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‘Empty’ can leave you stranded (What you keep - Part 16)
Are you keeping your eye on your financial reserves, the way you do with your fuel tank?

By Steve Freidell
Land Line contributor


How often do you travel down the road with little or no fuel in your reserve tank? I suspect, as a professional driver, you rarely make such a “rookie” mistake. There is nothing worse than being stranded on the side of the road after passing a truck stop just a few miles back. Paying attention to your fuel tank is a good lesson to learn.

What’s amazing to me is the number of people who let their financial reserves dwindle down to nothing or who are constantly living with little or no money in reserve.

We all have financial difficulties from time to time. Over the past year, I have pointed out ways to avoid such pitfalls, and many of you are listening.

According to recent data, consumer debts are falling faster than at any time in history. Many of you have paid down your credit card debts and other short-term obligations.

Mortgage companies are reporting increased additional payments towards principal. However, while your disposable income may be increasing, remember that it’s not the time to take your eye off the fuel gauge.

Start by making sure you always have 30 days cash in your checking accounts. This way you will avoid penalties or service charges from your bank if your balance drops below a required minimum.  

When you have accumulated this much, you will feel more comfortable paying cash for regular purchases instead of using credit cards (which will only get you back into trouble again). At the end of each month, clean out any excess cash above what your monthly budget allows – plus a modest cushion – and place that in a savings account.

Remember, the first person you pay each month should be you. Set up a regular payment to yourself each month based upon what your budget allows. Make that the first payment before all others. This payment should go into a separate account.

If you or your spouse find yourselves raiding this fund for other purchases, set up the account where it requires two signatures for withdrawal or has restricted withdrawal privileges. Do not stop your savings program until this account has accumulated six months of your combined earnings.

OK, many of you are saying, “Now what?” You have paid down all your credit cards, and you have six months worth of funds in the bank, so what’s next?

Continue your regular savings program, but begin by taking the amount you have been regularly placing into savings and divide it into two equal parts. The first part will continue to go into savings and the other part will be added to your regular monthly mortgage payment with a notation to reduce the principal amount of the loan.

Once you have accumulated 12 months of earnings in your savings account, you can increase the amount added to your mortgage payment or perhaps consider starting a fund toward your children’s college education.

If you have teenagers, consider putting money aside to help with their first car. Or if your kids are a little older and these obligations are already accounted for, consider a wedding account or an additional retirement fund.

The important part is to think years ahead.

Once you get to this point, you will begin to experience the feeling of financial security. No longer are you making the rookie mistakes of years past. Now you’re thinking twice before taking on risky debt, before committing to purchases you can’t afford, before signing your life away on a little dotted line.

Gone are the days of worrying about running out of fuel and being stranded on your own. Your 200-gallon tanks now feel like 400-gallon tanks.

Finally, you are in control and no one or nothing will ever stop you again.  LL

This material has been prepared for informational purposes only; it is not intended to provide and should not be relied upon for accounting, legal or tax advice.

Steve Freidell has assisted clients in their cash management, trading, and portfolio management of fixed income securities since 1975. Steve started his career at the First National Bank of Kansas City and later served as first vice president with Commerce Bank, where he served his clients for 25 years. In 2006, he joined the DeWaay organization, the financial management company used by OOIDA. Steve Freidell may be reached at