Money Donuts® Episode 11: Emergency Funds Can Keep You Afloat

Steve:
You're recording on James?

Cooper:
No, I don't know what his face looks like.

Steve:
Oh my gosh. I like how James is disappointed that you can't do Face ID for him.

Cooper:
I could if he added my face on his phone.

Steve:
To describe to our listeners right now, is Cooper is holding up James's phone for him to put the code in.

Cooper:
Don't smile. Were you smiling when you did it?

Steve:
She is not happy that he is enjoying this.

James:
Success.

Cooper:
Oh, how did I get you farther away?

Steve:
Tilt it up, tilt it down. Here, we go. So, Cooper has a story for us. It's story time with Cooper.

Cooper:
So, last weekend.

Steve:
Can I throw in little jabs as we go?

Cooper:
Yeah.

Steve:
Perfect.

Cooper:
So, last weekend, I went on a fun, budget-friendly activity, which was tubing down the Chippewa River with a couple of friends.

Steve:
Eau Claire.

Cooper:
In Chippewa.

Steve:
Okay. Makes sense.

Cooper:
Yep, and I think it's the Chippewa River. That makes sense in my head. It was in Chippewa. But we went-

James:
Did you go to Loopy's?

Cooper:
Yeah, Loopy's dropped us off.

Steve:
I got to interrupt quick. I just got a real-time alert while we are doing this video, and now I know that my wife was able to make it to the store to buy things that we need. And I do not have to go after work, so we can continue recording a little bit longer. Boom, real-time alerts. Back to the story. Sorry.

Cooper:
So, as we're tubing down the river, my friend who shall not be named, was digging in the cooler to get a snack. And I had my phone on-

Steve:
Just saying, was the cooler in the tube?

Cooper:
Yeah, we had a cooler tube.

James:
Yeah, set the scene for me, please.

Steve:
Yeah, paint the picture.

Cooper:
So we're all floating. There's four. Four tubes in a semi-circle and a mini-cooler inside of a tube, a cooler tube. Okay? So the cooler floats. So we're all sitting with all of our feet towards the middle so we can all see each other, and we're having fun, and we're talking and whatever. And so she has to get a snack, okay? Out of the cooler.

Cooper:
So she takes all... We had shorts on over our swimsuits, right? So I had that in the cooler to try and keep them dry. So she's digging in there and grabs all this stuff out of the cooler. And my other friend goes, "Hey, I think a phone just fell in the water." And my friend goes, "No, mine's right here." And she holds up the phone in her hand. And I go, "Oh, it's my phone." And it was. It was my phone, which is now fish food in the bottom of the Chippewa River.

Steve:
I hate that feeling.

Cooper:
And so I do have a new phone now, but I didn't for a while. And my friends are mean. They kept making like, "Oh, you should call... Just kidding."

James:
"Why didn't you text us back?"

Cooper:
"Do you want to text? So... Oh, nevermind."

Steve:
So besides having to get a new phone, what kind of problems? And I'm just going to just gloss over the fact that you brought your phone in the river. We're just going to just cruise by that point. What problems has this brought up to you for your life?

Cooper:
So many. I can't log into or access my notes that has all my passwords in it because I don't know the password. And it's also just a really good example of why we have an emergency fund, right? Because, obviously, I didn't have insurance on the phone, because why? It's $15 extra a month I didn't want to pay. So, having that money in savings was a good idea to buy a new phone.

Steve:
So you didn't listen to Jody and you didn't have a-

Cooper:
Oh, no.

James:
No, I think she did listen to Jody.

Cooper:
Oh, I listened to Jody.

Steve:
Jody said that you could do it. But Jody also said that the best idea is to have the-

James:
Oh, a password manager?

Steve:
Thank you.

Cooper:
No, all I heard was, "You can do this." And I was like, "Cool, I'm going to be super secure."

Steve:
A little bit more secure, but-

James:
I think that part needs a more of an explanation.

