's has some great clearance bargains.  Kohl's was a natural choice.  I slipped out of my office before anyone saw my problem pants and soon arrived at Kohl's.

Clearance on Clothes at Kohl's- 80% Off
Image Source: Dr. Penny Pincher

The first pair of bargain pants I picked up had a waist of 40 inches and length of 30 inches.  Not even close!  After about 1 minute of scanning and looking for my size, I found some nice Dockers brown corduroy pants in just the right size: 34W, 34L.  And they were priced at $5.80.  With my coupon, the total ended up at $5.28.

Receipt For Emergency Pants
Image Source: Dr. Penny Pincher

I wasn't planning to spend $5.28 on clothes, so this is $5.28 of extra spending, but all things considered things turned out pretty well.  I could have missed an hour of work and spent money on gas for an extra trip home, or I could have used office supplies to repair my pants which may have looked ridiculous.

I wonder how long a pair of brand new Dockers corduroy pants will last?

Penny Pincher Journal

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25 IS THE NEW 65: How To "Retire" Outrageously Early And Do Whatever The Heck You Want

Book Review- 25 Is The New 65 by Travis Hornsby

I recently stumbled across Travis Hornsby's book 25 Is The New 65: How To "Retire" Outrageously Early And Do Whatever The Heck You Want while it was free on Amazon for a 3-day promotion when it was launched.  This book is about how Travis (aka TMONEY on his blog) was able to get through college with a respectable amount of savings and lived a very frugal lifestyle while working full-time a few years.  Travis clearly did not enjoy his time working in the corporate world and decided to get out and go a different way.  Living a frugal lifestyle allowed Travis to save and invest enough after working only a few years to "retire" at a very early age.

In this case, "retirement" does not mean never working again, but instead means working part-time or working on things that he enjoys and wants to do to continue to make some money.  Also, this sort of retirement will require living a very frugal lifestyle, living on about $16,000 per year.

This is clearly not the path for everyone.  There is a trade-off between having time to do whatever you want and having money to experience things that cost money.  I am fortunate that I have a career that is interesting, so I don't see working as a form or torture.  Of course, I would like to retire someday, but for me I don't mind the lifestyle of having a professional career and making lots of money for awhile.

This book does have some good examples of how you can live frugally to minimize expenses and boost your savings and investment contributions.  I liked his examples of "typical" spending by young people out of college and how this could lead to working for a very long time to pay off debt.

Many people do not learn to control spending until later in life, this book provides an example of what is possible with extreme financial discipline early in life.  If you are dealing with debt, this book can provide some motivation to cut expenses, boost savings, and get rid of that debt to find your path to freedom.

I enjoyed the exercise of thinking about how frugal I want to be and what trade-offs I am willing to make to have time available to pursue my interests.

Penny Pincher Journal

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Making My Old Shoes Like New Again

Shoe Wash Today!  I saved over $50...

Wash Your Shoes Instead of Throwing Them Away!
Image Source: Dr. Penny Pincher

I have not worn my "good" tennis shoes for a few weeks.  The cat decided to spray them, so I set them outside to get some sun and rain for awhile.  These shoes are a couple years old and have small holes in them, so I thought getting sprayed by my cat might be the end for them.

But these are some of the nicest tennis shoes I have ever owned.  I originally bought them for my son for $25 at Famous Footwear, but they weren't quite right for him.  I was going to take them back to the store, but that would take a driving trip and I needed shoes and liked these.  They were a size too small, but $25 was a great deal, and like I said, I needed shoes...

That was 2 years ago, and the shoes have been great.  They are very lightweight and have memory foam.  I decided to wash these shoes the old fashioned way and try to get another year of life from them.

I Washed My Shoes- No Need to Throw Them Away!
Image Source: Dr. Penny Pincher

My son also had a pair of shoes in the same situation (darn cat!).  I set the shoes on the grass and blasted them with a hose.  Then I put the shoes in a bucket, added some car wash soap that I had handy in the garage, and blasted them some more.  I let them soak in the soapy water for a couple hours, then scrubbed them with a scrub brush that I use to wash the tires on my car.

Next, I set them out to dry in the sun.  I should have shoes back in action after a few days of drying.  I am going to keep them somewhere where my cat can't get them.

Reusing two pairs of shoes instead of buying new ones will save over $50.  That's real money- $50 will buy a day's worth of food for the family.  Try washing your shoes to give them new life.  If you need to replace your shoes, check out how I got a pair of dress shoes for work for $25.

Penny Pincher Journal

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Recycled Plant for Hanging Basket = Free

Plant Rescued, Money Saved!

