I have written about my start in improving my financial situation. You can read about it here. However it was not an easy and straightforward transformation to actually care about my financial life, my budget, tracking it and actually sticking to it. It took me a long time to see the value in it and see how it is holistically connected with other parts of my life. I felt it did not matter to budget, track or save. Every cent I had was needed somewhere. The money I got was the exact amount that I needed to cover my life. Budgeting and tracking made no sense, so why do it? It would make sense though, once I started to earn more money. If I would have 1000 more that would do it. Then I could save. Oddly enough, even when I got that 1000 extra it did not help. I found something I needed to spend that on so 1000 was not enough to save. But probably 5000 would be enough. If I would have 5000 more, I would for sure be able to save. It was never enough. So I had to look for more students to teach, more translations to do, and just more ways how to get those extra 5000 which I needed which left me working 12+ hours a day, as the rule and not an exception. Thinking back at it, I feel sad about it and how little time with my daughter I had. Spending it working and working. Each hour I increase, my stress and anxiety also increased. Never having time to fully recharge. I could not see how it was all hanging together. How one part of life, influences the other. Only thing I was wondering was how come did I never have any money? I had those 5000 extra but I felt that I had less money than ever.
Never Having Enough Money- Lifestyle Inflation
Many live their life like this. First time it hit me was when a friend of mine had her credit card declined. I could not understand it as I knew that her salary was in the 6 figures. How could she have no money?
How I Started to Say No and the Path to Financial Stability
This was exactly what also I did. I had a decent salary but still a deep pit in my belly every time I needed to buy groceries. Would there be enough money in my bank account? I very often felt that it did not matter how much money I received as it all only disappeared. How was I still struggling paying rent when I had more money coming in than in the past? It was obviously a rigged game and I was the loser. This was my excuse. I did not want to look myself in the mirror and see what I did wrong. What made it change I do not really know. Somewhere the transformation towards a healthier mindset commenced. Maybe had I had the feeling of being sick and tired of too long? A life revolved around anxiety and stress and pushing it away with, mostly, food. The humiliation, stress, worry, and sickening feelings had grown enough big. Something just had to change.
As some might have understood by now, I think finances are a really important part of life. I believe it is imperative to have my finances in order to be able to keep my emotions in check and therefore not do the emotional eating things I have going on. I have struggled a great deal with my finances, and about 1.5 years ago I decided that enough was enough and decided to make changes for me to get some financial stability, stop living paycheck to paycheck and ultimately reach financial freedom. You can read more about it there. Today I am celebrating a big milestone for myself.
My fully funded emergency fund!
What Is a Emergency Fund?
It seems like the word emergency fund has a different meaning for different people. I will tell you what is my meaning for it.
At first, I thought of an emergency fund as monthly income and I just could not understand how I was going to save up to 4-6 months of monthly take-home pay, that would take me year to save up monthly take-home pays. I have really left that notion and put different definition to the word.
Emergency means just that, it is an emergency. What do we do when in an emergency. We need to make sure that our basic needs are covered for. Not the extra charcuteries or nicer coffee. For me I decided that these four things would be my base of my fund:
I went thought my budget tracking for the past 6 months and looked what my cost had been for these categories were. This amount is what I needed to save up to create my emergency fund.
Why Do You Need a Emergency Fund?
For me, emergency fund will not be used for leaving for vacation; buying clothes; getting a bike or whatever things you can imagine. These are saved for in my sinking funds. Read about my sinking funds here. Emergency fund is exactly for what is sounds like.
Emergencies will come. That is the only thing I really know. Flatmate moving out; job getting canceled; health problems or something else unexpected happening. These are the reasons I was so focused on getting the fund, funded. I have had quite a lot of emergencies happening to me and I have felt like one step from total disaster. Money can not bring you happiness they say, but I am for sure more calm and happy with the knowledge that I have this money on my bank account. I have gained such a calm knowing that I have what I need to live OK for 6 months without any other extra income.
6 Months. No other money coming in.
I struggled to live from one day to next, in the past. I am so relieved now. Such a weight lifted from my shoulders. It also gives me a freedom to say NO. I do not need to say say anymore to everything that comes my way, workwise. I can pick in a different way, as I do not need it to survive today. I am surviving already. I wish for everyone to have this feeling. I wish for everyone to have this security and the best thing is: if I can do it, anyone can.
Am I Done with My Financial Journey Now?
Not even a little bit.
I am a freelancer and that comes with benefits but as with everything also some drawbacks. One of them is my pension. I will basically not have any, unless I work for it myself. No state coming to rescue me. I will need to work to get it myself and I am not planning to be a poor pensioner. I am not. I have done poor, and I am planning a different future. As I am single, I will also need to have a look in the mirror regarding housing. I know I will not be able to rent, once I am a pensioner and I know I need to do something regarding that. For that I need money.
