As you do start to build up savings, knowing what to do with the money is as important as initially saving it. For example,
- In the late 1990’s, you could have rushed out and invested in Beani Babies. That’s right! Those plush little things were the biggest damn craze since sliced bread. What a debacle that was!
- Maybe you just love tigers and boxing. So why not follow in the footsteps of the Former Heavy Weight Ear Eating Champion Mike Tyson, and pick yourself up a few Bengal Tigers? That’s a great investment…..right?
The economy, a natural disaster, our health, our jobs, and probably 50 other events are just waiting to throw a wrench in our future.
So where are we at now, in 2016?
How do you prepare for a future that’s completely uncertain?
The unexpected will happen at some point in everyone’s life. Having a good strong cash reserve is essential to help you weather the storm. At 24 years old, I was a restaurant manager. I showed up to work one day to find out the company had decided to close all of the stores in the state. Just like that, I was out of work.
I was married with a child and had no income.
To pile it on, we had very little savings and ended up having to borrow money from the parents to stay afloat until I secured a new job. That's a seriously deflating situation to be in. From that point on, we made it a priority to save money. We didn’t make much at the time, but even being a full time student with credit card debt and a car payment (both bad planning) we still managed to put some money into savings. Had we not had the family help when we did, we could have been in a world of trouble, most likely losing our car or falling behind in rent. Both of which could have cascaded into trouble keeping up in school.
While we can’t necessarily control outside factors, we can control our risk. We can control the impact to our family. Having a strong emergency fund is a key way to do this. A good starting point is 6 months’ worth of required expenses. If you’re using the YBI Budget Sheet, you should have a pretty good idea of what these critical expenses are. If you’re in a profession that’s highly unstable, maybe 12 months is appropriate. Stash the money in a savings account where you can get to it if needed, but it’s not easy to just pull out whenever you feel the urge to splurge (i.e., don’t put it in your checking debit account).
And for the love of everything that is holy - Pay off those high interest rate credit cards.
If you’re in this boat today, I implore you to rethink your lifestyle. To get control of our credit card debt, I did a few things. I cancelled all but two cards I’d had the longest, which I kept to help improve my credit score as I paid down their balances. I took advantage of an offer to transfer my balances all onto one card with no APR for the transferred portion. Just taking advantage of the no interest rate transfer saved us upwards of $100 dollars per month in interest. And, we took on extra jobs doing whatever we needed to do to be able to make extra payments against the cards.
When we finally decided we’d had enough, we buckled down and had the credit cards paid off in a year. We’ve never held a revolving credit card balance since that time.
Your credit cards are like a ball and chain of debt against your future. You will never be financially free if you’re carrying revolving credit debt. I think in previous years, I would have put this at the top of the list, or at least made it even with having an emergency fund. I can’t say it enough, PAY OFF YOUR CREDIT CARDS.
You get where I’m going here. If you have no credit cards, your next target should be to pay off all auto, RV, motorcycle, monster truck, pontoon, ski boat, Caterpillar, Mack truck, anything that floats loans. Keep in mind, the operative words here, “pay off”, could ultimately mean you might have to sell those weekend wave runners and use the proceeds to pay the loan. I know.... it's scary.
In the end, try to simplify and streamline your life. There is no point in paying insurance, registration, maintenance, gas, and loan payments for 2 or 3 vehicles when you truly could get by just fine with 1. My family is grappling with this right now, having 3 cars we've collected over the years. It's definitely time to downsize.
In fact, grab a bicycle from the local thrift store and you’ll quickly realize how much more fun it is to ride a bike than droning around in a car. Your health and the environment will thank you.
Invest in your future now
Why? Because I discovered a way to make my money work for me. I discovered that every dollar I invest is like a little worker working on my behalf, and giving me all the rewards.
Most people don’t realize that leaving your money in a savings account actually costs you money in the long run because you’re lucky if it’ll even keep up with inflation. One dollar in a savings account today is worth less tomorrow.
Historically, stock market investing has been the go to for investors, and with that, it’s been mutual funds and low cost ETF’s. The average annual return for long term investing in generally accepted to be 7% in the market, and most investors are just fine buying a few index funds and letting the compound interest work its magic.
However, if you have the inclination, patience, and personality to really put the effort in, you can conduct individual stock analysis, find undervalued stocks, and buy them directly. Which in the end can give you significantly higher returns than the market average. Of course, with higher potential return comes higher risk if you make a bad decision.
I’ll be diving into the specifics of stock analysis in future blog posts, but until then, I urge you to visit your local library and check out a few great stock market investing books. There are hundreds out there; a few I enjoyed when getting started were: