Adding Bubbles to your Bathtub

Last time I introduced the idea of stashing money in your bathtub. If that doesn't sound perfectly reasonable to you then I invite you to click the link and read the earlier article: Spend Yourself Wealthy

Now, its time to add "bubble bath" to your bathtub. As you recall you are saving AT LEAST 30% in your bathtub. But, there are a lot of demands on this saved money so we need a way to categorize what and how much of this savings you can use, and for what.

First, a quick refresher of the 60/20/10/10 rule. You are living off of 60% of your net income. 20% is being saved, 10% invested, and 10% for charitable contributions. The +30% that is going into your bathtub is the combination of savings (20%) and investing (10%) because the bathtub represents your cash net worth. Also, that 20% savings is a "fluid" amount (no pun intended). In the beginning you will be saving 30%, soon you will starting investing (10%) into retirement accounts, and eventually you will be investing into a variety of accounts at the rate of 20% and saving only 10% for major purchases.

Bubble bath.
The bubbles represent the different "budgets" or categories that you are putting your +30% into. For starters, you should establish an Emergency Fund account. At first, this "bubble" will consume all +30% of your Net Income (N.I.). Once your Emergency Fund bubble is fully funded ($1,000) then you can work on your next "bubble," 3-6 Months Expenses. This bubble will also consume all +30% of your N.I.
 

The next "bubble" to be created is your Retirement account. This "bubble" will account for +10% of your N.I. leaving 20% for other bubbles. This is where the "fun" begins. Unlike children who like to pop bubbles, we want our bubbles to get as big a possible; then, when you do finally pop them it will be awesome. So, here are some examples of other "bubbles" that you can grow with your +20%.

Emergency Fund ~ $1,000 + (as your standard of living rises so too should this amount)
3-6 Months Expenses ~ Less risky job = 3 months; more risky job = 6+ months

House Down-payment
Car (purchase/down-payment)
Home Furnishings
Moving out expenses (transportation, first/last months rent, security deposit, furnishings)
Wedding Ring/Honeymoon
Vacation
Religious Service/Mission
Birthday/Holiday Gift purchases
College Savings
New Technology (phone/computer replacements)
Etc.

You can have as few or as many bubble as you wish.  With fewer bubbles each bubble will grow faster. Have lots of bubbles (at the same time) and their growth may become agonizingly slow. Here again, delayed gratification will help you be successful as you will have fewer bubble and can watch them grow really fast.

Then, when the time comes and you have a nice big vacation bubble to "pop" that will be even more fun than popping bubbles as a kid.

As for the Investment percentage it too can be divided into various "bubbles" such as:
Retirement ~ (401k, Roth IRA, Mutual Funds)
Investments ~ (stocks, bonds, funds, trusts)
Real Estate/Land
Jewelry/Precious Metals

Just make sure that as your income increases and your 10-20% investing percentage grows, you need to have a fully funded 401k (if its matched by your employer) and a fully funded RothIRA before you use the extra dollar amounts on individual stocks and real estate purchases.

Supply & Demand and Star Wars

Crazy re-sale ticket prices on eBay for opening night within hours of tickets becoming available.

Supply and Demand is alive and well. It will be interesting to see if anybody gets the thousands, even tens of thousands they are asking for on e-bay for 7:00 showings.

Spend Yourself Wealthy

Its your spending, not your earnings, that count most toward wealth. I think we all know someone who makes an incredible amount of money and still ends up poor. (cough: "Athletes") It really is "what you do with the money" that matters most.

All else being equal (steady and improving income, no major medical expenses, etc.) you can have at least a million dollars in wealth by the time you are 65. Its all about putting your money in your bathtub.

Your bathtub represents at least 30% of your net income (N.I.) each month or pay period. It is the amount that is captured and saved. Now, its very important that you look at your bathtub as capturing AT LEAST 30%.  There are a lot of demands on this saved money so the more you can capture the better.

Spend Yourself Wealthy. Its all about opportunity costs. If you choose a housing situation that costs you 25% of your N.I.instead of 30% then you can capture an additional 5%. If you choose transportation options that cost you only 12% instead of 15% then you can capture an addition 3%. Every little percentage counts and soon enough you are capturing enough water to overfill the bathtub. Its all about what better thing you can do with the money in the future.

Speaking of the future; the next step is to add bubble bath to your tub. No joke, bubbles!

Learn VS Earn

In Financial Literacy today we were talking about resumes, jobs and interviews and while talking about where to apply for jobs, a discussion began about Learning V/S Earning. While being young and inexperienced may lead many students into thinking that low wage manual labor jobs are their only option, I showed that there is a whole world (business park) of options.

The Deseret News had an article about the 50 best companies to work for in Utah. Of the top 10, most students had only heard of one company.  My point was that of all of the companies in Utah to work for, why limit your search to the same companies that most other high school students look to. There are great companies in the various Business Parks along the free-way.

