Learning to create a personal budget are something that we care about here at Mint. Learn more with great budgeting tips in our blog article index.

Every now and again we at Mint like to remind you why it’s important to be responsible and create a personal budget. It’s something to think about while you read this person’s experiences.

Remember that time when your parents paid for everything? Yeah, that was awesome. Too bad it didn’t come with the warning label: EXPIRES AT THE AGE OF 21. NOT APPLICABLE TO CREDIT CARD BALANCES, REGARDLESS OF PROMISES MADE BY PARENTAL UNIT.

When I was in college, I made the poor decision of believing my father every time he said “just put it on one of your cards and I’ll pay for it.” He was always an advocate for having good credit and using credit cards to your advantage while being very careful to not abuse them, so I trusted him.

Instead of arguing the logistics of displaced responsibility, I just figured my dad knew what he was doing, so I did as I was told. $120 shoes as my birthday present from my dad, $3500 tuition payment from my dad, $1000 down payment on a car from my dad. I informed my dad of every purchase I made with a credit card before I made the purchase, and everything seemed to be just fine.

All nine of my credit card bills were sent to my home address, where my dad received them, reviewed the purchases, and paid them. Living life on the speeding train called “Free Ride” was good and easy. Until it broke down.

Apparently my dad forgot about the second half of his “just put it on one of your cards and I’ll pay for it” motto. After I graduated college and promptly moved to the other side of the country, 3000+ miles away from home, my dad informed me that he “was starting” to lose control of my credit. He “suddenly” wasn’t able to make the payments on my credit cards.

At the time, I didn’t think much of it. I had just turned 22 and was more than willing to take my finances into my own hands and start paying what was left on my credit cards. I knew there was probably a large total balance remaining and I was prepared for it to total about $200 in monthly payments. I went online to register for “online banking” and change my billing information for all of my cards… and that’s when the speeding train called Free Ride crashed. Straight into nine accounts of overdue debt. I needed to create a personal budget.

I noticed late payment warnings on most of my accounts. Some accounts wouldn’t even let me register online, so I had to change my billing info over the phone. My dream of managing multiple online credit card accounts was crushed into a concentrated nightmare of threatening letters and phone calls from scary debt collectors.

I guess my dad’s perception of the words “starting” and “suddenly” vary slightly from the norm. Apparently “suddenly” meant “I haven’t been paying your credit cards for the past four months.” I managed to jump from having no credit responsibilities to being responsible for over $20,000 in delinquent credit card accounts. I researched as much as I could in order to figure out how to tame this beast of a situation, but I was unsuccessful in doing so. I was quite skilled at neatly filing all of the debt collector letters and bills, but unfortunately that didn’t help the real problem… finding the money to actually pay this debt.

It’s now two years later, I turn 24 in less than a week, and while I’ve finally gotten my act together and started savings money to get rid of this debt, I’m still in the midst of sorting out the rightfully angry, honest debt collectors from the downright sketchy, illegal debt collectors. Looking back on how I got myself into this mess, I’m kicking myself for listening to my father in the first place, but at the same time I’m now aware of just how useless it is to have someone else manage your finances. When it comes down to it, you’re still the sole responsible party.

It doesn’t make sense to put all of the work and knowledge into the hands of someone else if in the end, because no matter how many fingers you to try to point away from yourself, it’s still your name and your identity. You’re better off being in control from the beginning: that way you’ll know how to fend for yourself if it all comes crashing down.

Mint’s Take Away: This is a very difficult situation that occurs quite frequently among many young adults in America. Many people may say that the original poster should have taken care of their own finances from the beginning — and we agree; but we also believe that the original poster understands this. Had the story been written with a sense of entitlement, we would have dismissed the story immediately.

For many parents and their children heading off to college, communications regarding finances is incredibly important. If you were to ever promise financial help to your child, make certain they know full well what they will receive from you and what you expect from them.

Although many parents would love to be able to continue to provide for their child’s welfare, it is important to not over extend yourself in your attempts to help your child financially. If you’re not careful, situations like the story above can happen before you know it. Remember, there will always be student loans for your child’s education — but there will never be a loan for your retirement. Lastly, the real shame in situations like these is not the occurrence of financial hardships, but more often the strife that forms between a parent and a child.

Train Wreck Tuesdays are a weekly post of horrible financial mistakes. They are posted anonymously. Submit your story; if you’re selected, you get a free personal finance book. The best comment gets the same prize! Check out past Train Wreck stories here.

Further Reading on Creating a Personal Budget

• Create a Personal Budget Online
• Budget Software and Tracking
• Household Budget Software
• Financial Planning

Learning to create a personal budget is something that we care about here at Mint. Learn more with great budgeting tips in our blog article index.

