Is an Emergency Fund Necessary?

This website is for entertainment and educational purposes only. Material shared on this blog does not constitute financial advice nor is it offered as such. Therefore, The Simple Dollar assumes no legal liability for the completeness, accuracy, or suitability of the information provided by its authors.Readers will also note that The Simple Dollar maintains financial relationships with certain third party merchants. If readers access and utilize the services of one of these affiliates through a link on the blog, The Simple Dollar may be compensated for the referral.Please read the blog’s policies on privacy and image-use.And always consult a locally licensed insurance agent, financial adviser or certified attorney before making any financial decisions.

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I’m a pretty big advocate for emergency funds – cash stowed away in a savings account for a rainy day. Establishing an emergency fund is one of the first things Sarah and I did during our financial turnaround and that emergency fund took care of several difficulties we faced during the first year or so of our financial turnaround.

My belief is in line with that of Dave Ramsey: the first move anyone should make when they’re facing the reality of their debts for the first time is to save up a $1,000 emergency fund. Later on, when you have high-interest debts out of the way, a larger emergency fund is even better.

Even so, there are arguments out there against emergency funds, stating that they’re not a particularly good idea. Those arguments usually rest on three key points.

First, emergency funds stowed away in savings accounts do not earn a good return. Savings accounts earn somewhere between 0.5% and 1.5%, depending on your bank. You can earn a much stronger long-term return in other investments, such as the stock market which historically has returned somewhere around 7%. You would be foolish to make cash savings a significant part of your investment portfolio.

Second, most people have credit available to them, so they should use that in an emergency. If you’re facing a situation that you can’t cover with cash, you could simply use the existing credit on a credit card to cover it. After that, you can pay off the credit card quickly.

Third, emergency funds are a terrible idea if you have high interest debt. A debt sitting at 20% is costing you far more than the savings account is earning for you. You should pay off the debt first.

Here’s my take on each of these points.

First, everything you invest your money in excels in two of three areas and fails in the third one. An investment is either low risk, has a high long term return, or it’s highly liquid (meaning you can get your money out very quickly). You can choose two of those things with almost every investment.

A savings account provides the two things that you’re really looking for in a time of personal crisis – it’s low risk and it’s liquid. The high return is much less important because you shouldn’t be keeping a significant portion of your net worth in an emergency fund. It’s not an investment – it’s a buffer against an emergency.

Right now, our emergency fund makes up only a few percentage points of our net worth. Even when we first started our financial turnaround, we only established a $1,000 emergency fund, which was still only a small fraction of the total value of our assets.

An emergency fund is simply a sacrifice of returns on a small portion of your money so that you have something on hand that’s very liquid and very low risk. It’s not meant as a major part of your retirement savings or your investment strategy. It’s meant as a buffer against things that might happen to you.

Second, trusting in a line of credit means trusting completely in the discretion of a bank. It relies on your credit report remaining clean – untimely identity theft can wreck your credit report for a while and leave you without that credit. It also relies on the business policy of the bank remaining constant, which isn’t a promise – many banks have lowered credit limits over the past several years on large numbers of their customers.

Another problem with this angle is that using a credit card has a strong likelihood of meaning that you’re going to be paying a high interest rate when you pay it back. Yes, there are many emergencies where you’ll be able to pay it all back before the interest kicks in, but what about unemployment, for example? The average duration of unemployment these days is about 36 weeks. It’s pretty likely that you’ll accumulate a nice pile of debt and interest during that kind of timeframe – and, ideally, the bank won’t notice and cancel your line of credit.

A further problem is that many Americans simply don’t have adequate credit to rely on the banks in an emergency. According to this report, 33 million Americans have insufficient information on their credit report to generate a credit score, 24 million more Americans have no credit history whatsoever, and another 61 million Americans have a subprime credit score. That’s 118 million Americans who have insufficient credit with which to obtain a credit card. These are not people who can safely rely on the bank extending sufficient credit to them.

Beyond that, simply having a good credit score isn’t a guarantee that your credit may not fall during a time of crisis. 72% of Americans live paycheck to paycheck – as soon as their paycheck disappears for even a week, bills aren’t getting paid and their credit starts to drop pretty quickly thereafter. This isn’t really a group that should rely on banks extending credit, either.

