Essay about Financing: Investment and Emergency Fund

Submitted By ryandhunter92
Words: 976
Pages: 4

How do you become financially sound?

Just like any goal or dream you set for yourself, managing your finances and becoming financially successful requires discipline and determination. Personally, I’ve recently been looking to eliminate debt, increase my savings and increase financial security for myself for the time to come. I’ll explain more in depth about responsibility, discipline & financial literacy.

Your top priority should be creating an emergency fund. Following creating an emergency fund, first involves self-discipline. Start by making it the first bill you pay each pay period, by having a set amount ready to be set aside. Don’t even think about this transaction — just make sure it happens, each and every pay period. Think about the goals you want to accomplish and what you need to do to get there. Telling yourself you can do it; along with taking the necessary steps to follow through is the first step to reassuring yourself that you can responsibly manage your money. Control your frivolous spending. Frivolous spending, on eating out, shopping and online purchases, is a big drain when it comes to finances, the biggest budget breaker for many, and a sure way to be in financial impasses. Research shows that people who try “The Envelope System” save a substantial amount of income each month. This is a simple easy system to keep track of how much money you have for spending. Start out by setting aside amounts in your budget each pay period — one for gas, groceries, eating out, etc. Withdraw those amounts on payday, and put them in separate envelopes. You can easily track how much you have for each of these expenses, and when you run out of money, you know it immediately. You don’t overspend in the categories you make. If you regularly run out too fast, you may need to rethink your budget. Again, this is where self-discipline, motivation, & future planning come into play.

Think of an emergency fund as an outlet, so that if anything happens, you’ve got the money to cover any unexpected encounters you may find yourself coming across. As individuals get older, they consider more profitable investments which contribute to financial decisions, for example: a spouse, dependents, life insurance, a will. These types of investments motivate you to think critically about how you spend your next dollar. Thinking critically defines the motivation in yourself and also ties into being financially disciplined. If you have a clear vision of what ever goal you’re chasing, you are motivated to take the necessary steps to build a lavish bank account. Ultimately, finding positive motivation that will save you money or increase the interest on its return is showing great responsibility with the expenses you currently have and the next to come. Evaluate your expenses, and live frugally. If you’ve never tracked your expenses, try this task for one month and evaluate how much you typically spend on necessities (normal means of living). Next, evaluate how you’re spending your money, and see what you can cut out or reduce in unnecessary expenses. Invest in your future, not a lifestyle. You should never borrow to finance a lifestyle you cannot afford. You are only creating a hole you that will ultimately cost you more to remove yourself from. Using credit for a lifestyle you feel entitled to, is a non-winning proposition when it comes to building wealth. Constantly putting items on credit will assure that there won’t be any money available for investing, and the added interest expense of crediting expenses further increases the cost of the lifestyle you are trying to live. Borrowing money should be used only for investing - where your gain will outweigh your borrowing costs. This might mean investing in the literal sense (stocks,