Now, can a high school student expect a high paying part-time summer job? No, of course not. But what if that summer job could be leveraged into a high paying post-high school job to help finance additional certification/education?

While your expenses are low (there may never be another time in your life when so much of your costs are being paid by someone else) what wrong with a job that may not even pay? That's right, work for free! Your payment will be experience and networking. These will pay you more in the long run than any minimum wage job ever could.

Go knock on the doors of your local business/technology park, dressed professionally, with copies of your resume in hand and start learning!

But what if you really want to own your own business or there isn't a business/technology park near you? Start a Summer Entrepreneurial venture where you can learn about starting and running a boot-strapped business. It may be small, but your gaining experience, not just doing a task.

DECA & SLC Comi Con Partnership

Below is an affiliate link Salt Lake Comic Con has provided to Utah DECA to share with friends, family, and co-workers. When anyone clicks on the link to purchase tickets, photo ops, autographs, or other event admissions, Utah DECA will receive 10% of of the purchase. We will use money generated for student scholarships.

https://goo.gl/uYGqCu

Salt Lake Comic Con has been an excellent partner for us. They are providing incredible access in addition to almost $20,000 in ticket value. 

Graphic for the 60/20/10/10 Rule

How the 60/20/10/10 Rule Saved my Family Vacation

60/20/10/10  No this is not some type of date or the GPS coordinators to buried treasure. However, given some time it will help you to create your own treasure. The 60/20/10/10 rule outlines your spending behavior and how it can help you create wealth.

60 - This is 60% of your NET income (paycheck = money after taxes) that you can actually spend on living expenses. Housing, Food, Transportation, Insurance, Entertainment must all be covered by this 60%!

20 - This 20% represents your Savings/Investing priority. When you are young or just beginning your budgeting process, this 20% is marked as Savings. However, once your savings goals are achieved this will become the amount you are Investing. Moving this amount from Savings to Investing needs to be done as quickly as possible.

10 - This 10% is opposite of the above 20%. Meaning, that while your first priority is to Save at a rate of 20% of your income, you will be simultaneously Investing 10%. Once your 20% Savings goals are realized you will then add this 10% to the 20% for a total of 30% into Investing.

10 - This other 10% is for charitable contributions as you see fit. This money is used to make the world a better place. You can spend this money on charities, churches, or to cover volunteer expenses. Once into retirement, your efforts to Save and Invest may then enable you to increase this amount well past 30% of your retirement "draw" to help those around you.

Some GREAT Savings Goals.

As mentioned above you will save 20% until your savings goals are achieved. So, what are some Savings goals?

1. $1,000 Emergency Fund. This is your problem solving money. Car and home repairs. This is your fist line of defense for your finances. 
2. 3 Months worth of Expenses (not your usual Net income but your usual monthly expenses. In a serious emergency you should be able to find ways to stretch this money to 4 or even 5 months)
3. 4-6 Months additional worth of Expenses based on job security. Once your initial 3 months savings goal has been reached you may want to consider expanding this to six months. This decision would be made by considering how likely you are to loose your job and how long it would take you to replace that income. If you are self-employed I would highly recommend having six months of income. If you are in the IT industry I recommend it because, while finding  a new job may not take much time, it may require relocation costs. If you are a elementary school teacher with more than three years teaching then I would not recommend extending beyond 3 months. 
4. Periodically you may want to drop from 30% Investing back to 20% Savings and bulk up your Emergency fund or your 3-6 months Expenses as your standard of living increases and the amount you need to sustain your expenses increases. 

So, how did the 60/20/10/10 rule save my vacation? Two days before traveling to Yellowstone this summer with my young family I received a recall notice concerning the power steering of my car. With no time to schedule the repair we ventured off on our family adventure. Just outside of Pocatello Idaho the power steering failed. I called the local dealership and took the car in. Within the hour they determined that the car "could" be driven, but a part needed to be replaced in order to fix the problem. Without that savings our trip would have been over shortly after it started (I would not chance completing a driving trip through Yellowstone with a young family on "iffy" power steering.)

Instead, I called a few car rental places and found a suitable replacement (in truth, an upgrade) for the car and continued the trip. While the car rental basically equaled the cost of the deposits we would have lost if we canceled the trip, it did allow us to enjoy Yellowstone in a more comfortable vehicle and we were able to create great family memories.

Of course the aftermath of dipping into the Emergency Fund is that I have now switched my 20/10 cycle away from 30% investing back to 20% Savings until the Emergency Fund is back up to $1,000 which will only take a couple of months. Then I will switch back to 30% Investing.

I was so grateful that I had access to my $1,000 emergency fund. It kept my family safe and provided a way for us to continue with our trip and get back home without adding much additional stress to the break-down.