Finally, repaying debt is more than just a math problem. To start off the explanation here, I’ll quote Dave Ramsey from The Total Money Makeover , page 105:

“Since I hate debt so much, people often ask why we don’t start with the debt. I used to do that when I first started teaching and counseling, but I discovered that people would stop their whole Total Money Makeover because of an emergency – they felt guilty that they had to stop debt-reducing to survive. It’s like stopping your whole fitness program because you get a sore knee from a fall when running; you’ll find any excuse will do. The alternator on the car would go out, and that $300 repair ruined the whole plan because the purchase had to go on a credit card since there was no emergency fund. If you use debt after swearing off it, you lose the momentum to keep going.”

When you’re first trying to do something to improve your life, it’s incredibly hard. It’s very easy to be pessimistic about it and be skeptical that things can ever really change. When you hit that first roadblock, it can be incredibly tempting to just simply quit. I’ve seen a lot of people – including myself – abandon goals at this point.

It is well worth sacrificing a relatively small amount of financial gain in the short term to significantly decrease the chance for roadblocks to stand in your way over the longer term.

Once you’re past that point – you’ve paid off your high interest debts and you’re saving and investing for big future goals – good financial decision-making can feel as easy as riding a bicycle. However, a person who is just taking the first steps to a turnaround is much like a child learning to ride for the first time, and the emergency fund is like a bike helmet and training wheels. Sure, they might get going a little faster without them if everything goes perfectly, but life isn’t perfect. We all stumble. It’s a lot easier to get back up and jump in the saddle if you’ve got something in place to cushion your fall.

During that period where you’re saving up a $1,000 emergency fund, you are absolutely causing yourself to build up more interest on your credit card because you’re not paying it off, but you’re doing so to prepare yourself for success in paying it off. What you’re doing is spending a few moments to strap on your bike helmet before you jump on board. Sure, you probably won’t be the first one to the end of the block, but you’re also going to be far less likely to give up when you fall off your bike because the mistake won’t hurt nearly as much.

A final point: most of the arguments here don’t mean anything to you if you don’t really believe emergencies can happen to you. Different people have different levels of safety nets in their life. Some people can rely on their families for financial support no matter the situation. Others have an employment background and connections that are basically infallible. Still others receive a very high income combined with at least a basic understanding that they need to save or invest at least a little of it. For those people, a $1,000 emergency fund is going to seem rather unimportant.

On the other hand, all I have to do is look back at some of the experiences of my own childhood to see how an emergency fund can make a tremendous difference. My father was often laid off from his job and during those times an emergency fund sustained our family. My old man diligently put aside a little bit of money directly from each of his checks into a credit union and we used that credit union when times were tough. The day-to-day reality of my parents’ life didn’t involve investing in the stock market. It involved making sure food was on the table and handling many little emergencies by the skin of their teeth.

Like it or not, half of Americans live in what is considered a low-income situation and, as I stated earlier, 72% of Americans live paycheck to paycheck. These are people that, in many ways, share the experience of the household of my childhood. Turning the ship around isn’t going to be easy for them. Putting on a helmet before they hop on that bike is going to make a big difference.

If you’re figuring out what your first step should be in terms of turning around your debt situation, my recommendation – and Dave Ramsey’s, too – is to have a $1,000 emergency fund. Consider it your helmet for the bicycle you’re about to learn to ride.

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Net Worth and Pleasure

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In a post a few days ago, I made an offhand comment about how I didn’t really receive personal pleasure from seeing my net worth increase, though I once did. A few people emailed me on that subject, so I thought I’d clarify what I meant.

When I first began to overcome my personal finance mistakes, I found that calculating my net worth and looking at the change from month to month was incredibly powerful. It was a single number that provided “proof” that I was making better decisions than I was making before.

An increase in net worth meant that I was unquestionably spending less than what I earned, which is the key to personal finance success. An increase in net worth meant that all of the hard day-to-day choices I was making were actually adding up to something big.

It was exhilarating. Each time I calculated that number, I could clearly see the impact that my choices were having even if they weren’t really evident in my day-to-day life.

Over the ensuing years, however, things changed in my life. I changed careers and moved in a self-employment direction. We bought a house and had two more children. All of our debts disappeared and we started building a nice nest egg.

