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Naked With Cash: Brian, July 2014

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Naked With Cash is an ongoing series at Consumerism Commentary in which readers share their households’ finances with other readers. These participants benefit from the accountability that comes from tracking their finances publicly and the feedback of the four expert Certified Financial Planners (CFPs).

For more information, read this introduction.

This year, we have four participants who will share their financial reports, exposing the results of their financial choices. Each participant is paired with one of our Certified Financial Planners. The experts will provide insight and guidance that will help our participants take their finances to the next level by the end of 2014. Learn about this year’s participants and experts.

Brian and his wife have two children. They are a one-income family since Brian’s wife stays home. They pay off their credit cards each month, so their only debts are student loans and a mortgage. This month, the focus is on emergency preparedness. (Read Brian’s update from last month.)

After reading Brian’s comments, you can see video commentary from Jeff Rose, CFP. Jeff Rose appears courtesy of Good Financial Cents and Life Insurance By Jeff.

Brian’s Net Worth Statement

Brian’s Income Statement

Comments and analysis from Brian

This month is about emergency preparedness. We have taken a few steps to prepare. We keep water, flashlights, and other essentials in our central bathroom in case they are needed. We also have an emergency fund in case any needed cash is needed. We had an EF 0 tornado touch down within a mile of our house a few years back, and that really woke us up that anything can happen. Since then, we have been slowly improving our readiness.

This month is beyond words for our family. To start things off, we had positive cash flow for the first time since our tax return. Then I got word that I will get a raise in August; that will further help cash flow. Then, in the middle of the month, I received a call from my mom that I will receive a portion of my great aunt’s estate. This blessing is going to be a financial reset for our family. We are still working on a plan and will talk more in next months report.

Feedback from Jeff Rose, CFP

Jeff Rose talks about emergency preparedness and comments on Brian’s financial progress.

Feedback from Luke Landes

Congratulations on reporting the first cash-flow-positive month in a while! I’d like to remind readers that the income and expense statement shows debt payments as an expense, when they’re usually just considered transfers. So net income is always higher than what’s reported on Brian’s income statements. But having a positive cash flow is important, too, because it means you can build savings.

The raise is good news. A raise gives you a lot of options. One of the first things I look at with a pay increase is the possibility of using the bulk of it to reinforce savings. Brian seems to be healthy in that area. The next thing I look at is the opportunity to accelerate debt repayment. This is one area that I think could be a good target. Despite some increased balances this month in Brian’s credit accounts, debt repayment seems to be in control. If anything, I would consider tackling the student loans, even though the rates are low. Student loans have some protections, like hardship deferment and income-based repayment, but they will stick around a long time and prevent you from using your cash flow elsewhere. Brian might want to consider using a portion of the pay increase to pay off the student loans faster.

And perhaps a portion of the increase should go right to the 401(k). You have many options for dealing with the pay increase that don’t involve spending (though it’s fine to celebrate the news), and what you do reflects your priorities. The same goes for the portion of your great aunt estate’s that you will be receiving. That’s another piece of good news. I look forward to hearing about how you plan to handle that, particularly if it’s an unexpected “windfall.”

The idea of a “financial reset” is promising, and it could potentially take your “emergency preparedness” to the next level. Even paying off debt affects your ability to handle emergencies, and that’s why many financial advisers like the idea of building an emergency fund at the same time you pay off debt. A good plan for debt repayment involves more than just throwing every cent you receive at your debt accounts, because if you don’t have any savings built up, the next emergency could send you right back to where you started. That might not apply to Brian’s current situation, but it’s something to keep in mind as you determine the best strategy for building a financial future.

Published or updated August 25, 2014.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 3 comments… read them below or add one }

avatar 1 Anonymous

Why is the value of you house going up an average of $3600 every month? Surely that value is arbitrary at best? Personally, I’d leave it alone and only re-visit it annually. It’s really skewing any meaningful net worth progress.

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avatar 2 Anonymous

I report whatever zillow says is the estimate of my property. In the last few years it has been stable, but lately are area is a little more volatile. Plus I believe zillow is under what the properties in my area are going for, so I like to use that number to report.

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avatar 3 Anonymous

That’s what we do to Brian. since last december ours has gone up a lot. I talked with a realtor just last week and asked if it sounded correct. He told me around here the property values had gone up tremendously and said the number we were using sounded about right.

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