Money Rehab with Nicole Lapin - “I Spent My Emergency Fund After Hurricane Ida. How Should I Rebuild My Budget?” (Listener Intervention: Mother and Son Edition)

Episode Date: October 27, 2021

Money Rehabber Mary reached out to Nicole with some questions on how her son, Sean, should use his savings to buy a car. Then, Ida hit, Sean was evacuated, and had to use his entire emergency fund. Nicole invited Mary and Sean on the show to talk about what to do next.

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Well, it doesn't. Charge for wasting our time. I will take a check. Like an old school check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand. Nicole Lappin. Today we have a very special listener intervention with a mother and son duo, Mary and Sean.

Mary had originally reached out to me with some questions on the best way for her son to use his savings to buy a car. And you're about to hear this question got a little bit more complicated between the time Mary sent the email and when we got on the Zoom. Here's our conversation. Thank you so much and welcome to Money Rehab. Thank you. Happy to be here. Tell me a little bit about what's going on. I started saving up for a car. I had a seed, a little bit of money that I was planning on using, but I have student loans and back payment in some bills from months of

rendering COVID. When should I spend that money on bills and when should I keep saving it? I guess it's kind of where we were coming from. Yeah. He also is really in need of transportation. He lives in a big city. He lives in New Orleans. He's trying to walk to his day job, walk to his night jobs. He's got music equipment stuff. That's not really, you can't do that. And he's been riding a bike, which is great, except that he's been hit by a car at least twice that I know of, maybe more than he's not telling me. Twice that he had to call me because it resulted in needing medical care. Oh, dear God. Sean, what the heck is going on?

Are you just playing in traffic? No, it's just this is how people drive in New Orleans, I guess. You know? Yeah. Well, you're about to give your mom a heart attack. So we got to get this under control. Right, right. But having reliable transportation, I think would would be a big help to him. When he's telling me he's got like, well,

I can ride my bike. It's only 40 minutes one way I'm hearing. Well, that's an hour and a half. And I know how much I make in an hour and a half. That's, that's a lot. And when he's having to pay for Ubers or whatever else, maybe buy friends a round of drinks because he used their car, maybe at some point we should just be working on getting him some transportation to save money in the long run and also to avoid getting hit by more cars again. again. Yes, please. So let me get this straight. Sean, it sounds like you've been really clobbered by the pandemic. All of us have. Can you tell me a little bit more about what happened during this difficult year? Well, so well, recently, so just the pandemic was one thing, but Hurricane Ida as well was another huge setback. So really what happened was I had a stable day job, working like three days a week. I had consistent gigs at night that were paying pretty well.

And that was enough to get by. And then pandemic happened. I lost my job. I also lost all my gigs too, because I was going to see live music. As things started coming back in certain ways, I kind of picked up new skills. I started getting into the video post-production and broadcasting, like live streaming of bands and music because I was just friends with bands that needed a way to play.

So I kind of got into that. And now I have kind of as a third job, first being I'm a barista by day, musician at night. And then all the time in between, I edit videos or deal with clients that need live sessions for bands. Well, it sounds like you pivoted amazingly with all of those challenges thrown your way. Well, thanks. Yeah, it was hard, but it was cool to learn a new skill. Well, thanks. Yeah, it was hard, but it was kind of cool to learn a new skill. And now that I have it, I started to kind of build... I got a little bit of savings. I kind of know what I'm doing. But as I'm traveling to places, showing up to studios and people's venues where they're performing, I kind of have a lot of very expensive gear that I can't be hauling on my back. Right. So does that savings include an emergency fund?

So that's where IDA comes in. So I was evacuated for three weeks during IDA. Most of that money was gone, spent on vats, also huge energy bills because energy is a terrible corporation. Yeah. So short answer, no emergency fund. Pretty much no. I used it. Right. Well, that makes sense.

I mean, listen, that's what emergency funds are for. A lot of times people are scared to break in case of emergency, so to speak. And that is a legit one. A hurricane, a global pandemic, definitely on the list of emergencies, legit emergencies. So you were able to Definitely on the list of emergencies, legit emergencies. So you were able to cobble together $2,000, it sounds like? Around there, yeah. Sometimes more, sometimes less, depending on if I was pulling some out to pay for bills. And what are those bills right now? What are your living expenses for a month?