In other words, I began to really see the impact that our financial choices are having on our day-to-day life. If we hadn’t turned our finances around, I would not be self-employed right now. I wouldn’t be able to be sitting there waiting when my children come home off the bus. We wouldn’t be living in a nice house with enough space for a home office. I would be feeling stress from things as simple as checking the mail.

I don’t have to look very far to see how our good financial choices changed my life.

So, let’s look at those situations side-by-side. When we first started our financial turnaround, I didn’t see those changes in my day-to-day life. I was still working the same job, living in the same place, driving the same automobile.

I didn’t have the milestones in my life to demonstrate the changes brought about by our financial choices.

Today, things are different. I have lots of things in my life that have only happened because of our financial choices. Being financially stable opened the door to the house we own. Being financially stable opened the door to a career change for me, one that lets me help my children get ready for school in the mornings and be there for them when they get home, which is incredibly important for me.

I don’t need a number to show me those things.

It’s those life milestones that show me the incredible positive impact that good personal finance choices have made in my life. Every single day, my life shows me what I’ve accomplished and why I need to keep my eye on the ball.

At first, I needed that number to see that I was accomplishing something. Now? I don’t need that number. I just need to look around my life.

That’s the reward for sticking with personal finance improvement. You eventually begin to see how it affects your life in a lot of ways and when you recognize that it’s your hard work that made it happen, it inspires you to keep going.

I still figure up my net worth every once in a while, but it’s mostly an exercise to ensure that I’m making smart financial decisions. The day-to-day inspiration that I used to get from that number now comes from the realities of my life – and that’s the result of pushing through those years where I was working hard to improve things but I wasn’t seeing any direct reward.

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Finding Your Bliss Station

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Our life has become so economic and practical in its orientation that, as you get older, the claims of the moment upon you are so great, you hardly know where [...] you are, or what it is you intended. You are always doing something that is required of you. Where is your bliss station? You have to try to find it. Get a phonograph and put on the music that you really love, even if it’s corny music that nobody else respects. – Joseph Campbell

I love playing tabletop games. There is nothing that makes me happier than sitting around a table with friends new and old, playing a game together. The puzzle of the game makes my brain cells work a little, but the social interaction with the people around the table makes it sublime. For me, that’s one of my “bliss stations.” It really brings me joy.

I also getting lost in a book. I love reading nonfiction, where my mind spins around new ideas, but I also love speculative fiction, where my imagination runs wild. I love getting so deep into a book that the time just disappears. That’s another “bliss station” for me.

Another one? I actually really like getting lost in a work project, getting into the zone where the hours fly by. I absolutely love how I feel when I snap back to attention, realize that time has passed, and notice how much I’ve accomplished. That’s yet another “bliss station” for me.

The time I spend with my children is another one, as is the time spent doing pretty much anything with my wife. Sometimes, I get them when I get lost in a powerful piece of music, or when something makes me laugh deeply.

“Bliss moments” are simply those moments and situations where many of the negative parts of your life just float into the background, leaving you simply feeling great and enjoying the moment.

I believe that “bliss moments,” however you might achieve them, are the true highlights of our life. They make our day-to-day existence worthwhile. I know that they certainly make my own life worthwhile.

There was a time in my life where I felt that I was achieving “bliss moments” when I would walk out of a store with an armload of books or a new gadget or when I was trying out a new restaurant. In those moments, I would feel incredibly good about things, but those moments came with a price.

I felt empty and sad whenever I’d examine the state of my finances and get a glimpse that I was heading in the wrong direction. I’d feel distraught when I’d look at the bills and not know how I was going to pay them.

Here’s the truth: if you have to spend money to achieve a “bliss moment,” then it’s a false moment.

A bliss moment, on its own, doesn’t steal from the joy of other parts of your life. It brings joy without ever demanding a payment in return. It doesn’t give you stress at other moments in your life. It takes away that stress for a little bit and makes the stress you do have easier to handle without adding more to the pile. A “bliss moment” shouldn’t require hard choices and sacrifice later on.

Here’s a big secret that I’ve learned about personal finance and life: the more “bliss moments” you can find in your life that don’t require you to spend money, the better off you’ll be.

It’s because of that realization that I constantly seek out free sources of “bliss moments” – or at least sources that incur only the slightest additional expense. I go to community events, particularly those that are free and overlap with my interests, such as community game nights and free concerts. I consciously set aside blocks of time to allow myself to fall into the “flow” of working and, as often as I can, the “flow” of a good book. I also set aside blocks to spend specifically with my children.