Steve:
Yeah. So, yeah. What's happening with the passwords?

Cooper:
So I have all my passwords, every password from when I was like 16 on a note on my iPhone. Okay. I changed the password. I changed the note. It's a system. It works.

James:
And so during the password's episode of the podcast-

Cooper:
Yes.

James:
... we were talking to Jody about passwords and you had asked her, "Oh, can I just password protect a note on my phone?"

Cooper:
Yeah. And Jody said, yes. So what do I do? I password protect the note thinking I'm-

James:
And you did it during the episode?

Cooper:
Yes.

James:
Is that what you're saying?

Cooper:
Yes. I did it during the episode because it uses my face, right? Face ID. I hold it up and it's like, "Okay, thanks, Cooper. Here's all your information." Cool, right? Slick. Except when you get a new phone it doesn't let you use your face. And so now I need the password to get into the password app and I don't know the password, and I didn't give myself a good hint.

Steve:
I just had flashbacks of Jody saying, "But you have to remember your master password because the companies are not going to give that to you. You have to remember that one password."

Cooper:
Okay, I used-

James:
Did you try money donuts? Is it something to do with money donuts?

Cooper:
No. I didn't try donuts. No, here's the thing.

James:
Cooper, get your phone out.

Steve:
Oh my gosh. If you unlocked it right here on the podcast...

Cooper:
My life would just, nothing would be better. It's not donut.

Steve:
Is it money donuts?

Cooper:
Donuts. Why would I make it something so...

Steve:
What was it? What was the hint again? That was my favorite part.

Cooper:
The hint, which should typically be something to tell you what your password is, right? My hint is: "You know the password." No, I do not.

Steve:
So welcome to this episode of Money Donuts.

Cooper:
We thought this was going to tie into something.

Steve:
It ties into the fact that sometimes on this podcast, there's good information and you should be listening to it.

Cooper:
That's actually an excellent point.

Steve:
So...

James:
Or rent a separate floaty for your phone if you want to take it on the river.

Cooper:
No, this is my new bright idea. Whoever's listening could make millions off this: floating phone cases.

Steve:
I think that's a thing, right?

James:
Yeah, it has to be a thing.

Cooper:
I don't have one.

James:
Or the boat key floaty thing that you just put a lanyard thing on the...

Steve:
I think this blends into-

Cooper:
Floats into?

Steve:
... emergency funds, budgeting. You needed a phone. We always have certain expenses coming up, right? We have the holidays coming up at some time, back to school expenses. I need new shoes eventually. How are we budgeting for that?

James:
I love new shoes.

Steve:
You love new shoes? Yeah, me too.

Cooper:
I need to go buy new shoes after this.

Steve:
So what type of things can we work on or focus on so that we can be better at budgeting for the little stuff?

Cooper:
Oh, I have an idea. Can I share my idea?

Steve:
Should we talk about... Yes. If I interrupt with what donut it is today-

Cooper:
Oh, do you have a donut?

James:
Donut of the day.

Cooper:
Is it the-

Steve:
Donut of the day.

Cooper:
... seaweed donut

James:
Pew, pew, pew, pew. Donut of the day.

Cooper:
The daily donut.

Steve:
The donut of this podcast is...

James:
I can't tell if Steve actually has one or not.

Cooper:
I feel like it's going to be making fun of me somehow.

Steve:
I don't have a donut.

James:
I knew it. You [crosstalk 00:07:58].

Steve:
Dang it. I was thinking just a plain, white, frosted donut.

Cooper:
A circle or a long John?

Steve:
A long John without any cream filling.

Cooper:
I like it.

James:
Is there one that's just hard? Hard as a rock, not appealing, because that is what saving for anything is just hard.

Steve:
All right. Let me explain the long John with white frosting. It's a little basic when you say the-

Cooper:
Yeah, my favorite donut.

Steve:
And you love savings, too? Is it saving, right?

Cooper:
I do.