I am not only thinking about my future though. I really want other people to have it good, and I want to be able to give more than I am able to do now. I want to work improving other single parents lives. I need to have enough to be able to give and share so that others who are not in the same situation can seek help somewhere.
I have plans and these includes money, so my financial journey has just begun.
As mentioned several times before. Money has been a huge source of stress for me the for a long time. This changed this past year. I made a very conscious decision year and a half ago to change my situation and to work toward financial freedom. It has helped me tremendously! From being a basket case whenever I have just been thinking about my financial situation, and the feeling of hopelessness to where I am today. I can do this.
I have decided that I will reach independence and that is it. Not in a week. Not in a year. Not in 10 either. But I will. I will live safe and comfortable. Actually I already am. Budgeting had really helped me with that. I already chose what I want out of life and my budget is just helping me reaching it.
How I start and go about my budget
So at the beginning of my financial month I posted about the start. Let us now have a check how things actually went.
As I wrote I do not go filling in my budget as I go. For each income I receive, I spread them out in my budget and how I want to spend it. Even if I know I will get the money, I do not add it into my budget as I have learned from the past, that even if you are expecting the money something might happen and it does not come. So I only add it when I can see them deposited into my account. Then I assign that money into my categories. I always pay my needs first, and once that is covered I cover my half needs and the last my wants.
Needs Vs wants and that odd half need
Needs- The first I add money into. These are the expenses I need to pay to cover expenses which I cannot chose to pay or not. This is such as Rent. Phone. Health insurance. Social insurance. I cover these things absolutely first as then I know I am done. In worst case scenario I have at least roof over my head and if I get sick I can get well.
Wants- These are the things I want to pay for. The things I do not need to cover my life but to add that little fun in life. The ones which makes life fun to live. These are things such as Clothes. Bags. Phones. Books. All the fun fun fun things.
Half- needs- so what is this about then? Well these are the things that I might not have to do or maybe not always want to do but a little bit of them both at the same time. Food is not something I maybe want to do, neither is it something I maybe have to get either every month a lot of as I do have quite a big pantry and freezer. Savings are maybe not either something that I do want to do every single month, but I do it anyhow. Workout is the same. want tor need? A half need 🙂
savings- what i do to get rich
OK maybe it is not right now to be rich but for a future independence for sure. I try to manage it that way so I can save about 30% of my income. More than that is not really feasible as I do want to live as well. I enjoy to go for walk and have a coffee of a hot drink. That is all we can do, and I do not plan to skip it. unless I do not reach the 30%. I did great this month with this, and my emergency fund is almost fully funded. I was able to put in some 10k(czk) into it and I am extremely happy. House payment- which is for a down payment is still empty but I want to get my emergency fund full before I add into this category. Sinking funds- Not really savings in the long term but more for the short term and this is not really into my financial independence but I somewhat count them in here anyhow. They help me live stress-free so anything that does that, goes for me.
the real independence building
This month was the first where I actually planned for and executed my new plan. I have officially started investing in stocks and signed up for a retirement plan. I know. I am 35 and I have had nothing like that. The plan was to live for free in the flat we purchased in Bolivia and much further than that we did not come in our retirement plan. And anywho, that plan failed miserably. Finally did I feel I had enough of saved things and steady income to be able to really do something.
When is enough?
I am extremely happy with January- February result. So when is it enough? When will I feel independent and safe? I ask myself this very often. I do not know. I am constantly scared that something will happen and I will be left living on my savings and then it is not long before it goes away. Therefor am I looking into how to save more and better. I have a number in my head, that when I reach this I can start relaxing and not stress out over losing work or how to survive. It is 1 000 000 czk. Then maybe. I will aim for this. I need to work hard and be focused but I will reach it. And now we erase this and start all over for Feb-March
Sinking funds work like this: Every month, you’ll set money aside in one or multiple categories to be used at a later date. With a sinking fund, you save up a small amount each month for a certain block of time before you spend. – Dave Ramsey
One huge stress factor in my life has been money and my finances. I might not have had the best ideas of finances but I did get by. Then I got married, for our standards today young at 25, we put all money in one basket so to say. We had the advantage that we earned quite some money so the idea if budgeting and tracking was not needed we felt. We were able to live like we wanted and felt like. Funny thing is that that money that we so harmoniously shared at the beginning of our marriage, turned into only one persons possession once the separation was clear. Not just the money, but what we had use the money for- acquiring of a flat, furniture and our life.
I was not that lucky person.