These steps cost me very little in terms of my money, but they’re all powerful sources of “bliss moments,” and it’s those little moments that bring so much deep joy into my life. With those moments at hand, the desire to have more stuff falls dramatically. I don’t need “stuff” to have these moments.

Seek out the bliss moments in your life, especially the free ones. Find ways to bring them into your life on a regular basis. I’ve found nothing better in terms of making my life feel whole and making me realize that I don’t really need things or expensive experiences to enjoy a tremendous life.

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The Risk and Reward of Generics, Store Brands, and “Best Buys”

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When Sarah and I were really straining to get our finances under control, we went through a phase where we bought the cheapest versions of every food and common household product. We bought cheap coffee, cheap cereal, cheap dishwashing detergent – you name it.

As we used this stuff, we found that most of it did a very nice job. In most cases, we couldn’t notice a difference between the name brand version we used to buy and the inexpensive version we were now using.

Sometimes, though, the difference was disastrous.

I’ve told this story before on The Simple Dollar, but one of the disasters we faced came in the form of garbage bags.

Before the switch, we had purchased premium-level garbage bags and had never had a single problem with them. We were quite used to filling up our trash can to the brim, then easily pulling out the sack and taking it to the dumpster.

When we switched to the cheap bags, we continued doing the same thing – why wouldn’t we? The first bag or two held, but then one of them exploded on the carpet in front of our door, with the bottom completely ripped out of the bag. We had a huge mess to clean up.

After that, about one in every seven or eight bags would blow up. We started double-bagging, which drastically reduced (but didn’t eliminate) the blowouts, but when we did that, we calculated that we really weren’t saving money any more over the expensive bags.

(We did eventually learn that you can almost eliminate the blowouts with cheap bags if you only fill them up to about 50% to 60% of capacity and never put heavy items in them, but, again, if you’re using two cheap bags for every one expensive bag, you’re not saving much money.)

All of this taught us a pretty important lesson: it’s not always the best move to buy the cheapest version. Instead, you should strive to buy the least expensive version of an item that does its job well.

This requires some experimentation. Here’s how we’ve always approached it.

First of all, try the generic version of the product. Buy it first, before ever trying the name brand version. If you consistently buy the name brand version of a product right now, just try the generic or store brand version the next time you go to the store.

Once you’ve tried it, evaluate it. Did it do the job that you wanted it to do? If the answer is “yes,” then you essentially have no reason to not buy the generic version of that product.

Sometimes, though, you’ll find the answer is “no.” At that point, I don’t just start buying random versions at the store. I turn to Consumer Reports.

I use their website – or, if you don’t have a subscription, you can visit your library as most of them have the last few years of CR on their shelves – and look up the most recent comparison they’ve done of that particular kind of product.

I don’t buy the top one. Instead, I buy the one they’ve indicated as the top “best buy” – and I’ll usually take note of all of the ones they’ve marked as such.

In my experience, I’ve found that the product that CR marks as a “best buy” isn’t the cheapest one at the store, but it’s never the most expensive version, either. It’s a middle of the road buy. However, I can’t recall a time when the “best buy” version ever failed me.

When I look at my shopping list and the items that end up in my cart, they’re almost always a mix of generic and store brand items and items that were marked “best buy” in Consumer Reports, with more generic and store brand items than anything else.

Sure, we could afford the name brands for all of this stuff, but why? If the generic or store brand version does the job that I want, there’s no point in buying the name brand version. If the generic doesn’t do the job, why wouldn’t I look for the one that gives the most bang for the buck? For figuring that out, I trust Consumer Reports.

You know, sometimes I wish I still had some of my grocery receipts from before our financial change. Given what I remember of shopping in that timeframe, I’d probably laugh… or cry. I was constantly spending extra money on versions of items that didn’t do the job any better than the cheap versions, and over the course of a year, thousands of dollars went down the drain.

If I only knew then what I know now, our financial state would be amazing.

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Avoiding the Comfort Zone

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It is easy to become comfortable and complacent.

You get a job. You work there for a few years. You get to know the people there and the routine. You earn a few perks for being there for a while, such as a bit of additional vacation. It’s easy to just settle in and ride.

You wake up to your financial situation. You make a bunch of moves to pay down debt and establish some new routines that aren’t as costly. Eventually, you start to simply enjoy the lower bills and it all seems to come easily. You just settle in and ride.

