Allow me to begin with a quick update. Some days ago I told you about an idea that roused me out of my sleep. I am happy to report that all of those assets have been liquidated and I am moving the cash in position to invest hopefully in the beginning of October. As promised I fully intend to keep you all posted on the methods and tools I'm using.
Speaking of tools, what you are reading now is the first post in a series called "Soldiers of Finance". In these posts I will be putting a spotlight on several products tools and ideas that I am currently implementing and will offer you opportunities to get involved in some of he same things I'm doing.
I want to talk about a few things every wage worker should have. Consider these the top 5 weapons in your financial arsenal.
- A checking account- When you make money you need a safe place to keep it. Sure, you could cash your check every month but you run the risk of getting mugged out of your hard earned pay. Also if you cash your check anywhere other than the bank that you do business with. Having to pay someone to have access to your own money is just plain stupid. The ideal checking account should have no minimum amount to open, no fees to maintain and the option to turn off overdraft protection so that you can't overspend. Almost all checking accounts tie into a debit card, with all the same protections as a credit card...just without the whole going into debt thing. If you really do your legwork you could even find one that pays a small interest. I personally have 3 checking accounts. I'll go into detail about them at a later post.
- A savings account- Right off the bat, before you spend a dime, a portion of your pay should go into a savings account for later purchases. You can earmark it for a specific expenditure like a car, a house, vacation or as a cushion to your checking account in the event that you happen to overspend. You can have this at the same bank as your checking account to make it easy to transfer funds back and forth. Nearly all savings accounts are interest-bearing and the ideal savings account should pay a decent rate.
- An EMERGENCY savings account- Job loss. Car breaks down. Medical emergency. Crap happens. It better to be prepared and don't need it than to have the worst case scenario happen and you've got nothing to turn to. You should always keep $500-1000 on hand at any time. This should cover many different emergencies and this would be an easy amount to replenish once the crisis is averted. The ideal emergency account should cover 4-6 months of your most basic living expenses, but its not always practical to keep that much cash on ice if you find yourself dipping into your backup savings often. All the more better if you're able to earn a little interest on this.
- A retirement account-If you working for an employer technically you're paying into retirement in the form of Social Security taxes. This ain't enough. If you have a job with benefits likely that includes some form of retirement savings, usually a 401(k), IRA or 401(3b). Many companies will even match what you put into it dollar for dollar up to certain percentage. If for no other reason getting free money should compel you to sign up TODAY. The ideal choice for this depends on a lot of factors such as your income, tax bracket and family situation. We'll talk in depth about this later too.
- A budget/spending plan- What's the point of making money and saving money if you're not going to spend it, or even worse, blow the wad on useless crap?? Keeping track of your expenses and managing your cash flow through a budget will allow you to maximize the best use of your money. I'll be honest with you though. I hate budgets. I feel restricted when I'm on a budget. I work more along the lines of a conscious spending plan. All of my bills and savings are deducted automatically from my account and I make the choice to allocate the rest of the money as I see fit. Again a more detailed explanation will come.