Getting to Financial Freedom: Why Extreme Finance isn’t a Good fit for Everyone

Getting to Financial Freedom - Jason Aaron Bragg

Most people have seem the headlines, no doubt. A couple pays off $200,000 in student loans in two years. A Millennial woman packs up her van and travels on the money she earns from online gigs. An extreme coupon fanatic gets $1,000 worth of groceries for 10 cents.

All of these lifestyles hold some appeal. Otherwise, there wouldn’t be TV shows and books dedicated to them. However, there are many downsides to trying to live this kind of lifestyle, many of which don’t get mentioned by the people who live them.

There is a downside to all these seemingly perfect lifestyles that the people who live them don’t mention. Ignoring them puts new practitioners at risk, often leaving worse off financially than they were before.

 

It’s Not Sustainable

According to the U.S. News and World Report, extreme budgeting rarely works in the long-term. This is due in part to how extreme these lifestyles tend to be.

However, it’s also due to the fact that many promises that these extreme finance lifestyles promise aren’t sustainable. For example, most people would not be able to live in an RV and work at odd jobs they’ve found on a mobile app. This is a piecemeal existence that most people just aren’t ready for.

Additionally, people who live these lifestyles often put themselves in a precarious position. Take those who do extreme budgeting to pay off a large amount of debt. If their finances take a big hit like them suddenly getting sick and being unable to work, they won’t have any money saved. They’ll have put it all toward debt, without giving a thought to how they’d handle such an emergency.

 

Budget Burnout is Real

Additionally, TIME points out that extreme budgeting and financial lifestyles lead to burnout. People who are burned out will fail eventually.

It’s better to introduce a planned splurge to the family budget and to change up a family’s budgeting system from time to time to keep long-term financial plans sustainable.

Taking steps like these allow most people to work toward a more balanced and realistic financial plan. It’s one that would allow them to to save for emergencies like a job loss and plan for retirement.

 

Change the Root Problem

Finally, the people who adopt these kinds of extreme financial lifestyles don’t get to the root of the problem.

For example, the couple that has decided to pay off $40,000 worth of student loans and credit card bills in a year and a half on a $20,000 income will not be able to do it without a significant adjustment to their income. This means they’ll either have to get a second job or get help from relatives to make this plan happen.

 

Worst yet, the people who embark on such a plan usually don’t get to the root of the problem. Until they figure out why they have so much debt and until they change the behaviors that caused them to be in their current financial predicament, it’s only a matter of time before they’ll be back in debt again. All of the scrimping and saving they did in order to pay off their large debts will have been for naught.

 

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How to Create an Emergency Fund

How to Create an Emergency Fund - Jason Aaron Bragg

Life can be very unpredictable. Unexpected expenses can come from anywhere and at any time. An emergency fund is a money that is placed aside to cover unforeseen costs. Having an emergency fund may not seem like an essential for some. However, sometimes it’s better to be safe than sorry. Creating an emergency fund won’t require a lot of time and it can be beneficial to anyone.

 

Why it’s Important for Everyone

No one can ever predict when an emergency will occur. Medical bills, loss of employment, or even major auto repairs can happen unexpectedly and can be expensive. Whenever unexpected expenses arise, people tend to gravitate toward using a credit card or a loan from their bank to cover the costs. However, credit cards and bank loans may come with high-interest rates and they could end of costing more money in the long run. This is why having an emergency fund is crucial for all people. There’s no borrowing or repayment to worry about in the future and the funds are easily accessible.

 

How to Create an Emergency Fund

When someone is starting an emergency fund, there are a few things that they should consider. They would need to decide how much to save, where to store the funds, and how to build up the fund. Typically, people set aside six to eight months’ worth of living expenses for their emergency fund. This would cover their basic living expenses in the event that there is a loss of income or to cover unforeseen costs. When choosing where to place the funds, they would need to put them in a bank account or somewhere with easy access in case of an emergency. Some banks offer high-end savings accounts that will actually begin to gain interest over time. Choosing where the money will come from will vary based on the person’s personal preference. They can begin to set aside money little by little, cut down on their monthly expenses, and even hold on to their tax refund. Basically, any extra month accumulated can be used to build an emergency fund.

 

Having an emergency fund can definitely come in handy when you need the extra money. Shopping, birthday parties, or fancy trips should never be covered by the emergency fund. The money in this account is strictly for emergencies only. It doesn’t take much effort to build up an emergency fund and having one set up can provide you with peace of mind whenever the unexpected occurs.