Our hanging basket got dried out after we forgot about it- I brought it back to life with lots of watering
Image Source: Dr. Penny Pincher

We got an outdoor flower in a hanging basket early this spring and forgot about it. It was dried out and looked mostly dead and the flowers were all gone. My wife mentioned getting another plant to replace it. I decided to try to rescue the plant (and also rescue some of the money in my wallet). I filled the pot overflowing with water every day and fertilized once a week. Now after a few weeks, it looks better than ever!

This worked out well for everyone involved- we didn't buy another plant, so my wallet is happy. We have a nice looking flower, so my wife is happy. And, of course, the plant is happy with how this worked out.

You might ask how much I spent on fertilizer and extra water to bring the plant back to life.  My house is on a community well, with no water meter, so the water was free.  You would think with unmetered water that people would use water like crazy, but surprisingly, people here are very careful with water.

I found the fertilizer in the garage from a past year, so I'm going to count that as free as well since I didn't have to buy it. 

I should note that the "Before" picture was actually taken after to give an idea of what the plant looked like.  It was actually much more dried out and I don't think there were any green leaves remaining.

Penny Pincher Journal

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The Bridges We Cross on the Road to Debt: Guest Post @ Modest Money

The Bridges We Cross on the Road to Debt

The Bridges We Cross on the Road to Debt
Image Source: Public Domain Image Courtesy of Wyncliffe

My guest post went live today at Modest Money, which is one of the top 5 personal finance websites on the internet!

The post is about how people get into debt, why being in debt is bad, and how to get out of debt- all in 1,000 words.

Here is my favorite quote from the guest post:

"There are bridges you cross on the road into debt. These bridges make it easy to go further into debt. When you decide to turn around and leave debt behind, you realize that there are no bridges on the way out. You have to swim across."

-Dr. Penny Pincher

I write about my experience on the road to debt and crossing the bridges of student loans, credit cards, car loans, and mortgage loans on the way in.

The quote above reflects how easy it is to sign your name and cross another bridge going into debt, but there is no such easy way to get out of debt!  Getting out of debt takes hard work to find ways to spend less money and make more money if you can.

I just saw on Twitter that Experian, the giant credit reporting agency, sent out a tweet with a link to the "great guest post by @Dr_PennyPincher on @ModestMoney"

Great Guest Post by Dr. Penny Pincher!
Image Source: Dr. Penny Pincher

Thanks to Modest Money for featuring my guest post.  This is my first guest post, so I'm pretty excited!  You can read the entire guest post here:

The Bridges We Cross on the Road to Debt

Penny Pincher Journal

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Air Conditioner Troubleshooting Adventures

Avoid Expensive Air Conditioner Repairs!

Avoid Expensive Air Conditioner Repair
Image Source: Dr. Penny Pincher

Summer has arrived, and that means it is time for central air conditioning if you have it, and if you are lucky enough to have it working.  As you'll see, I have not always been so lucky...

Growing up in an old farmhouse on a small farm, we had no air conditioning.  We had fans in the bedrooms and in the living room.  The downstairs wasn't too bad, but the upstairs bedrooms were pretty warm at night, even with fans going.  When I was about 14 we installed a window air conditioner in the living room.  I don't remember how much that cost, but I think it was about $100, and I know it used a lot of electricity.  We ran it on a few of the hottest days of the year and it made a big difference.

Tips to Keep Your Air Conditioner Working

Since then, I have owned several houses and all but one of these had a central air conditioner.  Almost every central air conditioner I have owned has had some trouble.  In general, there some simple things you can do to avoid trouble with your central air:

• Change the furnace filter regularly.  If the filter is dirty, it reduces the air flow and reduces the cooling effectiveness.  If you don't remember when you last changed it, it is probably due for a change...
• Trim back plants growing around your A/C unit to allow the heat exchange to work efficiently.
• Use fans instead of central air when it makes sense.  A fan right next to you can keep you cool, and using a fan is less expensive and saves wear and tear on your expensive A/C unit.

Installing New Furnace Filters Can Avoid A/C Issues
Image Source: Dr. Penny Pinche

Each time I have called a repairman to troubleshoot the central air, it has cost more than the window air conditioner that we bought growing up- just for the repair!  A new central air conditioner costs about $3,000 to install, depending on the size.  Repairing a central air conditioner costs $100 to $300 or more, depending on the problem.

This is Where Furnace Filters are Installed
Image Source: Dr. Penny Pincher

Air Conditioner Repair Incidents

Following are accounts of the incidents I have had with my air conditioner over the years, and an explanation of each problem.  Hopefully this will help you avoid some expensive service calls or at least understand what could be wrong with your air conditioning.

