Money is an important part of life. It is also one of the biggest causes of stress for an individual. You have probably experienced it yourself at some point. What are some things you can do to help calm that beating heart of yours?
You can prepare. Preparation is an important part of freeing yourself from the shackles of money troubles. Below are a list of 4 things you should prepare for that will help you live a fuller life.
1. Emergency funds are sources of immediately available cash. You need to be able to get your hands on them within a few hours. They are used in case of true emergencies: something that is both urgent and important. It is the urgent part that separates these funds from your other accounts – true emergencies won’t wait over the weekend or even until the next morning.
You might have noticed that I said sources in the above paragraph. That’s because it’s generally a good idea to have multiple small funds of money at places you frequent the most – that includes your house and your car. These are places where they could be stolen easier but the amounts you’re keeping around should be small enough that it won’t be a blow to your budget. Keeping the money at a bank or brokerage account might seem like a good idea but will be a problem if these places aren’t open when you need the money, such as on a Sunday.
2. Rainy Day funds are sources of cash that are accessible and relatively stable. You don’t have to be able to access them immediately like in an emergency situation. You should be able to get them when you’re down on your luck.
This includes medical issues, losing your job, legal expenses, or other unexpected things happening in your life. Most of the time these problems are very stressful which can make it hard to think straight. Having these funds already prepared can really help to relieve the stress of dealing with the difficult moments in your life. Savings accounts or other similar accounts work well here – the money needs to be there when you need it so don’t go purchasing stocks with it.
3. Retirement fund – for the you of the future. At some point in your life you will want to (or need to) retire. This includes even those who want to work all their life – eventually your body just won’t allow it. Setting this money aside while you still can is essential to your well being. Worrying about the point in your life when you can’t work anymore can be a major source of stress and anxiety, so don’t wait to save for retirement!
Of course, some people will have a harder time saving than others. Depending on where you are in life you may have student loans, a mortgage, family, or other expenses that keep eating up any extra money. Don’t let the expenses win. Even if it’s just a small amount, you should get in the habit of saving for your retirement. As the old phrase goes, “pay yourself first”.
If you have a job, your employer may make this somewhat easier for you. Many companies offer retirement savings options in the form of a 401k. Some will also help to educate you about IRA accounts. These are very good vehicles to use due to their tax-advantaged status and behavior-limiting rules, so I strongly suggest exploring them first before opening a fund to save on your own.
Unlike the two previously mentioned funds, a retirement fund is generally a longer-term fund. This allows you to take risks with the money as you’ll probably have time to correct painful errors. The risk-taking ability opens up possibilities such as stocks, bonds, and other value-producing assets where owning them makes the actual value of the account change often. Most company 401k plans and IRA accounts will allow you to invest in these assets – so make sure you check out the option with a qualified investment adviser.
4. Opportunity fund – the money you save for Lady Luck when she comes knocking on your door. This money should be in an account that you can access quickly but not have immediate access to. I say this because many times when an “opportunity” comes our way we often feel like we must jump at the chance. Instead, give yourself some time to think about the opportunity and weigh it to see if it is the right one to jump into. At the same time, you don’t want the money to be locked away for so long that the opportunity disappears before you get a chance at it.
To sum it up, the funds you should have are:
1. Emergency fund(s)
2. Rainy Day fund
3. Retirement fund
4. Opportunity fund
Each of these funds serve different purposes in your life but ultimately they are all safeguards. By keeping these safety nets around, you allow yourself to really live life without fear of what’s going to happen. You are already taking care of yourself (at least financially), so get out there and have some fun!