Thanks for tuning in. I hope all of my thousands of readers are doing well. Lets talk about the current goings on in my financial life. I took my trusty, reliable 8-year-old car into the garage for a small issue, or what I thought was going to be a small issue. It was not a small issue, and the cost of this necessary “repair” was very, very far from small. I thought I was going need some sort of adjustment to my brakes, however what was actually needed was a total overhaul of my rear brake system. The bill was shocking! $923! I tell you, when I heard that, it was the closest I have come to passing out in a long time.
So how about the financial impact of this large unexpected cost on The Fake Cheap and family? I know what you are thinking: “Barley noticeable, that dude has cash to burn.” That would be incorrect my friends. If you are familiar with my finances and I, then you will know I have no savings for this. I have no emergency fund. I hope that did not make you pass out. You read correctly, we have no emergency fund. I’m sure this news comes as a surprise to you. I’m going to do a post one day on my thoughts on the emergency fund (EF), but in brief, I have existing debt, so I have no EF. Why would I want funds sitting in an “emergency fund” when they could be paying off my debt? That is all I’m going to say on the topic for now. Back to the need to pay for this needed car repair. Obviously I paid for it with my credit card at the garage. I then paid off this charge on my credit card which via line of credit. My plan is to pay this back over the next few months. “My god! Your going to pay interest! A ton of interest! Hundreds of dollars in interest!” Settle down my financially thinking friends. Yes, I will pay interest. I plan to put $200 a month on this, so it will be paid off after 5 months (again, yes I’m aware it’s really 4 1/2 months but too many details) Let me see, if my line of credit (LOC) was at 5% interest (it is not, it is actually lower than that), but even at this absurd rate I would pay approximately a whopping $15 in interest. It’s actually lower than that* , but I’d rather save the 15 mins than do the detailed calcs, because the difference is not material to me. You know it turns out I’m a nice guy and the calcs are below. I found my $15 this way: $923 * 0.05 *0.42 = 19. Then I just knocked off a few bucks to account for the decreasing balance over time The 0.05 is the interest rate, and the other 0.42 is for 5 months, which is 5 months divided by 12 months because you are using an annual rate of 5%. Yes, I’m also aware that the LOC will compound interest monthly, but again, those details are not material in this example, so I’m not going to bother. I think these small details are where a lot of people get hung up on finances and then give up on them. My comment to you if you are one of those people, just worry about the basics. I plan on having a post out in the next month or two that also might help you with this. Back on track. So yes, currently this unexpected expense is sitting on my LOC, accruing interest.
This unexpected expense was about to interrupt our plans for nice summer vacation, we were planning on taking one similar to last year. The thing is the $200 that we were planning on saving for a few months to pay for this trip is now going to pay for my car repair and pay off the LOC. So I said to my wife the other day “You know, we can still do our vacation, all we have to do is tighten the screws just a bit more, and I bet I can find the money we need for the vacation. Or, we could just continue about our business and not go on a summer vacation.” Of course my wife thinks things are already quite tight around here, but I see it differently. I added “If I do up a budget, and we stick to it, I’m sure I can squeeze out the savings” I know I just knocked you off your chair for the second time this post, with you being shocked we don’t have a budget currently. The reason we don’t have a budget is that we are not spenders, we don’t impulse buy things, we don’t need to monitor money that closely. Yes, I track my bills, and keep en eye on my balances, but we don’t allocate this much for this and this much for that. And we’ve done pretty well, but as always, and is the case with 99.9% of everyone we can do better financially. So I sat down and really crunched out numbers. I’m not going to detail it out, not right now anyway, but here are the highlights. I know we spend too much on groceries, so I set our budget at $800 for the month, This includes things like paper towel, cat litter and diapers. I ran the grocery numbers for some past months and they usually came in around $900-$1100 for our family of 3. I also gave my wife and I $50 spending money every 2 weeks. Not that we really spend much more than this anyway, but if you are trying to save money, actually trying, I can guarantee you will save. My wife is on board with this, and so far so good. I will keep yo up to date.
So remember, if you find yourself in a financial jam…. KCFB…… Keep Calm and Fix the Budget.
Fake Cheap out.
*In case you aren’t following, and I want people to learn something from this blog, here is why it would be lower than $15:
1st month of interest is $3.83 (923*0.05*0.0833) The 0.0833 is 1/12th of the year, psst… that means a month.
2nd month of interest is $3.03 (923 – 200 payment +4 interest = 727) * 0.05 * 0.0833
3rd month of interest is $2.20 (727 – 200 payment + 3 interest = 530) *0.05 * 0.0833
4th month of interest is $1.30
5th month of interest is 55 cents. This totals $10.91 I’m surprised my $15 quick calc was off by that much.