Will the current recession get the best of you and your finances? Smart planning can help prevent many of the financial surprises life has to throw at anyone. With the average American household only having $15,000 in savings as of the end of 2007 it’s time to wise up.
The smartest move I personally made this year was moving to 90%+ cash in the middle of August before the real market drama unfolded. Sometimes enough is enough, and thanks to high yield savings accounts I’ve slept fairly peacefully since then.
Here are 5 Keys to living financially worry free:
1. Live below your means.
If you are smart enough to keep track of expenses and never spend more than you make you will pave the way for a worry free live. Even century old beliefs such as house prices will always continue to rise have been put to shame in the past year. Pay off credit cards each month to avoid accrued interest. 0% interest for the first year is great, but that $2,000 TV will eventually catch up to you.
2. Have an emergency fund.
Having funds set aside in easy access form (ie high yield savings accounts) will offer much peace in the face of any life surprises. A lost job, hospital expense, etc. can all put not only emotional but financial strain on any family. You should have atleast 3 – 6 months in cash or cash equivalents set aside just for these reasons. Personally, I prefer to have enough funds for atleast one year of living without income to help me sleep extra well at night.
3. Diversify your income across multiple streams.
Alongside your full time job, starting a hobby business can be a great idea. Ebay for example has offered thousands of people a side income source through their spare time. Or better yet, start a website or blog and write about your hobby every few days. You will be surprised how over time the internet can produce extra income.
4. Plan for the future.
I would say one of the biggest mistakes for a couple to make is the failure to plan ahead. Set long term goals and save each month for the future. Kids, education, retirement all deserve your attention. Setup automatic deposits each month into savings accounts to simplify the process and try to envision your life five even ten years or more ahead. If you see a dream home or vacation then allocate resources now and not later to prepare.
5. Never stop learning.
I grew up with the understanding that learning will never cease. Each day offers a new opportunity to educate yourself. By reading books, magazines, or watching the discovery channel you always are expanding your mind. I had a professor who always said it best as he ended class each day by exclaiming, “Learn something new and exciting!” Even without school I’ve been learning daily since.