The Prerequisites
The first baby step on the road to Total Money Makeover, according to author Dave Ramsey, is to save $1,000 for your emergency fund. This is money earmarked solely for emergencies and nothing else. But before this can be done, you will have to take care of some details. These prerequisites are important because if you don’t accomplish them first, you are not going to accomplish your goal of putting together an emergency fund. A Chinese proverb puts it aptly: “The journey of a thousand miles begins with a single step.”
You can’t be a well-toned athlete overnight. You have to start at the beginning, strengthening your muscles and increasing your stamina with exercises and workouts. You have to watch what you eat as well. Then when your body is ready, your coach can start training you on the specialized techniques and strategies that apply to your sport. The road towards becoming a star athlete has to be taken one step at a time. If you attempt to learn the techniques right away without building your foundation first, you won’t be able to last long enough to get anything substantial from the training. In the end, you will most likely just quit out of sheer desperation.
The same thing applies in your quest to put together your emergency fund. You have to fulfill the following requisites or else you will just end up spending whatever you have placed there for your other non-emergency needs.
First, you need to resolve to be patient. Before you can accomplish all the next steps, you need to make a pact with yourself that no matter how tough the going gets, the more you must strive to be patient. Also, without patience, it’s easy for you to lose focus. At this point when your finances are in disarray, you might want to put your money on something else rather than putting your money in your savings fund.
Second, you have to set up a budget. Yes, this is one of the more challenging things about putting your financial house in order. You have to have a written budget for each month (or for a week, if your pay is given weekly) so that you know where your money goes and will have control over it. Budgeting allows you to track your money and curb your spending.
When you stick to a written budget, you are able to determine the areas where you are leaking money and will be able to do something about it right away. Best of all, a budget enables you to put your spending in order to ensure that you have money allocated for your emergency fund always. Of course, it goes without saying that you have to follow your budget. If you don’t, it’s just going to be something written on paper—a theory with no practical and relevant application to your quest for financial freedom.
Third, review your budget regularly. If you are doing a weekly budget then you have to have a new budget each week. If it is monthly, you have to make a new one each month. Remember, you cannot just be content with one budget no matter how much you think you already have all bases covered. No such thing as a perfect budget exists. There will always be room for adjustments, especially when you have already made headway with your debts and have money left over. If you don’t figure in the excess dough you have in a budget that you must follow, you’ll end up splurging and wasting your cash and missing out on the opportunities to grow your money.
Fourth, make sure that you and your spouse are on the same page financially. This means that if you are married, you have to agree on the budget. If one party does not agree, the other party must listen and both should come to an agreement about all the items in the budget. You have to agree that you will respect the budget and will follow it line by line to the letter. In case something comes up and you need to realign certain items in your financial plan, you have to tell your spouse and again, you have to agree.
Now, it’s very important that when something does come up and you find the need to alter your budget, you have to make it a point to balance what you need to take out. For example, if you need to spend $80 for a minor roof repair, you need to subtract $80 from another part of your budget so that you are still following your plan. Otherwise, you won’t be able to work towards putting your emergency savings together.
The final prerequisite is for you to become current with your creditors. Of course, you will have to take care of the basic necessities like food, shelter, and clothing first but once you have these in place, you have to start paying off your debts. When you are current on all your obligations, you can start saving for your emergency fund.
Other related info you might be interested in:
No comments:
Post a Comment