This is something that seems to be common sense but apparently isn’t to many: you need to have emergency savings that you can rely on to tide you over in case in times when unexpected bills or circumstances arise. Lots of things can go wrong in life from the bigger emergencies like losing a job and medical expenses to the smaller things like unexpected car bills or an air conditioner repair. Living paycheck to paycheck is probably something everyone does at some point in their life but the sooner you can get away from that situation and start saving the better.
According to a new poll, 27% of Americans have no savings at all. When you ask about whether they have 3 months of savings set aside, almost 50% say they don’t have it. And when you talk about 6 months worth of emergency savings, a whopping 72% come up lacking.
Savings First, Stocks Later
One of the most basic principle of investing in the stock market is that it should be done with savings you won’t need in the foreseeable future. It assumes you already have a separate rainy day fund set aside that is safe and will not be tapped into for buying stocks.
The money you put in stocks should be IN ADDITION to what you have in your emergency savings. It should be the money that you can theoretically afford to lose should your stocks go down and stocks should NEVER be bought with your emergency fund dollars.
The Poll Shows A Bleak Picture Of American’s Finances
The honest truth is that most Americans don’t have enough money (or any money) to put in the stock market. They are struggling just to get by and paying the bills is often a challenge. Its sad that so many people have never learned to save or don’t earn enough to save and the bleak economy is only getting worse.
It seems that in 2016, the middle class is slowly diminishing and what was once the American dream of getting a job, owning a home, and retiring with ample money to travel and live comfortably is becoming unattainable for many. If any of the above sounds like your situation, then you shouldn’t be thinking about buying stocks. You must first concentrate on saving as much as you think you will need in order to negotiate any tough times and situations that might lie ahead. Only once you have ample money set aside for that should you then start thinking about saving money for the purpose of buying stocks.
All Stocks Go Down At Some Point
Because all stocks go up AND DOWN, you must always be prepared for periods where you have losses. That is why you should never put your safety net money in stocks. Should you need that money suddenly and unexpectedly (and that is the way it always happens), you don’t want to have to pull your money out of the stock market on a moments notice. You need to have savings put aside that you can count on and if you put it in stocks you may be saddened to see that when you need it, the amount you have is less than when you started.
The stock market is the single greatest way to invest for your future, I am convinced of that. Especially with interest rates near zero, where else can you expect to make money with your money? However, you have to be smart with your finances and only invest the money that you are sure (or pretty sure) you won’t need for something else.
If you have yet to start basic savings for hard times and unexpected emergencies, you need to do that FIRST. Be smart and make sure you save enough to get you through a job loss or medical setback and don’t touch that money! Only after you have those basic savings should you turn your attention toward the stock market.