What To Do With Your Leftovers - Part One - Saving
So, by this point I hope you are starting to see a little bit of money left over in your bank account at the end of each month. You have been very diligent and only spending on necessities and you’ve been following the SAVE algorithm in my last post. Keep up the good work! It will pay off. I promise!
Okay, so let's get to what you all have been waiting for when you opened this post today. What do we actually do with our money? How can we make our money grow? Is it actually possible to become rich at some point or another? This is a topic that I do not want to breeze over. In fact, this post will be part of a three part series that I am going to share with you all. I will go into further detail about how you can get ahead financially.
I have come up with four specific steps to use as your guide on where to invest your leftover money, starting with Step 1 and working towards Step 4. You must complete them in order before moving on to the next step. I am a big fan of Dave Ramsey, so these are concepts that I’ve learned from reading his books (the credit goes to him!)
Step 1. Set up an emergency fund
Setting some money aside in the case of an emergency. I will be discussing more about this step in today’s post.
Step 2. Pay off your debt
It is time to kiss those student loans goodbye! This step seems to be the longest for many people, but it is one of the most important! In Part Two of this series, I will be discussing ways to pay off your debt (medical, credit cards, student loans), so that you can be one step closer to financial freedom.
Step 3. Build up your emergency fund
At this point you should have paid off all debt, now you are looking to grow your bank account. The goal here is to generate three to six months of your income in savings. For example, if you bring in $2,500 a month, the goal for your account should be between $7,500 and $15,000. If you have a steady and reliable job, you can usually get away with three months of your paycheck. However, if you work in a freelance job where your money fluctuates, six months of savings is the rule of thumb.
Step 4. Invest
In the final part in this series, I will discuss ways to wisely invest your money. This is the fun part! When you get to watch your money, make money. We will talk about 401k, starting a Roth IRA (if you haven’t already) and what investments to steer clear from.
Today, I am going to focus on Step 1, setting up your emergency fund. What exactly is an emergency fund? Have you ever heard of one? The first left over money that you come across, needs to go into a designated fund in the case of emergency. Start by moving your extra money into an untouchable account or area that you will not be tempted to tap into. The E.F. is exactly what it sounds like, money used in the case of an emergency. For someone who has little to no savings, this is the first place that you will start. The goal here is to have $1,000 in this account before moving on to Step 2. One thousand dollars may seem like a ‘way’s away’, or a walk in the park. Remember, everyone’s financial situation is different. If you already have $1,000 in savings- great, than you can move onto Step 2. If not, take all of your extra cash and stock it away until you reach the one thousand dollar goal.
Your emergency fund is to be used ONLY in the case of a job loss, any unexpected car trouble, medical emergency, or for any emergency house fixes or repairs that need immediate attention. Any time you tap into this fund, you will save to repay the account to maintain your $1,000 balance at all times. If you have already started step 2, stop and put all earnings back into your emergency fund (saved for a rainy day, when a tree hits your house and your roof collapses, leaving water all of your living room floor!…Ahh, let’s hope not!)
Following along? Did I lose ya’ or are you still with me? I don’t want to overwhelm you with information, but instead give you a guideline to follow and the tools you will need, so that you can reach your ultimate goal of becoming financially free. Remember, this is a three part series so in my upcoming posts I will be discussing about how to pay off your debt and begin to invest!
Pleasure meeting up with you at Society Letters today!