Steve:
Yeah, so it's, it doesn't have to be bad, but it's basic and it's the first donut ever created.

Cooper:
Like the foundation of donuts. Same as the foundation of your financial life.

Steve:
James, can we get you to buy in on this?

James:
But it's hard. All right. All right, I'm in.

Steve:
Just say, savings hard or the donut's hard?

James:
Saving.

Steve:
Okay. How about we leave the doughnut outside for two days?

James:
I don't know what-

Cooper:
A raccoon would probably eat it.

James:
What do you want me to say to that? No, I want to eat it. That's the struggle that you face when you're saving.

Steve:
This is the difference between me and James is that-

James:
You going to mop that right away? Are you going to wait till later to have it?

Steve:
I would still eat that donut after two days and he's already dismissed it.

Cooper:
I don't know what I would do. Depends on how hungry I am.

James:
I'm struggling to bring this back to saving.

Cooper:
Okay. So can I tell you what I learned from losing my phone?

Steve:
Yes.

Cooper:
So when it comes to saving and setting yourself up for a good financial future, having adequate insurance is a big one. Okay. Why? Because I know you're both, "Where is she going with this?" I'm going somewhere. But having adequate insurance saves you money in the long run. Right? So it can help with medical bills, things like that. So when I went in to get my new phone, he said, "Hey, do you have insurance on your phone for these mistakes?" And I said, no. Now mind you, the phone then cost me over $600, but had I had that adequate insurance on my phone, it would have cost me maybe 200, and I would have walked out of there with a new phone for a quarter of the price. That's what I learned.

Steve:
But, to go down this rabbit hole a little bit, with the amount of money you would have paid over that two years per month-

Cooper:
It would still only been the $200.

Steve:
Yeah, but you-

Cooper:
So then I would've paid four, but I still would've saved two.

Steve:
You would have saved two. So you would have saved money.

Cooper:
So I still would have saved $200.

Steve:
Would you had to prove that you lost it or was it like a no question asked?

Cooper:
No, you just are, "My phone's on the bottom of the river." And they're, "Okay."

Steve:
So saving for those little things. So did you have budget prepared for a new phone?

Cooper:
No. Well, so here's the deal. So did I have a budget specific for a new phone? No. Do I have some of that set aside or emergency fund money? Yes. So this, I considered an emergency. It's not something I probably would typically consider it, but that's why I had the money there.

James:
That's an emergency. Phones at the bottom of the river. What are you going to do?

Steve:
Yeah. Our air conditioner recently-

Cooper:
So many people's air conditioners are just popping.

Steve:
Emergency fund, right? Emergency savings-

Cooper:
There are those uh-oh moments.

James:
I know my daughter's going to need braces.

Cooper:
Is that an emergency?

James:
It's a different type of saving though.

Cooper:
Are you going to save for your daughter's braces?

James:
I feel like that's a health savings account thing to do it, right?

Steve:
All right. So your daughter needs braces and that was a surprise?

James:
Kind of. We found out that she has an extra tooth on the bottom. Apparently it's not that uncommon.

Cooper:
Can't you just pull it?

James:
So that has to get taken out. The extra tooth has to come out, and then they have to rearrange the spacing with braces on the bottom so that it's all evened out for the next one to come in. So it all works out in the end.

Cooper:
Are you going to make her get the ones with colored rubber bands or let her be invisible?

James:
I think, I'm pretty sure there's only... She's only seven. So there's limited options.

Cooper:
I think they can have the...I don't know.

Steve:
Not to be a stories topper, but my daughter had four teeth pulled out to give room for the new teeth that were coming in.

Cooper:
Goodness. I had a tooth pulled once.

James:
Does she have to have any braces?

Steve:
She's going to need braces. Yeah.

Cooper:
I need braces still. But anyways, saving is good. We should have an emergency fund. Okay. Pop quiz.

Steve:
Yes, pop quiz.

James:
I like a quiz.