A/C Incident 1:  A/C running, but not cooling.  We moved into a house in the winter time and tried to turn on the A/C when summer came around.  Everything seemed to be running, but it just wasn't cooling.  I called a furnace repairman to come and check it out.  This system had a furnace filter installed in the ceiling, which I did not find when I was checking for problems.  Simply changing the very dirty filter made the A/C work well.  This service call was around $100!

How to avoid expensive repair:  Make sure you find your furnace filter and change it!

A/C Incident 2:  A/C not running.  My wife was 9 months pregnant.  It was July and very hot, with temperatures running over 100 degrees at nearly 100% humidity.  This was a house that I just bought, and I wasn't very familiar with the infrastructure.  The A/C stopped working mid-morning on the 4th of July.  I wanted to wait until after the holiday weekend to call a repairman since it was a holiday, but my wife was pretty uncomfortable anyway and it was only getting hotter, so I called a repairman right away.

The problem turned out to be a blown fuse in the fuse box right next to the A/C unit outside.  I checked the circuit breaker panel inside, but it didn't occur to me that there would be a separate fuse box outside with glass fuses.  The repair bill was around $200!

How to avoid expensive repair:  If your A/C unit stops running, check for a fuse box next to the unit.  You can probably get new fuses for about $1 each...

A/C Incident 3:  A/C running, but not cooling.  We lived at an old farmhouse that we were fixing up.  One of the first improvements we made was to add a central air unit.  It worked great for 3 or 4 years and one summer it just wasn't cooling.  I checked the furnace filter- but it was totally clean.  We didn't want to spend money that year to call a repairman, so we went all summer without using the A/C.  The next spring it still wasn't working.  I had been reading about A/C troubleshooting on the Internet and had isolated the problem to inside the plenum.  I wasn't willing to cut into it- we can live without A/C, but I didn't want to risk ruining the furnace.  Heating is not optional in Iowa...

So, after a year without working A/C, I finally called the repairman.  I was right that the problem was in the plenum.  Somehow, a bunch of dog and cat fur had accumulated inside and was almost completely blocking the flow of air.  Apparently a furnace filter had gotten very humid and collapsed, leaving the air return unfiltered for some time.  We had the return air cover off while working on some things, so tons of fur got into the furnace.  After the repairman removed the fur mat that had formed and sealed the plenum back up, it was good as new.  It cost over $300 for this repair!

How to avoid expensive repair:  Make sure your furnace filter is installed correctly and is in good condition.  Dirt and fur can cause real problems if they get into your plenum.

A/C Incident 4:  A/C not running.  This incident happened at the farmhouse as we were selling it and moving out.  We needed to repair the A/C so it would be working for the buyer.  The problem was that a mechanical component failed in the air conditioner.  I didn't pay much attention to what it was since we were moving out.  This repair cost about $150.

How to avoid expensive repair:  Some repairs cannot be avoided-if your A/C has a mechanical failure, it will need new parts.

No More A/C Problems!

This is my second summer living at my current house and I have not had any trouble at this house with my air conditioner... not yet anyway...

Good luck staying cool this summer, whether you use a fan, window air conditioner, or central A/C.

Penny Pincher Journal

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Interview with Dr. Penny Pincher on Debt Discipline

Personal Finance Blogger Interview Series: Interview with Dr. Penny Pincher

Blogger Interview: Dr. Penny Pincher
Image Courtesy of Equationaudio CC-SA-30

My interview on the personal finance site Debt Discipline went live today!

Check it out on Debt Discipline at:
http://www.debtdiscipline.com/interview-series-dr-penny-pincher/

Penny Pincher Journal

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The Lunchbox- A Tool To Save Money Every Day

The Lunchbox- My Tool To Save Money Every Day

I didn't spend any money again today!  A key reason for this success is that I did not need to buy any food, beverages, or snacks all day.  The lunchbox helps a lot with this.

My Lunchbox Holds Enough To Last All Day!
Image Source: Dr. Penny Pincher

I have the biggest lunchbox I have ever seen.  Its intended purpose might been as a 6-pack cooler or something, but I like that I can pack a full-sized box of cereal or full-sized Tupperware containers.  It is a soft-sided insulated box and has a nice padded strap for easy carrying.

My Giant Lunchbox
Image Source: Dr. Penny Pincher

Every day, I put a couple re-usable freezer packs in the bottom and then load it up.  Usually I have some refrigerated left-overs.  I often take yogurt or cheese sticks.  Bananas are a great item to pack- they only cost about 25 cents and have a lot of nutritional value.

