As I learned to become financially responsible, I decided that I had to change the way that I managed my money. We can’t expect things to stay the same and expect different results. When I was younger I used to live pay check to pay check, I was not saving money in an emergency fund, and I was definitely not saving for retirement. I used to shop a lot and I would usually charge my purchases on to my credit cards; then I would spend my entire pay check making only the minimum monthly payments on all of my credit cards.
I was spending my hard earned money on making only the minimum monthly payments and it was not cost efficient. I decided to make some financial changes in my life; one of them included supplementing my income with a second job so that I could finally start paying off my credit card balances, and the other one included starting to save in an emergency savings fund and saving for retirement.
I never saved money in an emergency savings fund because I thought that my credit cards were my emergency savings fund. Whenever I wanted something and I didn’t have the money to pay for it, I would just charge the purchases on my credit cards. I would also use my credit cards for basic living needs such as paying for groceries and rent; and then I would use my pay check to make the minimum monthly payments.
I finally decided that my minimum monthly payments could be better spent. I used my secondary income to start paying off my credit card balances with fixed regular payments that were above the required minimum monthly payments. I made a personal budget that ensures all of my bills are paid on time each month. To say that my personal spending was cut down would be a major understatement, with my new budget my income is fixed and therefore so are my expenses.
I reallocated the amount of money that I was paying towards my credit cards into an emergency savings fund. Now I enjoy watching my savings grow. I’ve learned about different ways to invest my money rather than spending my full paycheck. It is comforting to know that I will not be accumulating debt if ever I have another personal financial emergency. It is also important to note that my personal definition of a financial emergency has changed. Like many people who have struggled with debt in the past I am deathly afraid of falling into my old bad habits and once again accumulating debt.
I have a short term emergency savings fund as well as a medium term emergency savings fund. I save some of my money saved in a high interest savings account so that I have access to cash at anytime. I save the rest of my money in a bond mutual fund for longer term or larger emergencies; it acts as a backup emergency savings fund. This way I have the flexibility of having cash on hand at all times as well as earning a higher rate of return on money that is in my emergency savings fund but that I am not using.
Photo by davidberkowitz