Cooper:
How much money should you actually have in your emergency fund? What's kind of the standard that people recommend?

James:
I'm waiting for Steve to pipe up.

Steve:
Do you know the answer?

Cooper:
Steve is looking at James.

James:
Three to six month expenses.

Cooper:
James is looking at Steve.

Steve:
I was going to say three months of expenses.

Cooper:
Mmm. Close. Both were right, I guess. Good job. Yeah.

James:
I think it depends on your situation.

Cooper:
Ooh. Okay. I like where we're going with this. Why? Why does it depend?

James:
You have to account for the emergency situations that could happen. Are you going to lose your job? You and your spouse both work?

Steve:
Can you really account for emergencies?

James:
I think of the absolute worst case scenario is you and your spouse both lose your jobs on the same day. You immediately go into reaction mode. Yank the kids out of daycare. And so you stop paying for that. After two weeks, absolute worst cases, the job market in the field that you're in has just disappeared overnight. Right? There's no longer a job for you anywhere. You're not going to be employable by anyone.

James:
So your strategy is totally reactive and you're pulling the kids out of daycare, keeping them at home, you're staying home with the so there is no childcare expenses. You're looking at selling your car as soon as you can to downsize, get something cheap that just gets you from A to B. If you need transportation for your job or just getting rid of it, becoming a one-car household-

Cooper:
The job you don't have?

James:
Right.

Cooper:
Got it.

James:
'Cause you're still looking. You're still trying to find a job.

Cooper:
Ah, got it. Okay.

James:
That's key because a lot of programs depend on you-

Cooper:
You could buy a horse.

Steve:
Still looking.

James:
... still being looking.

Cooper:
Go over by horseback.

Steve:
Horses?

James:
Yeah. That's more on the investment, just kidding. And then you're looking at the rest of your budget: what don't I need anymore? What luxuries or what lifestyle choices have I made that I can't sustain anymore. I'm canceling Netflix, I'm canceling Amazon Prime. I'm canceling Disney Plus.. I'm looking at selling the kids' Switch. I'm looking at-

Cooper:
I thought you were just going to say selling the kids.

James:
No, not selling the kids. You're going through your budget that you have of your monthly recurrent expenses and saying, what don't I need anymore? What can I trim out? I'm reducing my auto insurance. And then at the end of the day, you're looking at that bottom line number on your budget. And you're looking at that and you're saying, "That's what I need to have saved to last me until I can do something to get me back into the black, so I'm not bleeding money anymore," which is really bad. So I'm not losing money every month. Why do you guys look like you're in shock? You never thought about this?

Cooper:
Well, no. I mean I think the goal with an emergency fund-

James:
That's too extreme?

Cooper:
... is to not go into full reactive mode. So you want three to six months worth of your income and expenses saved. So you're good. You're good for a little bit.

Steve:
I was, when you were talking and I was thinking, if you can cut things that easily, maybe you should start cutting them now.

James:
Maybe, but maybe you just like them. Think Netflix. Think Amazon Prime.

Steve:
Gone.

Cooper:
I really don't need a... I could just read books.

James:
Coffee? You're making drastic changes at that point. So I think it just comes down to how difficult-

Cooper:
But coffee's a need.

James:
How hardcore do you need to be? So that's the difference between full on emergency-emergency versus, "Oh, the washing machine broke. I just need to replace it." So...

Cooper:
So the actual point of an emergency fund is to have three to six months' worth of income and expenses saved, because if worst case scenario, you lose your job, you can still pay for things while you're looking for that other job without going into that full panic crisis mode. But that being said, save what you can. Having $500, $1,000, whatever in that account is always going to help. Right? So it's going to be X amount of money you don't have to worry about if you're buying a new refrigerator or if you do lose that job. But long-term goal? Three to six months.

Steve:
What's your best advice on how to start an emergency fund? Is it just putting stuff in your savings? Is it creating a separate savings account?