Today I packed a jar of peanut butter, a knife, and a bagel to make a protein-packed breakfast.  I also raided my kid's supply of generic apple sauce.  Sometimes my kids write on their food with a marker so I don't take it, but I did not see any such markings on the applesauce!

Beverages

I like to drink coffee while I drive.  I drank my "good" coffee made from fresh ground whole beans long before I started driving, so I made a travel cup of instant decaf for the road.

Take Coffee From Home- Why Pay More?
Image Source: Dr. Penny Pincher

In the old days I would drink soda ("pop") during the day, but now I like water better.  Water is free and has no calories or harmful chemicals- can't beat that!  Soda seems to go for nearly $2 now in a lot of places!

Savings from Packing Lunch

Of course, the items you pack in a lunchbox aren't free, but taking your lunch and snacks with you is so much less expensive than eating out for lunch and buying snacks in the vending machines.

Eating a fast food lunch seems to get more expensive all the time, and fast food is loaded with fat and calories you don't need.  I would say I save around $10 per day by taking my lunch and all of my snacks and beverages with me.

You don't need a fancy lunch box to save money by taking your lunch.  I actually got my lunchbox on the clearance shelf at Target for less than $10 and have enjoyed it for years.

Once you get in the habit of taking your lunch, it becomes almost automatic.  If you are eating out or buying food at work, try packing your lunch to save some real money.  You can save THOUSANDS of dollars per year!

Penny Pincher Journal

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Save 50% on Coffee: Get Half Price Coffee All the Time!

Get Half Price Coffee Every Day!

Wouldn't it be great if you could get coffee for half price all the time?  I figured out a way to do just that.

No, the solution does not involve making your coffee at home- I do this already.  It is something else, and it is pretty obvious, really.

How to Get Coffee for Half Price
Image Source: Dr. Penny Pincher

This morning, I opened my drawer where I keep my coffee beans this morning to reload my grinder.  I always grind whole beans just before brewing my coffee.  I had an open bag which had more than enough to fill the grinder, and I also noticed I still had a full bag in the drawer as well.

Loading the Grinder with Whole Coffee Beans
Image Source: Dr. Penny Pincher

I wondered, "Why do I have so many coffee beans left?"  My wife picks up coffee beans for me at the grocery store.  I like to have the freshest possible beans, so I don't keep extra bags around.  But I have an extra bag with a pound of coffee beans today.  Why?

I Had Extra Coffee Beans In My Drawer- Why?
Image Source: Dr. Penny Pincher

I was drinking two 16 oz cups of coffee every morning.  I would brew a pot and pour two travel mugs to take with me in the car on work days, or I would drink the pot at home on weekends and holidays.

One time on a business trip when I was away from my coffee-making equipment, I realized that it was not practical to drink that much coffee every day.  I can make coffee myself for about 60 cents per 16 oz serving.  At a coffee shop, it costs over $2 per cup, which adds up to over $4 to meet my daily coffee needs.  Drinking a lot of coffee causes issues beyond the cost- it takes a long time to drink that much coffee, and it drives the need for frequent restroom breaks in the morning.

I decided to cut back to one 16 oz cup of coffee per day.  As I learned on the business trip, cutting coffee too fast can cause headaches!  Over a two week period, I gradually reduced my coffee consumption from two cups per day down to one cup per day.  At first, it seemed like I was missing something by only having one cup of coffee in the morning, but I quickly got used to it and it has become the new normal.

Is it obvious how to save 50% on coffee?  Drink half as much!  At first, this may sound like the punch line of a joke, but this is a reliable way to save 50% on coffee all the time.  My extra bag of coffee beans in the drawer reminded me that I am saving money on coffee beans, which is by far the biggest factor in the cost of making coffee.

If you are curious, here is an article I wrote that goes into a lot of detail on the cost to make coffee.

Get Other Things for 50% Off!

This concept of saving 50% by consuming half as much works on other things besides coffee.  Want to reduce your fast food bill by 50%?  Go out to fast food places half as much!

There are many areas of you budget where this concept will not work well- most people could not cut their utility bill of gasoline bill by 50% because they are already pretty efficient in these cost categories.  But some expenses have a lot of room to cut, and cutting an expense by half is a good goal.  A 50% reduction is significant enough to motivate you to put in some effort to achieve, and half is a simple amount that is easy to track when you have reached 50% savings.

What expenses could you cut by half just by consuming less?

Penny Pincher Journal

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