Prepare for rainy days – 3 steps

3 steps to take now to plan for “rainy days” when your personal financial situation changes. If you follow the 3 steps below, you should be better prepared.

1. Keep 6 months of living expenses in cash.
Should you lose or change your job, or you have some other emergency, change in life knowing that you can afford your living expenses including rent, utilities and groceries, school fees will reduce your stress immensely. Only when you have saved and secured the amount of 6 months living expenses, start to invest other available income.

2. Know what you spend your money on.
Track your monthly expenses. Only when you know your expenses, you know where you can cut back to lower cost immediately when you lose or reduce your income or incur large unexpected payments. When you go through hard times, you need to know what emergency actions you have to take immediately.

3. Understand your assets and income.
If you have investments, knowing how much income they produce is very important. The more stable your investment income the better. It is not only about to know how much passive income your investments produce but also how. If you have growth stocks it might make sense to swap them into cash producing stocks like high dividend producing stocks, REITs or even bonds to receive a steady and regular extra income without having to sell the stocks for cash.

Check and analyse your numbers quarterly. You will have a clear picture of your financial situation and the income your investments produce. You will be able to adapt and make changes easier and quickly when your personal situation changes.

Sven Franssen