When working as a financial manager for people throughout the years, one of the things that was difficult to convince most who wanted to get a handle on their finances, was the number one thing you must do to start off with to lay a solid foundation for the future, which was building up a certain amount of money for emergency situations.
The inclination of most people was to get right into investing of some sort to start building up their wealth. While this sounds good on the outside, in reality you’re setting yourself up for potential failure if you don’t build up an emergency fund first to protect yourself when unexpected things like losing a job or a big ticket item like an automobile breaks down.
Why this is so important is if you don’t have that settled first, every time you start to build up some wealth through investing, you have to tap it to pay for unexpected situations, and you constantly are starting over. I’ve seen this happen with a lot of people, and it devastates your financial planning and will to continue.
You must commit to this first as part of your strategy to build wealth, so when these things to happen, you’re ready to pay things off from your already installed money base, rather than have to draw from valuable investment money.
What’s even worse, is when you do that, you could have to pay penalties, and definitely would have to pay capital gains taxes of some sort, adding even more negative consequences to your financial situation.
All you need to do is develop a simple plan of putting a certain amount of money away until you reach a certain level. While some money managers differ on the amount, a healthy number would be equal to about six months of your current wages or income. That way you have a good cushion if you lose your job or a major bill comes in.
This money needs to be in a type of account with no penalties for withdrawal and immediate access. This is money that has to be available now, and so your strategy should reflect that.
If you don’t do this, as I mentioned, there’ll be an endless number of situations that arise that will syphon off your money on a steady basis and leave nothing left for investing. So make this your top priority before doing anything else financially, and you’ll lay a solid financial foundation to build on.