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What is the best advice about finance? It depends. It must consider your goals and your status. An 18-year-old starting out in the world will have different advice from someone with a family and mortgage.
They will both get different advice than someone with a large debt.
Some advice is to minimize debt. Another gem is to understand interest charges and credit cards before using them. Some other great advice involves investing in the stock market.
The best advice I could give generically to any of those situations is to collect an emergency fund in cash.
The first question is often how much? Again, it depends. Financial advisors commonly tell you to save 3 – 6 months of income. Dave Ramsey would advise $1000. Some would say $500: all drastically different advice and all correct.
My advice is to save what you can. Of course, you may have debts and bills. You may have unforeseen expenses you are paying down. However, having the cash you can use in a pinch is invaluable.
If you can scrape together $500, then do it. If you can push yourself to $1000, go for it.
The issue for people living without savings is an emergency. It could be an unexpected but not critical medical procedure, whether the sudden cost of a field trip for a child or vital car repairs, among other issues.
It could be as serious as a buffer after being laid off from your job. When developing an emergency fund, consider these three things.
Past Performance Is Not Predictive
In the stock market, there is a saying, "Past performance does not guarantee future results." This means even if a particular stock, fund, or bond has done exceptionally well in the past, it doesn't mean it will continue.
Life follows suit. Even if life is going great today doesn't guarantee tomorrow will be the same.
Look at wealthy athletes and entertainers. They live the lavish lifestyle their income brings in until the well runs dry. Many of them go broke within years of the end of their career.
You don't have to save every dime. Just understand nothing is guaranteed. No business is beyond cutting staff. No economic period or prosperity is forever.
Don't look back as an indication of where you will end up. Emergencies, like the pandemic, can surprise and cause financial struggle.
Don't Save/Spend Every Dime
While things constantly change, you don't need to be paranoid. Don't hoard your money in a savings account for a rainy day. Save your emergency fund and release the remaining funds into growth vehicles for yourself.
Don't let fear keep you from taking calculated risks.
On the flip side, even if you have limited funds and mountains of bills, be careful. Pay yourself first and siphon what you can into the emergency fund.
In many cases, it seems easier said than done. It can be invaluable to have this money available.
Create a Budget
No matter your financial situation, everyone can benefit from a budget. Use a budget if you are drowning in debt and uncertain where to find emergency funds.
If you have money in savings and a good income, develop a budget and financial plan.
Budgets can help you discover waste and areas for improvement. It shows you where the money goes. This is the best way to find funds to fill an emergency savings account.
Building good habits is vital for getting yourself in a better position. It won't be easy. In certain situations, there might not be much you can do financially.
What's Next?
There is so much information about finances—millions of tricks and tips. There is a life hack afterlife hack. In the end, you need to start with the basics. The same way you would build a business.
Create it. As you grow, hire staff; as you grow more significantly, hire more help, expand, add a store, and so on.
In personal finance, you cut expenses, save money, build an emergency fund then expand into other avenues of growth. Protect your foundation.
What happened in the past is not guaranteed for your future. It is prudent to plan for a rainy day while it's sunny. It is also valuable to plan for a sunny day even while it rains.
You don't have to penny-pinch to survive. You can spoil yourself, and some financial systems recommend this behavior. It would be best if you had goals and adhered to them.
Build a budget to see your financial life's hard and cold numbers. Having this information gives you a better viewpoint to make critical decisions.
It depends on you. Whatever your situation, it can always change. Do your best to build a layer of protection for the future with an emergency fund.