We live lives of cash flow! This is a mantra you can repeat daily to yourself and those around you. Whether you are preparing to buy (and finance) a new house soon, or already own a home and are trying to build your savings and pay off debt, here is a simple yet powerful formula to follow as money flows in and out of your bank account.
Blind spots are all around, preventing us from getting where we want to go. In our quest to transform the lives of every client through financial education and direction, we have identified four blind spots that everyone falls into on the road to financial independence.
Our goal is to help you learn what these four blind spots are, and how you can begin to avoid them as you pursue your financial goals and dreams.
Blind Spot #1 – Lack of a Plan
It is said that failing to plan is the equivalent to planning to fail! A plan is like a road map to get you from where you are today to where you want to go tomorrow. A well-defined plan provides the clarity and direction you need to begin taking action on achieving your most important goals.
But, if having a plan is so important, why do so few people take the time to develop a plan? Without a plan, how will you know if you’ve succeeded? How will you know if you are on the right track and you’ve arrived at your ideal destination?
The fact is most of us live life at such a fast pace that it is difficult to dedicate the uninterrupted time necessary to map out a clear plan. After a full day of work, preparing dinner for the family, getting the kids bathed and to bed…it’s no wonder we don’t have the energy to plan out our finances and future. And, if and when we finally do, many people simply do not know where to start.
If you truly want to save more money, you need a Savings Plan. To better manage where your money goes, you need a Spending Plan. If you have debt you’d like to pay off, you need to develop a Debt Elimination Plan. If you ever want the freedom to retire whenyou want to – and how you want to – you need a Retirement Plan.
And probably more important than anything else, to live a fulfilled life, with the freedom to do what you want to do – rather than what you have to do – you need a Life Plan.
Understanding you need a plan is only the first step. Developing a realistic, achievable plan takes work. It takes commitment and discipline. Plans will change; thus they must be reviewed and adjusted regularly.
Start by writing down your financial goals. Next to each goal, write down the very next step to moving forward toward achieving that goal. There is no magic pill. It is simply taking one step at a time, and remembering to focus on your progress.
Then, schedule time each week to plan your life and your money. It could be 30 minutes one night per week, or one hour every Saturday.
As your preferred mortgage experts, we are committed to helping you avoid this first blind spot and develop a safe, successful plan for your mortgage and real estate.
Question: How much money should I keep in a savings account for emergencies?
Answer: Many financial professionals suggest that you put away three to six months’ worth of living expenses for emergencies. We actually call these funds “Cash Reserves,” because the reality is, most things that might happen are not really emergencies. Once established, we also refer to this as your “sleep well at night” account!
If you lose your job, or become disabled and don’t have adequate disability insurance, you’ll need that money to pay your regular monthly expenses, such as mortgage payments, insurance premiums, groceries, and car payments, until you can find another job. Without such an emergency fund, a period of unemployment could put your assets at risk. Similarly, if your car breaks down or your spouse has a medical emergency, you’ll want to have the necessary cash to pay the bills. You don’t want to be faced with an immediate need for cash, only to discover that you don’t have any.
You may have already set up an emergency fund. Did you put the cash in a five-year certificate of deposit (CD) or other long-term investment? In an emergency, you will need to get at those funds immediately. You can certainly pull your money out of the CD early, but you’ll pay a penalty. It’s better to keep some funds more liquid, in a traditional savings account, a money market deposit account, or a six-month CD, for example. That way, the cash will be readily available when you need it.
Finally, keep your emergency fund separate from your everyday accounts. You might even want to use a different bank. Unless you are extremely disciplined, you’ll be tempted to spend those extra funds if you keep them in your checking account. Remember, if you can put off an expense until next week, it is probably not an emergency.