I was left with absolutely nothing. Zero. Null. Zilch. All my financial stability was taken away from me, from one second to another. From having a flat, a car, furniture, and food in the fridge I was left with a flat that had a borrowed mattress, pillow and duvet. A cup and a instant coffee, sugar, kettle and a spoon. This was it. For a long time I lived on without anything. More than once did I need to ransack my bags, and pants, and check under the sofa to find few coins for bread and transportation for my child and myself to work.
Needless to say, I struggled financially after the divorce. And it created a huge stress and burden on me. Knowing that my daughter had to witness her mother in tears and stressing out, from the fact she needed to eat as there were no money, still makes me sad. The shame of not having enough money to send her to school with the required equipment. Not knowing if we would be able to pay the rent or not. If I could have her living with me as I had no money for basic needs. The thing I should have done I stopped doing and what I should have stopped doing I started doing. I did what I do best in stress. Eat. My weight started creeping up.
Starting Back from scratch again
I was able to return to Europe a year and a half after the divorce and the situation was not very well either. I had arrived with 4 suitcases and a scattered life and needed to restart again. But I was able to start to work on my finances after some time here. I sorted out a proper job that eventually could lead into better earnings. Slowly but surely did I go from bad to better situation. I did not need to live from day to day in my life anymore, but I could start live at least paycheck to paycheck which for me was a great improvement. Living from one day to another is not a great way to live, then a month to month is considerably better.
But even though it was better, it never really improved on a real scale though. Even though I had better job, and better income. It was always something that happened, which drained all the small savings I had started. Always one emergency away from chaos. And as it was all together in one pot, I was never really sure about what I was actually saving for. Beginning of school year expenses, yearly ticket with public transport, winter seasons and its clothes. And let us not think about Christmas and birthdays. I had a bit of a financial chaos back home as well. Would it never stop? There were quite some times when I did think I would need to surrender and just give up. One thing I am expert in doing when in stress is what?- EAT And eat I did.
Something had to be done though. It could not be like this for the rest of my life. Always living in this angst world. There just had to be a way. You might say Universe provide, I just say luck or that I was actually opening my eyes for a solution. And the solution came in the shape of a blog post. I came across The Financial Diet
This is exactly what I read. And it hit a cord inside me. I did budget to some degree but then those yearly expenses came. Or the unexpected expense that comes with a broken phone. Anyone that knows me can testify that I am expert on this field. So why not try something new. I started my first sinking fund to fund Christmas 2019. My plan had been to leave to visit family in Sweden and I had stressed about the idea, of how I would afford it. So 4 months ahead I started to, quite aggressively, put away some money. I hit the goal and we went for a Christmas trip up to Sweden. It was a strange feeling as it was the first time I did not totally stress out about what we spent. I knew I had the money and it would not affect next month. Maybe I was onto something.
I decided to continue that fund for Christmas 2020. And every month I put away 500 Czech crowns– 20 euro. In the end it was 6000 which would more than cover the expenses for my girl and I.
In the end of February my yearly ticket was up. I needed to get a new one. I had to get a small loan for it. I knew what my next Sinking fund would be for – Transportation pass. I added 250 czk every month and by the end of this month I will get a new yearly ticket, with money over which will be my base for next years ticket.
My daughters birthday would come, as it does every year somehow in the past I would always get so surprised by it, by the end of October. Why not get one for that too? So again, an amount of 500 CZK over the course of 8 months, did end up with quite something.
I went freelancer last year, and income tax would be paid by me once a year. Even though it might not feel too much fun to remove an amount every month, 500 CZK was not that much compared to 6000 in one go.
Life with sinking funds vs without
I keep adding on Sinking funds into my Bank app. I have free accounts and it makes it all so much easier. The money are clearly divided and I see exactly how much I have, or need. To have a big chunk of money with no destination was so intangible for me. How did I know if I had enough money for everything? I did not. Now it is all so clear. I just received an invoice for my freelancer address which I had totally forgotten about. I had the money but needed to play with my budget to be able to pay it. I needed to deprive myself from something this month to be able to get that big payment made. I directly opened a new fund and will put a small amount every month so I will have it covered next year. This way I do fund all the things I want to have money for and want to do by a little every month nd without depriving myself from living during I save. Some funds are long term goals and I only put in money once in a while or when a short term goal has been reach, not to send too much money to the sinking funds either. Dentist and house payments are not needed to add to every months whilst Summer vacation 2021 get a bit more attention now.
