How long can you survive if you were to stop working right now? If the answer isn’t at least 3 months, then you really need to assess your situation.
We have all been through the stress of living from monthly pay cheque to monthly pay cheque. I remember having $12 at the end of every month, stressing about all the bills mounting up, and dying for my next pay. Imagine if I were to lose my job! I would have been screwed.
One habit I ingrained into myself was to always have 3 month’s expenses easily accessible. By accessible I mean completely liquid and ready for use, basically, in a savings account.
When I first started investing, I would save up enough capital, and then send it all off at once. That left me with nothing. I had no security were I to lose my job. It is incredibly stressful, and although you may have investments making you nice returns, it doesn’t help if you are in desperate need of cash right that second. If you end up having to sell out of your investment to fund your living expenses, you could ruin your chance of building up some nice capital growth.
I want you to open 4 bank accounts, all managed by internet banking. Here are the breakdowns of these 4 bank accounts:
1. Monthly Expenses
2. Safety Net
3. Online Business Capital
4. Stock Market Investment Capital.
Your “Monthly Expenses” is your general use account. You use it to keep all your allocated funds for that month. Use it to pay your mortgage, buy food, pay for transport, etc.
Your “Safety Net” is your savings account. This is where you put a percentage of your salary (at least 10%). Your goal is to build this account to exactly 3 months worth of expenses. The stress you relieve when you attain this is beyond words.
After you have your safety net, the 10% of your salary then flows into your other accounts, in a ratio you decide. That is what you start investing. The actual areas are optional, you could substitute “stock market'” for “property investment”, or whatever you want. The point being that AFTER you have your safety net, then and only then do you start building your wealth elsewhere.
The 2nd account gives you complete ease of mine, and the last two increase your passive income, allowing you to improve your lifestyle.