Tuesday, February 12, 2013

How to Get Rich - Have an Emergency Plan

Would you be able to survive if you lost your main income source ?

Would you know what to do if this situation ever happened ?

Sad to say, many individuals don't have a clue !

Hand To Mouth

I am sure you have heard the saying that someone is living hand to mouth. Basically, this means that all of one's income is used to pay everyday living expenses. There is no money left over to plan for their future financial lives.

Many individuals live this way for their entire lives, never seeming to get ahead. Sound familiar ? What would happen to these individuals if they suddenly lost their only source of income ? Not a pretty picture.

Plan for The Worst 

There are a couple of steps one can take to avoid the above situation. First of all, never put yourself in a position to not have money left over after paying all of your living expenses. Secondly, make sure you set aside this left over money for a rainy day so to speak.

As I have mentioned in previous posts, I recommend you put at least 10% of your current net income in a savings account and never spend it. Learn to live on the rest. Once you have this habit firmly entrenched, you can start ensuring you will be prepared for the worst situation as described above.

You should then accumulate at least 3 months of living expenses (preferably 6 months) and place this in a separate bank account or guaranteed liquid investment. You should leave it there and never touch it for anything except an emergency such as losing your main income source etc. This will be your emergency reserve or safety net.

Why It Is So Important

The reason that this part of your financial plan is so important is that without a safety net, you will have to go into scramble mode and try to find  a way to survive. You will be able to think much more clearly and be relaxed if you know your expenses are covered for 3 to 6 months. Panic can cause many mistakes to be made.

What Next

Only after you have your emergency safety net in place can you plan your future investments and make plans for your future growth. Only use your savings for investing once your safety net is in place. This is a very important first step to building your wealth and ensuring a comfortable future.

As always, I welcome your comments and suggestions for future topics.

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