Well, so it's kind of drastically changed because right now I moved into a friend's house who agreed to put me up and so i'm kind of living rent free for a little bit until i can kind of get stuff together but um a big one was obviously transportation because i was ubering to and from my job um rent obviously and then utilities and another one was like so a lot of the music stuff I do, the gear, sometimes get damaged. Sometimes stuff happens to the electronics. You need to take it in and get fixed or it's routine repair. Those are kind of the four big ones. So how much would you say you need to live on in a month? Right now?

In a month? Right now? Yeah. I mean, let's just start with right now. It sounds like the rent is going to increase in the future, as is the transportation. But for right now, what would you need to survive? Not to necessarily go get lots of rounds of drinks or whatever, but just to eat the basic stuff and take care of yourself. Eat the basic stuff. I mean, but just to eat the basic stuff and take care of yourself. Eat the basic stuff. I mean, including transportation to get to my job. If I'm Ubering to my job four days a week, it's about $30 a day, which comes out to about $480 a month. If I'm not borrowing a car to be able to do sometimes, or I will Uber into work and then get a ride home from a co-worker sometimes. So that number is, that's the max that I would spend.

For food, I can live off $150. For a month? For a month, yeah. Okay. I did it in college. I could do it again, but. Okay, fair. If I'm eating good, it's like $250.

Okay. Listen, I've been on a brown rice and beans diet. I know what's up. Okay, so what's the tally now? And then any other things you need for utilities, bills? You said you have student loan payments that you are trying to chip away at? So that's what student loans is about $960. And that's no frills. Okay. And any insurances like health insurance? I guess it comes out to like nine we'll say about a thousand eleven hundred then total maybe and when you get your own place

what approximately do you think the rent is going to be it depends it could be anywhere i'd say probably maybe around 750 and then plus utilities that would would be, I guess, another $200. So, yeah. So, $1,910. $1,910 is what we're looking at. And when you get your car, though, that will replace the Ubers, which I'm actually thinking is going to be less. If you have a car payment, or I don don't know we can talk about that and my recommendations my recommendations are to not have a payment um but if you did whether it's a car note or a lease or whatever those are probably going to be lower than what you're spending on ubers

right now yeah 480 is pretty steep for a very steep yeah yeah. So what was the tally with the Ubers and the rent? It's rounded up to like 2000. So 2000 total. Okay. So where are we status quo with the Ubers and no rent? Right around 1000. Yeah. About 1200. Yeah. Gotcha. Okay. And what for you feels like a comfortable emergency fund? This is different for everyone. This is not a textbook thing. This is kind of like a how do you feel thing. So typically, I would say three to six months of savings in the bank is a good place to start during the pandemic. And especially for folks who have precarious jobs like musicians or models or real estate agents or whatever, I would suggest more like nine months to maybe even a year. But that's for folks who, you know, might have some trauma or,

you know, will sleep better at night because they have more in the bank. What feels good to you? I would say around, like, honestly, the three month mark, just because I do have like, like a third of what I can make is a day job. Yeah. So it's something that's a little bit... More steady, stable. Yeah. That makes sense. And you're 26. So you are able to do a lot of things that some other folks are not. And that's great. So that makes sense. And you have all the earning potential. You have a lot of skills. Okay. So what is three times that amount? Is it 35 or so hundred?

Something like that. Yeah. It's around there. Okay. So let's say we want our goal to be an emergency fund of about $3,500. What is our goal for the car situation? I think your mom said it was $5,000. Well, that was before the hurricane. Maybe some of the goals have changed. And, you know, he needed, I mean, he had to pull whatever money he had to get out of town and survive. And that was really the priority at the time. So totally understandable.

