Tuesday, April 16, 2013

How To Get Rich - Build Your Financial Shield

What would you do if you lost your job ?

What would you do if you had a sudden major expense ?

Sad to say, but most are never prepared for a major financial setback !

The Big One Is Coming

There will most likely be at least one major financial setback in your life. For some, there may be many. But how do you know when they are coming ?  The simple honest answer is you don't !

The very first step in protecting for the big one is to realize that it will happen. You cannot realistically expect to go through life thinking everything will go your way. Instead expect the unexpected to happen as it most likely will. Now how do you go about preparing for this inevitable event ?

Choose Your Shield Strength
First you must decide how strong a shield you need. In other words, how much money you should set side to  be used for emergencies only. My suggestion is to set aside enough money to pay all of your living expenses for a period of three to six months. Your actual amount will vary depending on your level of living expenses and the relative security of your main income source.

Some jobs are much more prone to layoffs than others. For example a construction worker and a medical professional will have far different levels of expectation of layoffs etc. You must decide how likely it is for you to be laid off and for how long.

In any event, be prepared for having absolutely no income for at least three months. This should give you enough time to make plans for your future.

What To Do

Once you decide your amount, start putting a little bit aside towards this amount every pay period. As suggested in other posts, plan to set aside at least ten percent of your net income. This ten percent will first be used to build your financial shield. Once your shield is up to full strength, you can then start using the ten percent towards building additional sources of income.

Your shield should be stored in a safe place. In other words, don't keep your shield in your everyday savings account that you  have full access to. Instead, open a separate savings account at a different bank and place your shield there. Also, make sure that it is difficult to access. No bank card access to this account. This will make it less tempting for dipping into for everyday expenses or special wants.

Maintain Your Shield Strength

Once your shield is built and fully charged there is normally nothing more you need to do until you need it. When your inevitable emergency expense comes along, use part of your shield as needed. As soon as you are able, start recharging your shield to prepare for the next big one.

That is all there is to it. A pretty simple plan but a very powerful protection for your future financial wealth creation. Without this shield in place you may never be able to withstand the financial storms ahead which will surely slow down or completely stop your wealth building and realization of your dreams.

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

1 comment:

Toby Cook said...

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Property Investment