Settling in is the easy thing to do. Usually, it’s the path of least resistance, so unless you’re consciously making other choices, you’ll probably wind up doing just that.

The problem is that “settling in and riding” is more dangerous than you think. Settling in assumes that the thing that comes easy today will last forever.

If you’re coasting in your career, you’re just assuming that your current job will just last and last. You never see the job loss coming.

If you’re coasting with your finances, you’re assuming your income will just last and last and that you’ll just eventually take care of all of your debts and your goals. You never see the changes in your life coming.

On a more positive note, if you’re just coasting with your career, you might never see opportunities for a great promotion at work or a new job opportunity that could put you in a great place. The same is true with finances – if you’re just coasting, you might not be ready to take advantage of something when it comes along.

The challenge for all of us is to avoid falling into a comfort zone. But when the comfort zone is so easy to fall into, how do we avoid it?

How do we keep ourselves ready for change when there doesn’t seem to be any change on the horizon?

One tactic is to make preparing for change part of our ordinary life routine. For example, part of your ordinary professional routine should be to keep your resume fresh through educational opportunities and taking on professional challenges in the workplace. Part of your ordinary financial routine should be improving your financial state month over month and seeking out new ways to ramp up the improvement. This should be normal behavior.

For me, I find it useful to spend some time each week looking at the various areas of my life – my professional goals, my finances, my marriage, my parenting responsibilities, my community responsibilities, my skills and passions, and so on – and ask myself what I’m doing to improve in those areas. If I can’t identify anything I’m doing right now to actively improve, then I make sure to add it to my checklist for the coming weeks.

Another tactic I value is to regularly envision disastrous scenarios. What exactly happens in your life if you lose your job? What exactly happens in your life if your spouse falls ill? What exactly happens in your life if your parents fall ill? What exactly happens in your life if your health starts to slip?

Walk through those scenarios a little bit. What would you do? You’ll quickly be able to find some steps that you could take right now to make that scenario go down smoother. Add those steps to your to-do list.

The key to both of these steps is to add things to your to-do list that will lead you to better preparedness for opportunities and for disasters. Riding in the comfort zone makes you complacent and poorly prepared for both disaster and opportunity. Every day, you have a chance to take little steps to make sure that you’re ready for whatever comes your way.

Don’t be complacent. You’ll miss out.

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5 Tactics for Getting a Better Cell Phone Deal

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This article first appeared on U.S. News and World Report Money.

Cell phone companies want you to sign up for expensive two-year contracts. Why wouldn’t they? It’s money directly in their pocket. They’ll use every sales technique they can to get you to sign on the dotted line for a new contract.

Sometimes, that contract winds up being a good deal, but there are several things you can do to make sure that you’re getting the best deal for the services that you need. Here are five tactics you can use to make sure that you’re getting the best deal.

Use multiple methods when shopping around. If you’re at the end of your cell phone contract, the ball’s in your court. You not only have the ability to choose the specifics of a new contract, you can also jump to a new carrier.

Cellular providers offer phones and contracts in a variety of different ways – online, in retail locations, and via flyers as well. When shopping around, don’t just visit their websites to compare deals. Check out the shops of the reputable carriers in your area.

A valuable tip: before you even start comparing carriers, use OpenSignal to figure out which providers have good coverage in areas where you’re commonly going to be using your phone. There’s no point in getting a cheap cell phone if it doesn’t even work in your area.

Include prepaid phones in your comparison. Many people overlook prepaid cell phones when they shop around and compare packages and prices. For many users, prepaid phones are very competitive in their price structures and many of the prepaid providers are tied directly to larger providers (meaning that they use the network of the large providers).

Check out the prepaid offers available on sites like Amazon.com, then research the providers so that you know what kind of network they have. You may just find that a prepaid phone matches what you need at a much lower price – and without a contract.

Negotiate. If you do settle on a particular offer, nothing’s keeping you from negotiating. You can simply tell the provider that you’re considering switching to them – or that you’re currently shopping around with other providers – and simply ask for some perks.

It’s often useful to come armed with comparable deals from other providers. Simply state that another provider has this particular deal and ask if they can adjust the price on one of their packages to match it.

Remember, the worst thing that can happen is that they say “no.”

