Counting financial freedom in the form of paying off your debt or investing for your future are admirable goals. Time, as we know it, is a potent force in aiding or destroying your financial position. Debts left aside long enough, or investments, properly selected, will compound and soon add up to a very huge sum. Why then, should we not start immediately?
Chance eventCredit: Image from WikiMedia and Released for Use for Any Purpose with Attribution to David Balls are, as they imply, highly unpredictable. Your investment plan/debt payment must make allocation for these unforeseen circumstances. The worst thing you can do for your own financial plan is to disregard them and find yourself stuck with illiquidity.
You are trending on the figurative trapeze without the net should you choose not to put aside some savings.
Create a financial cushion, so that in the event something goes wrong, you have something to soften the landing for you. Retrenchment, health reasons are just some of the possible things that can go wrong. Nobody likes thinking about them, but not thinking about them does not equate to not happening. In preparing for the worst, you may find yourself pleasantly surprised when things go right.
Game of Plushie Tycoon
Plushie Tycoon is a Neopet based game. A bit of background:
You are an enterprising businessman, who with 50,000 in currencies must make a profit from your effort in this one month time selling toys while juggling between your Store, Warehouse, Factories and Workers.
The game was pretty simple; the rule was to never run out of cash. Once you do, you are out.
Despite their new makeover, the game was studded with glitches. Not that it matters, they are essential for making my point.
All my toys were set to sell, and I had manufactured enough plushies so that if everything went right, I was able to recoup a hefty profit from it. I was pushing it pretty far, since at that time, I had only a few hundred at hand. I was pretty sure the manager, who is to be paid 80 per hour, would not be able to do much damage. Then boom, the site was down for maintenance. The next thing I knew, I was out in the negative.
Like speculators, I had cut it to the finest margin, and hoped for the best without factoring that illiquidity. All it took was a little more cash to overcome that site maintenance. I was, in short, ruined by that little sum.
Credit Card Debt
Do not attempt to aggressively reduce your credit card debt without a substantial saving at hand. For those who are living paychecks to paychecks, this is very much applicable. People tend to dig deeper into their credit card debt while trying to simultaneously reduce their debt and living from one paycheck to the other. They counted on their paycheck coming in punctually, and in the end when it doesn’t they dig deeper into their debt.
Why should you do the same? Make allowance for at least 3 months in living cost. Set aside some sum so that you are shielded from the brunt of whatever can be dealt. Never allow yourself to be a victim to circumstantial changes.