In many ways, even though it feels bad to say it, 2020 was the best in my life. I overcame the adversity with money. I have not been this financial stable since before the separation. This has reduced my anxiety immensely. And no anxiety means less overeating. No overeating means no weight gain. I stress so much less. I stress over other things yes but my financial stress is decreased by the handful. I know that slowly but surely all those goals and needed payments are getting funded and I will have the exact or more of the amount needed. That has had an immensely positive impact on my mental health, where I can sleep at night and I do not stay up wondering how I will be able to get that extra money. And what I do when I am stressed is to eat. Over eat and overfill myself. I still sometimes do today, but at least not because of my anxiety over my upcoming invoices.
“Living paycheck to paycheck: For many, this act of using most or all of your monthly income to cover your monthly expenses — with no money left over and none for savings — is a fact of life.” – Read more here
I used to have huge problems with my personal finances. Especially after my divorce. I spiraled down into this black place of borrowed money and panic over paying rent. I once had a washing machine dysfunction and my entire flat was covered in water, leaking down to my neighbors. I ran to the janitor in the building complex to fix it. He had to turn off water in the building and to turn it on, I needed to repair the connection with my washer. It cost 200 Bolivianos, 30 dollars or 25 euros. I did not have it. This was not the last time something like that happened, but at one point in life I was exhausted by this. Exhausted by living one small accident from chaos. One tiny incident away from eviction. I had to do something.
How to Not to Budget and Failing to Keep On Track
This is my first-ever budget. It is not a fancy program that you connect to an app that is connected to your bank account. I had KISS in mind.
Keep It Short and Simple.
There was no point in adding fancy things and complicating it. I needed it as simple as possible, to actually do it and be successful. I have more categories now, and few more tabs now. Tracking all kinds of different things. And truth to be told, even this was too boring and complicated and the first 2 months I did not really know what the heck I was doing and mostly did I not do it. I added some arbitrary number ideas to my excel sheet, expecting it all to come together. Deciding I would spends this and that amount on this and that category.I had really no idea what I had previously spent, but it sounded great to spend 100 euro on food. That is about right, right? It was all just a mess and I felt many times I would be better off just stopping. I kept on though and practice become the master. At this point it was Youtube and blogs I watched and read to understand what I needed to do.
And with this structures and processes happened. It helped me understand how I can budget, with my type of income, better. I am a freelancer and I get paid a bit all over the month, so it is hard to think about my paycheck as my monthly income. I want the money to work for me, not me for my money. I need to create the life I want with my money. If I do not want to spend 100 Euro on money, why should I put this arbitrary number into my budget?
Realizing that a budget is not one thing fits all was the big thing that helped me. I can make it do and work for me, how I need to to work.
One Effective Way to Budget to Make the Money Work For You.
Instead of budget for future money, and adding in some random numbers into random categories I decided to budget with the current money I have. I decided to go from 15-15 each month, and everything that was leftover would be treated as extra money and be added to savings and anything that came into my account after the cut-off date would be counted as the new month’s money. I also decided to only budget the money I actually had received and not money that would come in. I also sat down and looked where I wanted to go in life. What were my life and financial priorities. When these were defined I looked if they were actually in my budget and what amount did I assign to this priority.
I wanted health and active activities, but I, in my budget had 0 allocated for this. So I always felt short of money doing just this. On the other hand, did I have a HUGE category which was for entertainment and drinks. Where were my real priorities? All this is crucial to define. This can obviously change over the course of time, and I look at this every month. What do I want to do? What is my focus this month? Having these defined I set up the plan on how to allocate the money received and nothing else.
I have only received two payments this month and it is only these two I will budget out
The most crucial expenses are listed out and how much I need to pay for these. If these are paid first, I know that my obligations are fulfilled and I can sleep better at night.
You budget clothes and no food? I have a full fridge for another week and I know there is coming in more money for this, in one week. And I have to get snow protective clothes for my kid! This is what I mean by having the money work for me. Why put money in a food category if I do not need it now?
After paying them, tracking them just by adding them to the right category.
When I get a new payment I will add this into the budget and give the money a job in the categories I feel and know needs to be contributed to.
This way I have a clear view of what I can actually afford and not and at what time.
Will This Make You Reach Financial Freedom?
Absolutely not. This is the first change and decision I made to create a better financial life and stop the vicious cycle of living paycheck to paycheck. Creating wealth and financial freedom is a lot of work, but one has to start with the first step. It was far easier and better than I could ever have excepted. It is now clear and obvious what I have to pay, what I want to cover, and how to get the money create the life I want. This has resulted in far less stress and anxiety which has left me with a feeling of relief that I did not for many years. This order in my finances created the space how to add new levels to my money and make them work even It is sometimes strange not to stress over my finances and the disorder it used to be in. Strange but amazing more for me. Overeating and stuffing myself due to poor financial control is no longer my problem. This is why it is so important to have a holistic view of weight loss, as it is all connected. NO machinery works well without all its bolts and gears.