Check for a professional discount. Many employers have arrangements with major cellular providers for a discount on their plans for all of their employees. For example, Verizon’s employee plan provides discounts for the employees of thousands of businesses – and it’s easy to see if you qualify.

Check with your employer to see if they have such an arrangement and, if they do, use that as a part of your price comparison.

Ask to compare the plan you’re considering with a no-contract version. If you’re considering signing a contract in order to get a cheap phone, ask the provider what the cost of a non-contract version of the same plan costs. Generally, non-contract plans are significantly less expensive per month, but do not provide a discounted phone.

This gives you the freedom to find an unlocked phone and use it (provided it’s compatible with your provider) or use an older phone that you already have. In either case, it can drastically reduce your monthly cost if you’re willing to spend more at the start of the contract, adding up to a net savings.

These tactics, when used in concert, can significantly reduce the amount that you have to pay each month for your cell phone.

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Make Failure Into a Stepping Stone, Not an Excuse

This website is for entertainment and educational purposes only. Material shared on this blog does not constitute financial advice nor is it offered as such. Therefore, The Simple Dollar assumes no legal liability for the completeness, accuracy, or suitability of the information provided by its authors.Readers will also note that The Simple Dollar maintains financial relationships with certain third party merchants. If readers access and utilize the services of one of these affiliates through a link on the blog, The Simple Dollar may be compensated for the referral.Please read the blog’s policies on privacy and image-use.And always consult a locally licensed insurance agent, financial adviser or certified attorney before making any financial decisions.

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Whenever I push myself into a strict diet or a strict exercise regime or a strict set of personal finance rules, I find that I thrive in the short term.

For the first week or so, I’ll hit every benchmark I have within those strict rules. I’ll exercise. I’ll eat incredibly well. I’ll avoid spending an unnecessary dime.

Then, at some point, I fail. Usually, it’s out of thoughtlessness – I just backslide into a bad routine for a moment. I’ll eat something way outside the bounds of what I should be eating. I’ll tell myself I’m going to exercise later today – then I’ll get distracted by playing with the kids. I’ll buy something small on a whim.

Soon after, I’ll realize that failure, and I’ll beat myself up over it. I’ll think really negative thoughts about how I’m hopeless for a little while, then I’ll resolve to get everything back on track. I’ll have a few more days of success, then I’ll fail again.

The cycle repeats itself a few more times, with a smaller and smaller period of success in the middle, until I simply give up.

It’s a common cycle that a lot of people find themselves in when they’re trying to make a major change in their lives. I’ve been through this cycle quite a few times myself, and I’ve come to realize that there’s one big thing at the core of all of it.

I set myself up for failure by adopting changes that offer a very narrow path for success. If you choose life changes that require a significant change from the habits you already have, it’s going to be hard. If you make it so that those changes must be absolute – no backsliding allowed – you’re begging for failure. You need an approach that you can slowly build on.

Instead of saying, “I’m cutting out all food and drinks I don’t eat at home,” simply say that you’re going to cut out those treats three days a week. That way, if something comes up and a friend wants to meet you for coffee on Tuesday, you don’t have to freak out about failing at your goal and you won’t feel like a loser if you do. If you find that this goal becomes trivial, change it to four days a week or five days a week.

Instead of saying, “I’m going to exercise every day for 30 minutes,” simply say that you’re going to work out three times this week for thirty minutes. That way, if you miss an exercise session one day, you haven’t failed at your goal. If you find that this goal becomes trivial, increase the number of days.

In other words, it’s a lot easier to stick with a goal if one mis-step or a simple life interference doesn’t mean failure.

What happens if you fail anyway? If you still find failure, then you should reassess what you’re trying to do.

Failure at a personal goal means that there’s some significant aspect of your life that’s working in opposition to that goal. It’s a sign that maybe you need to work on something else first.

For example, if you find that the reason you’re failing at spending goals is because it’s so easy to buy something incidental with a friend, your challenge shouldn’t be to adopt strict spending limits, at least for now. Your goal should be to separate social encounters from shopping, because it’s that connection that’s causing you problems.

If you find that you mess up on your spending goals because of the ease of online shopping, your goal should focus on your online behaviors.

It’s pretty hard to win a race if there’s a speed bump in the way. Sometimes, you have to stop and smooth out the speed bumps before you can really get going. A failure doesn’t mean you’re incapable of winning the race. It just means that maybe you should stop and smooth out the speed bumps.

