New Year’s Resolutions and Personal Finance
Soon after the Christmas credit top up there is an opportunity for everyone to follow tradition and change their lives, financial or otherwise, the new years resolution. This is where the masses make a commitment to changing their lives by making a concerted effort to stop doing something or starting a beneficial habit. People vary these challenges with very small simple goals or extremely elaborate life changing plans. This brings one tot he question: what should I change for the new year? If anyone ever asks me I almost always ask them: what about working on your personal financial situation?
The Emergency Fund Problem
It is really a no “brainer” when it comes to listing the reasons on whether or not to improve ones finances. We only have to look at passed stats to realize that. Even something as simple as having a emergency fund, and NOT using credit cards or a line of credit as a personal emergency fund, would be a great start. Some many think that the need for a emergency fund is a time that will never come for them – this could be called the battle cry of those about to become bankrupt. Living day to day just barely above water, not even living pay cheque to pay cheque, is not the place anyone wants to be and yet many find themselves there year after year. It is easy to get caught up in day to day life, that the the slide into the situation is a gradual one that can easily be over looked.
The Emergency Fund Solution
Figuring out what would be required for your emergency fund is pretty straight forward. One good rule of thumb is 3 months pay or salary. This type of fund would be an income based solution, which helps reduce the time one takes to figure out all of their expenses and the costs of day to day living. This is a very simple way to determine what you may need if things go awry. But, you must come to grips with the fact this is a very general way to estimate and could carry with it a miscalculation. The other option is to calculate all the money outgoing for a three month period. This would be a more exact what to figure this out, and a measure could be made for error or potential future expenses. This exercise is part of the financial plan that is refereed to as “risk management”.
Even after planning, the goal of saving a $5000 dollars or more may seem daunting, but it can provide not only finacial security but also provide an emotion sense of well being. If the goal seems too lofty then try just saving $25 a months for a few months. Practice saving that money and not touching it for any reason, the idea is to start to train yourself to get used to not having that money around. Once you have mastered that, bump it up to $50. It is amazing how fast a little can turn into a lot.
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