Day 8 - Establish an Emergency Fund, Savings Account & Investment Account

After turning my personal finances around just by spending 60 minutes every day on small projects I decided to share everything I learned to get my self in a better position when it comes to money. I will be serializing all the 60 minute projects so other people can try them to get their finances in better shape. Most of these tasks will take no more than an hour and it's those tasks that we love to put off. So join me from Day 1 to Day 13 to see if you can get yourself in a more prosperous place financially.

Day 8 - Establish an Emergency Fund, Savings Account & Investment Account

By Day 8 your finances should be heading in the right direction. You should notice a fall in your expenditure and a rise in the amount of surplus income you have coming in. You should definitely give yourself a pat on the back! I did. Now that you've done the hard part it's important to keep your foot on the gas and eye on the ball and make that money work really hard for you. Think of money as freedom fighters, for every £1 or $1 you tuck away that money works hard passively to earn you more money which means more freedom of time. If you're monthly expenditure is £1000 then you need £20,000 in a deposit account paying 5% interest to free yourself from working for a month. If you have 12 x £20,0000 you don't have to work again because your investment is paying for you to live.

The first step you need to take is to establish an emergency or opportunity fund. Emergency funds help people to remain debt free. If something has broken down unexpectedly or you've received a surprise bill you need to handle it rather than running to your wallet to get your credit card out. You should focus on building an emergency fund which is three times your monthly salary just in case you lose your job. Whatever money you have surplus should be diverted to the emergency fund account. My personal emergency fund is £5000, this means that If I lose my job I can survive for at least 6 months without getting into debt! Having an emergency fund definitely makes you sleep better at night. Your emergency fund should earn interest and be easily accessible. Open an ING Barclay's Deposit Account which pays a decent interest even though it's instant access. The interest is worked out daily so you can watch your money grow.

Once you've opened your emergency fund account you need to focus on your savings account. Your savings account should be like a notice account paying high interest. If you put the money in a 90 day notice account which pays 4% interest you wont be able to spend the money on a whim which you later regret. Once you've fully funded your emergency fund account you should create an automatic transfer which sweeps away the excess money left at the end of each month and dumps it in the 90 day deposit. If you want to take things up a level you could deposit a fixed amount of money automatically at the start of the month and use the remaining money to pay for your expenditures. This concept is called paying yourself first and thinking of yourself as the most important monthly bill to pay!

While 90 Day deposit accounts pay good rates of interest it's important that you invest some money in the stock market over the long run. Historically the stock market has yielded superior results compared to any other asset class over the long haul. The maximum amount I want to reach in my 90 day deposit account is £5000. Once I reach this figure I place a request for withdrawal and then send the money to my investment cash account with Fidelity. I invest all of my money in cheap index funds and cheap dividend funds. I always keep the annual management charge under 0.5% and drip feed the money into several funds rather than investing a large lump sum in one go. Whenever you buy a fund try to buy Income Units so you can see how much money you're making. You should also choose to reinvest your income to buy more units so that the money keeps on growing.

Once you've established your emergency fund, savings account and investment account you can automate everything from your bank and then forget about it. You can check your investment account from time to time but remember that you need to focus on the long term and not get shocked by short term volatility. After establishing all these accounts you'll feel a sense of achievement and clarity and have peace of mind that you're doing the bare minimum to make your money grow for you so you can eventually achieve financial freedom.

Yep, these people definitely irritate me. I have some relatives which think of me as a miser because I have a good income compared to what they earn and not spend as much as them. When I try to explain I'm saving so I don't have to work anymore they roll their eyes. I guess each to their own.

If you read anything by Warren Buffett you'll find how much he rants on about charges being low and how it's better to invest in index fund. I like your set up, having index funds across all continents ticks the box for diversification. I like the other point #Juan about insurance, I haven't explored put options but I'm going to go away and read about how I can bullet proof my portfolio. Thanks