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Make Failure Into a Stepping Stone, Not an Excuse

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A Lifetime of Choices

This website is for entertainment and educational purposes only. Material shared on this blog does not constitute financial advice nor is it offered as such. Therefore, The Simple Dollar assumes no legal liability for the completeness, accuracy, or suitability of the information provided by its authors.Readers will also note that The Simple Dollar maintains financial relationships with certain third party merchants. If readers access and utilize the services of one of these affiliates through a link on the blog, The Simple Dollar may be compensated for the referral.Please read the blog’s policies on privacy and image-use.And always consult a locally licensed insurance agent, financial adviser or certified attorney before making any financial decisions.

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Once in a Lifetime

Stephen writes in:

“I am struggling with continuing to save because of the fragility of my life. Both of my parents and my older sister died in their 50s. I turned 50 last year and there are so many things I still want to do in life. Lately, I have been thinking a lot about how it won’t matter how much money I have in the bank if I die in the next few years, but just spending it all doesn’t seem smart, either. I am stuck and I hope you can help.“

This is a scenario that I’ve thought about many times. I have had several friends and relatives die younger than they should, and each time their passing has made me reflect on my own mortality.

Over time, I’ve come to several conclusions with regards to balancing my own mortality and the logical desire to secure a potential longer-term future.

First, I need to do what I can in my life to minimize my chances of dying young. I need to eat well, get some exercise, get adequate sleep, and so on. It also means I should visit the doctor regularly and get checkups, and that a thorough and accurate medical history is really important so that we can watch for things that befell my closer family members.

I’ll give you a personal example. My family gets cirrhosis of the liver very easily and very young. One of my uncles passed away from liver cirrhosis when he wasn’t too much older than I am right now. This means, logically, that I should minimize my drinking. An occasional beer or glass of wine is acceptable – getting intoxicated with any regularity is not.

It is for these reasons that I drink very little, I have never smoked, I visit the doctor fairly regularly, and I’m a pescavore (vegetarian plus fish – basically, the Mediterranean diet). Those are steps that I can take to increase the likelihood of a long life.

Second, I’m not banking on the end of my life to fulfill my “bucket list.” Many of the items I have on my “bucket list” are going to happen in the next ten years.

Some of these things mostly require an investment of time. Many others, however, like international travel, require a serious shot of money.

How does that jibe with sensible personal finance? It’s simple. I don’t spend much money (or time) in my day-to-day life so that I can do these things.

If I make every day pleasurable with lots of little treats for myself, it’s going to drain my bank accounts. I won’t be able to afford it over the long haul – the math just doesn’t add up.

Similarly, if I spend too much time each day doing frivolous things, I won’t have time left for the things that matter to me. If I have a couple of hours free in the evening, I can spend them writing another article for The Simple Dollar or watching a television show. If I make the more productive choice over and over again, I’ll find myself with the time I need.

Finally, I make decisions in my life assuming that I’ll live for a very long time, regardless of how I feel about my long-term prospects. Why? Being 70 years old with nothing in the bank is a dreadful prospect.

Even if I think the odds of living that long are pretty low, the downside of living to that age without having anything put aside is very bad. I don’t want to live in an extremely low-end retirement home or have to scrounge to put a meal on the table when I’m 70. If there’s any chance at all of living that long, I want to make sure that I have a good life.

Another factor in this decision is that I have descendants, which plays a significant role here. If I were to die early, the money I’ve saved will go to make the lives of my children substantially better. It won’t make up for having their old man around during their later childhood or early adulthood, but it’s a start.

If I didn’t have children, would my motivation be the same? It depends. I have a number of charitable organizations that I care deeply about. It is extremely likely that I would assign any money I left behind to one (or more) of those organizations. (Naturally, Sarah comes first in line here.) It is hard for me to assess how big this motivator would be if I didn’t have children.

Still, the primary motivator is ensuring that I’m not in misery if I do live to a ripe old age. I view every dollar I save right now as a few dollars that my 70 year old self will be able to use – and, to me, that’s worth it, especially considering, as I noted above, I’m taking steps to ensure that I make it to that ripe old age.

Thinking about your own mortality is never easy, but it does become a little easier if you’re planning steps to lighten your load on the entire path of your life.

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A Lifetime of Choices

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