Cooper:
I think it kind of depends what kind of saver and spender you are. Okay, so I'm a natural spender. I talk about that a lot. I like to spend money. So for me, I have to have it be automatic and it has to go somewhere else. So I have a savings account that's separate from the one that's with my checking account and stuff. So when my paycheck goes into my account, a portion of that automatically goes to that savings account. I don't see it. It's there. I can access it if I need to, but it's not what I'm looking at when I log into my mobile app, or I don't get real time alerts for what the balance is, right? So that's how I am.

Cooper:
Some people like to physically go in and transfer the money and say, "Okay, I have 300 in that emergency fund. I have 5,000 in my car fund," whatever it may be. So it just kind of depends what works for you. But automatic is number one tip, I think. Making it automatic is really helpful.

Steve:
Can I create my own little sub counts through online banking?

Cooper:
You can't create sub accounts. You have to actually open those, but you can see them all in online banking and you can actually create transfers within online banking. So when I get my paycheck, my credit card payment, my car payment, my other savings accounts, all the money just goes automatically. And then I know what I've got.

Steve:
Pew, pew, pew, pew.

Cooper:
Yeah. It's magic.

James:
Yeah. I think it just depends what works for you and however you want to do it.

Steve:
Yeah.

James:
Which is the problem. There's no one piece of advice that applies to everyone, I guess.

Steve:
Right. Do you think when you talk to people in the world, besides me, do people have savings? Do people have emergency savings accounts?

James:
I think the pandemic has opened a lot of people's eyes and-

Cooper:
To needing one.

James:
... if you received a stimulus check, the statistics are saying that a lot of people are actually saving that money. They're not spending it, so...

Steve:
Do you think people before didn't have the energy to make emergency savings account before-

James:
It's hard work. Is that what you're saying?

Steve:
Well, before, yeah, it was hard work. It's hard work saving, or it takes energy. And then with possible stimulus money, it was kind of thrust upon them. And now they're, "Hey, we have a savings account."

Cooper:
Kind of. I mean, I think a big part is we live in such a credit-focused world now that people assume they can just take out a loan for it or throw that expense on a credit card. I think they say just like 39% of all Americans would be able to come up with $1,000 in an emergency. So there's a big chunk of people that can't, right? And it used to be a smaller number. It used to be like $500. But I think we just live in such that credit mindset where we're going to throw it on the credit card, but then you're creating that extra payment. You're going to pay interest and things like that, so...

James:
I think it's stress management kind of. It's stressful to do the saving, but you just have to remember, it's going to be a lot more stressful if you don't have it when you need it.

Cooper:
Yeah. It feels so good to pay for whatever it is.

Steve:
It does make me feel better to have more of my savings right now and-

James:
You got to keep it out of sight, out of mind, maybe, depending on who you are.

Steve:
Yeah.

James:
Because otherwise, you're going to be like, "Oh yeah, I don't have to worry about money. I'm not going to stick to my budget this month because I have X amount of dollars in my account. I don't need to worry."

Steve:
I do feel like my money mindfulness has kind of flipped though. And I think, "Oh, we have that money," but I also think that I'm so cheap that I'm just, "No, I'm just not going to spend money."

James:
I think that comes back to the goals. You got to have a goal that you're working towards, or that's the other issue with an emergency fund is it's, not specific. It's not measurable. It's not timely like those smart goals that we talked about, so-

Cooper:
But, so-

James:
You don't know what you're going to do with it.

Cooper:
That's a good point where the emergency fund isn't all those things, but saving for a vacation is. Right? So that vacation is not coming out of your emergency fund. It's a separate goal that you are working towards or a separate fund that you need X amount of dollars in to take whatever vacation you might want. So emergency funds and those other funds are, they're different. Right?

Steve:
Yeah, and that's a good point. I mean, it's like that-

James:
So it's easier. It's easier to save for something specific. It's easier to save for some types of things, it's easier to save for.

Cooper:
Right.

James:
It's easier to save for different things. Things are easier to save for. It's easy to save. Saving's easy.