What do you think you could get a used car at least four years or older in your area for? $4,000, $5,000, honestly, for that much. You can get a beater card just to get from point A to point B for $2,000, $3,000. In this area, I wouldn't really trust some of those. Makes sense. Yeah, they're a little older, a lot of miles, maybe not worth it. We were actually looking last night, and it's a lot harder to find used cars at all down there. And I think that might be a knock-on effect of the hurricane lots of people have their cars flooded cars lost the market is yeah it's it's between that and

housing the reason i'm staying in a friend's house right now is i my lease was up and this is just the only place i could really go a lot of a lot of people from you know different parishes outside of orleans parish had kind of lost everything and needed places to go. New Orleans had electricity, period. And they found housing here. Same with cars. You know, unless you took your car out of town, you lost it. So people need new ones. Yeah.

And I'm assuming that insurance is pretty hefty in that area as well because of stuff like that. Yeah, definitely. pretty hefty in that area as well because of stuff like that yeah definitely um you can get baseline insurance that's like you know 100 bucks a month but really doesn't cover anything so there's like not really a point to that it's just your street legal uh i definitely right now i'm living in a better neighborhood than i used to so it would be less than it would be if i were living, say, in my old house in the Upper Ninth Ward or in the Treme area. Okay. All right. So should we say that $4,000 is a good goal for a car? Yeah. Okay. And then what about a good goal for housing when it comes to getting the security deposit and the upfront costs that you're

going to need to move when i've moved in town before it's usually ended up being around 2300 just with if it's like my last place was yeah 750 a month okay you know deposit and first month rents plus you know getting the u-, getting if you need just, you know, new kitchen rags or, you know, trash can for the bathroom or whatever. Little things like that, you know? Yeah, because your mom is not going to allow you to not have a trash can in the bathroom.

Yes. Neither will any lady you date. So I agree. Hold on to your wallets, boys and girls. Money Rehab will be right back. Now for some more money rehab. Okay, so it sounds like we have three main goals right now. First is to replenish an emergency fund of about $3,500.

Second is to save for a used car for about $4,000. And third is to save for your own place with the upfront moving costs and security deposit at about $2,300. Did I cover that all? Yeah. And right now you have $2,000 in the bank. Right now I have none of that in the bank because that was my emergency fund for IDA. I see. It ended up being my savings, then

turned emergency fund. I see. Okay. All right. So with these three savings goals, do you know about sub-savings accounts? Do not. Mary, do you know about sub-savings accounts? Yeah. Okay. What do you know about sub savings accounts um yeah yeah okay what do you know about

them um it's a way to have a couple different savings accounts that you're saving for a a specific purpose a defined goal if you want to save for a car you want to save like your christmas your holiday fund yes mary i'm to have to watch my back here. Yes. Yeah, absolutely. You're crushing it. OK, so my suggestion for these three savings goals for you, Sean, is to set up these three sub savings accounts. So one, literally, it's another account that you get to label within your bank account so you could say car fund you could say emergency fund or oh shit fund sorry mary sorry mom she's good okay cool you can call it whatever you want oh i have a broken iphone fund as a sub savings account because they inevitably break my iPhone,

Miss Butterfinger. So I automatically deposit money in there. So when I do, I don't freak out. And then the third one is for your new pad. Whatever you want to call it that's going to keep you motivated to do it, I would set it up that way. Do you have a checking account or a savings account right now? Yeah, both. to do it, I would set it up that way. Do you have a checking account or a savings account right now?

Yeah, both. And how does your money go into those accounts? So my one account is just my one back home in Indiana that I just have always as a safe... I have it there. Also, it's just... It feels weird to get rid of it. And then my current one is a... That's the bank account I opened for him when I think he was like four years old or something. Yeah. I wish I had that when I was four. So is there any money in there? Um, I usually don't put anything in there just cause I can't. Yeah. It's, it's, my name is still on it and it makes it easier if I need to just like get money to him. I can run into the bank and make a deposit.

Okay. So we're pretending like that doesn't exist in this scenario, right? Whatever's in there. Yes. That's not really the one I use as much. It's kind of the last ditch fund. Like when he, you know, has to evacuate or something and he needs money. I see.

