We’re in the midst of troubling times in the United States. Social and economic issues are battering our minds like waves in a storm. And the worst is yet to come. Employment numbers continue to improve, but we haven’t even seen the full economic effects. As stock market volatility ticks up and benefits start to run dry, your financial stability is crucial.
But it’s not all doom and gloom. There are lots of good things in this world as well. It’s still important to make sure you are prepared if things turn south.
How do you do that? Well, #1 is…
Get it Right, Get it Tight
You know what I’m talking about. That’s right, baby. I’m talking about budgeting.
Budgeting may not be the sexiest thing–unless you’re @BudgetsAreSexy–but it’s one of the most important parts of getting your finances in order.
Creating a budget helps you in two ways: (1) it makes you accountable to act accordingly and (2) it forces you to actually look at your expenses.
Budgeting works as a feedback loop. Create budget –> track expenses –> update budget –> repeat. This loop works to improve your budget over time as well as improve how you look at your spending. “Get it right” by making your budget accurate. “Get it tight” by eliminating all unnecessary expenses.
Vicki Robin in Your Money or Your Life says that keeping track of expenses is “the best way to become conscious of how money actually comes and goes in your life as opposed to how you think it comes and goes.” I’m estimating that the majority of people’s financial troubles would go away if they would just see where their money goes.
An important part of this budget is to pay yourself first. This means that you need to put money into your savings before you spend money on anything else. After food and shelter, your financial stability is most important. Everything else is secondary.
Templates and other budgeting advice can be found here.
Stock Up for Winter
Once you’ve established a savings goal, next step is to start saving. But how much savings is needed?
A good first goal for an emergency fund is 1 month’s expenses, and you should know exactly how much that is from your budget. After you’ve saved up 1 months worth, shoot for 3-6 months. If you’re a big wimp like me–thanks, Purple–you might even want to save a year’s worth of expenses.
You don’t have to save that much. Choose a savings amount that gives you peace of mind. Just make sure that it’s at least 3 months worth.
Once your emergency fund is established, the fun of investing can begin. But before you do that, remember…
Only Invest What You Can Afford to Lose
Establishing an emergency fund is the hard part. After that happens, you don’t need to do anything.
For some, this might be even harder, but it’s important. Once your emergency account is fully funded, it’s critical that you DO NOT TOUCH IT. This is what you need in case you lose your job or your car breaks down.
If you do that, the next step is to invest any additional savings. Investing comes with risks. Despite what Dave Portnoy and TikTok investors are saying, stocks don’t only go up. Considering the ridiculousness of current valuations, they could actually go down. A lot.
That’s not meant to scare you. Investing has the potential to deliver great returns if done correctly. It’s meant to open your eyes to the possibilities of investing. Even the best investors lose money sometimes. You have to be prepared for short-term volatility and the possibility of losses.
Whether you decide to invest in stocks, bonds, options, gold, real estate, baseball cards, or Beanie Babies doesn’t matter. Your investment will most likely have its ups and downs.
Focus on Financial Stability
Statista estimates that nearly 70% of Americans have less than $1,000 saved. What will these people do if they suddenly lose their job or if they are hit with an unexpected medical bill?
Having no money in savings makes you a slave to circumstance–the opposite of the American dream. When you neglect on your savings, you give up your freedom. Financial stability is your key to freedom. Worrying about your credit score and complaining about your situation won’t get you there. Saving will.
Living from paycheck to paycheck is no way to live. Start stashing your money away and hope you never need it. But if you do need it, then at least you’ll have it.
DISCLAIMER: Investing is an inherently risky operation. Past performance is not a guarantee of future returns. All information presented is for educational purposes only and should not be taken as investing advice.