Cooper:
But if you wanted to make that emergency fund specific, one of those goals, it could be saving a month's worth of income and expenses. It could be saving two months' worth. So you have something that you're working towards. But a tip with that too, I always say: save what you can. Maybe that's not realistic if you're trying to pay off debt and stuff right now. So if you can save a 100 bucks a month and put it in there, sweet. It's a $100 a month that you're saving.

Cooper:
I like to tell people to be mindful, too. Like you don't want savings to be a super stressful thing. So you don't want to save 150 if you're cutting out a bunch of stuff, but if you're buying coffee every morning... Well, part of that could probably go into savings. You don't need to buy a coffee every morning. So taking a good look at those finances and figuring out what can you actually put in that savings account... I feel like you're going to argue with me.

James:
No, I was going to say-

Cooper:
Oh.

James:
... that at a certain point, you have to look at the other side of the coin and say, "Am I saving too much?" I'm losing money by just having all this thousands and thousands on my account. Am I supposed to be doing something else with it? I don't know. I don't think that's a problem that too many people have, but-

Steve:
But, I mean, that's something to think about is if you do have a lot in your savings, how can you reinvest it in?

James:
Can I get a better rate with something else? A certificate, a money market-

Steve:
A money market, yeah.

James:
Maybe I should be putting it towards retirement. An IRA or... Should I have it taken out of my check as a 401k or HSA? What am I doing that I shouldn't be doing?

Steve:
But if you have those questions, where you go, what do you do?

James:
I'm going to start by asking someone who has the answer, I guess. I almost want to sit down with someone and look at my whole financial picture from A to B. It seems like it's an involved process, but I think it'd be worth it. I don't know.

Steve:
Who would that be?

Cooper:
An awesome certified credit union, financial counselor from Royal Credit Union.

James:
Yeah, that'll work.

Cooper:
That's where you could start to do the free financial review we offer. Royal also has a full team of investment advisors too. So they can be really helpful for figuring out the product to get you to a certain goal that you have meeting with them.

Steve:
I feel like this is another podcast where we could just talk about how you can make your money work for you. All right. So let's wrap this up.

Cooper:
So you want to wrap it up. Do you have any final wise words of wisdom?

Steve:
Yeah. I'm just imagining fish taking selfies with your phone, or maybe they're...

James:
It's probably shiny on the bottom. Maybe.

Cooper:
They're probably swarming it.

James:
There's probably dozens of phones down there.

Steve:
They're probably trying to get into online banking and check out your finances.

Cooper:
What do you think fish would buy if they could access my money?

Steve:
Do you think Saving Sammy's down there?

Cooper:
Oh, maybe he... Saving Sammy is my friend. Maybe he is down there.

Steve:
He's looking for it. If not-

Cooper:
Why didn't I think of that? I should've just been like, "Hey, Sammy. Dive in, please." Well, I would have called him, but-

James:
You don't speak whale?

Cooper:
I didn't have my phone.

Steve:
I guess I wanted to wrap this up by just saying, reiterating again: if you have questions or topics that you'd like us to talk about or financial questions that you want answered, to let us know.

Cooper:
You can find us at Money Donuts Podcast at rcu.org, or give us a five-star review and leave it in there. And say, "I love this podcast, but it would be six stars if you talked about blank, please."

Steve:
And have we named our podcasts listeners yet? We're the sprinkles. If you listened to Money Donuts, what are you?

Cooper:
I feel like they should have been the sprinkles.

Steve:
I think you've said that before, but I took it for myself 'cause I liked it.

Cooper:
They could be... I don't know.

Steve:
Get back to us on that, too. Just do-

Cooper:
What do you want to be called?

Steve:
What do you want to be called? Thanks for listening. We'll talk to you next time. Or at least you'll hear us.

Cooper:
We're talking to them. They just can't talk back. Just the way I like it. Bye everybody.

Steve:
And cut.