That's always there. Okay. So it's like a super emergency fund basically yeah all right so the one you have where you are that's a single account sounds like it's not a joint account is a checking account and your money from the coffee shop goes there automatic or direct deposit yeah it's direct deposit okay but it goes it direct deposits to my savings account so i'm checking out a savings it direct deposits to your savings account and then what happens to it and then i will usually when i run back the bank i'll transfer

it over that's that's that's a logistical i just need to tell my boss to get a different routing number okay let's do that cool great and then but you need to do, you still have to do stuff at the bank because you're going to want to ask them to set up three sub-savings accounts for you. And we're going to have to come up with a plan for what the automation is going to be. So you can actually set up a plan where some of your paycheck goes into your checking account and then automatically a portion of that goes into each of the accounts. So you can set this up beforehand, which makes it foolproof. Not that I'm suggesting you're a fool, but it helps all of us not touch it, right? It really focuses you toward your goals. Naming it sounds silly, but actually, psychologically, people are

more likely and more motivated to reach those goals if they see what they're saving for. And so it doesn't feel like some dark abyss of like some random account, and then you're never going to see it. So can we start with that? Yeah, done. Cool. And what, so how much do you bring in from the coffee shop and then how much would you say the music gigs and the other gigs are bringing in right now so it's been varying a lot so before ida it was usually about say 1800 a month 2000 a month from just the coffee shop um and with gigs on top of that i was making it really it really fluctuates because you know due to different covid restrictions based on bars

i lost a lot of work for recording live bands and some gigs but i have some gigs coming up um it's like say 2500 maybe this is about 18 1800 from the coffee shop and the rest was you know it's like scrapping up gigs yeah but now at post ida my paycheck has been kind of cut in half because we're not really getting as much foot traffic it's a job based mostly on tips gotcha so i got yeah so right now it's about... Tip your barista, folks. Please. We're all about that on this show. I love that. Okay. So approximately, what are you bringing in from the coffee shop right now?

Right now, about $1,000. Okay. And that sounds like what you need to live on. Yeah. So I'm living. So the tricky part is that you don't know in the beginning of the month how to actually set that up. And I don't want to leave you with too little in your checking account so that you overdraft. Do not get overdraft protection. Don't sign up for that. Bad news.

If you don't have money, you shouldn't be able to buy whatever you're trying to buy. I digress. So I don't want to have a percentage go and then you not have money into the sub-savings accounts. Because typically, I try to suggest about 15% of your take-home pay goes to your end game. So, whatever your end game is, for you, Sean, that is a car, a place, and an emergency fund. is for you, Sean, that is a car, a place and an emergency fund. So you have three goals. And so easy math, I would just put 5% in each of those. Would that be an okay place to start? Yeah, that looks like it's like maybe around 50 bucks. That's doable. For each. Yeah. Mom, what do you think about this?

I think that sounds great. I think it sounds like a good way for him. We'd like to find a way to help him. And we want to, you know, make it so it's useful for him, but also so that it's like getting him somewhere. You know, we don't want to make him feel like he's beholden to us or give him help in a way that it's like us saying, well, we want to help you do this if that's helpful to him does that make sense well does it make sense to you sean what is helpful for you your mom just wants to be helpful i love mary i would like to be adopted by mary so she's awesome i love my mom too i mean i was i mean obviously you know my mom says to do something and my first reaction is no i'm not gonna do my mom says to do something. And my first reaction is, no, I'm not going to do that. Mom said to do it like this, which ended up being helpful.

I didn't want to do it. Thanks, mom. Sorry. How much fun are we having, though? So, yeah, I just didn't listen to her. For today's tip, you can take straight to the bank. If you're a parent looking to help your kid out with a purchase, opt for a system where you can encourage good money habits. Instead of just Venmoing a contribution, set up a system like Mary where you only make your contribution after your kid meets a certain savings goal. That way,

you're helping them out in two ways. You're giving your kid a little financial help while also sneaking in some positive reinforcement for those good money habits. so sneaking in some positive reinforcement for those good money habits. Money Rehab is a production of iHeartRadio. I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Mike Coscarelli. Executive producers are Nikki Etor and Will Pearson. Our mascots are Penny and Mimsy. Huge thanks to OG Money Rehab team Michelle Lanz for her development work, Catherine Law for her production and writing magic, and Brandon Dickert for his editing, engineering, and sound design. And as always, thanks to you for finally investing in yourself so that you can get it together and get it all.