In almost every piece of general personal finance advice, you’ll skate across a recommendation for an emergency fund. Whether it’s for the “oh no, I broke my leg” moment; or the “oh no, my engine just blew up” drive; or the “I just got fired” shock; it’s critical to have that rainy day money stored away for just such an occasion. Even if you create a personal budget, you still need to have an emergency fund.

There are a few components to just such an emergency fund, which we’re about to go over. You should be able to access the fund easily, for example: it shouldn’t take over a week to access. You should use the fund only for an emergency; and we don’t mean for emergency Vegas bets, either. Although it’s a relatively simple concept, an emergency fund is a cornerstone component for every financially responsible young professional.

Just How Much Should I Hoard Away?

The amount of money you should have in your emergency fund varies. Experts often recommend to keep it at a minimum savings of three to six months worth of basic living expenses. On the other hand, many experts also believe that a fund of that size may be hard to accumulate, so they also suggest smaller fixed amounts between the ranges of $1,000 to $3,000.

In the end, how much you really need depends on how you create a personal budget. The life and expenses of a young professional varies significantly, after all. Some of us may already have a family, while many of us are content being a single. Some of us may have a mortgage, while others enjoy living in an apartment.

The factors to consider include:

• The more people you need to support (besides yourself), the more unexpected expenses may occur — thus, the larger your emergency fund should be.
• How easy is it for you to find a new job if you suddenly lose your old one? Compare the demand for a professional Technology Blogger (heh) to that of a nurse. If you’re a nurse and suddenly get laid off, you may have little trouble finding a new job within a reasonable time frame.
• As it is with finding a new job, you should also consider your current job security. How stable is your industry? Is your company on the verge of bankruptcy?

To make things easier, besides the factors mentioned above, try a brainstorming session of what may count as emergency to you. List how much each situation may potentially cost. After you’ve given some thought to these scenarios, you should have a better understanding of how much you may need in case of that rainy day.

Steps to Building an Emergency Fund

1. Set an amount that you’re comfortable with. If you know for sure you can’t accumulate three to six month worth of basic living expenses (that is, food, lodging, transportation, etc.), try the smaller ranges of $1,000 to $3,000.
2. Start saving right away. Any amount will do. After you’ve met your basic living expenses, you should put away any extra money towards an emergency fund.
3. Having difficulty finding spare change to save for an emergency fund? Try cutting down on your expenses temporarily. Skipping that weekend where you treat your buddies out, or withholding yourself from premium cable for a few months, can quickly add up to sizable amounts. You can always tack these expenses back on after you’ve built your emergency fund. Who knows? You may also find out that you’re perfectly okay without these luxuries. This is where creating a personal budget will really help you.
4. Paid off a recent bill, like an auto loan or credit card statement? Keep paying the same amount — this time, to yourself.
5. Got a nice fat tax return? No, it’s not vacation time. If you don’t have an emergency fund, this is a great boost toward building one.
6. Keep your funds in a liquid account, so it’s easy to convert into cash. A checking account, saving accounts, money market accounts, and even a Certificate of Deposits can work (although there may be penalties to early withdrawals from the latter). For those comfortable with Internet banking, try the many high-yield online savings accounts such as ING Direct or HSBC Direct. Wherever you choose, avoid an account with fees that may actually diminish your emergency fund in the long term.
7. Don’t keep for fund where you can spend it easily. This is not an issue if you’re disciplined, but for some, keeping it liquid also means that it can be spent mor eeasily. If you’re unsure of your discipline in leaving the emergency fund alone, open a checking/savings at a separate bank. This gives yourself some barriers to think twice before you cash the fund.
8. Once you’ve met your emergency fund goal, move on to other financial goals. Now you can worry about other goodies such as saving and investing for retirement, and saving for your children’s’ education.
9. Reexamine your emergency fund’s size periodically — especially during life-changing events. Finally got hitched? Suddenly have a kid? Landed a hot new job? Reexamine your fund’s size to see how well it correlates to your current situation in life. Perhaps it may be time to put a little bit more in.

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Break (Only) in Case of Emergency

Remember that an emergency fund is only for an emergency, and not to be taken lightly. These chunks of cash are a necessary part of any sound budget. Go without one, and you’ll risk falling into unmanageable debt all the more readily. The bottom line is, don’t let yourself pay those sudden bills or loans on plastic alone! You should always have a bit stashed away to back yourself up.

This post was written by Cap of StopBuyingCrap.com.

Further Reading on Emergency Funds

• Create a Budget Online
• Household Budget Software
• Online Financial Calculator