In many ways, having a strong financial foundation can be a form of self defense. There are many things that can attack our financial lives: crushing debt, losing a job, and unexpected emergencies just to name a few.
There are three weapons that I have found effective to fight off the financial burdens that plague the masses. Follow me here, these are important. Let's start with something that every household should have . . . the emergency fund.
Weapon 1: The Emergency Fund
By far, this is one of the most important financial self defense weapons you could own. It takes a long while to build, but once you obtain a fully funded emergency fund, you'll feel a great deal of peace coming your way. This weapon is effective against unexpected financial losses of many types, including job loss, medical complications, and appliance breakdowns.
But how much ammo are you going to need? $5,000? $10,000? $25,000? Well, that answer depends on your monthly expenses. I hold to the rule of thumb that you should have between 3 and 6 months of expenses set aside in an emergency fund. Choose 3 month's worth if you have several steady paying jobs, don't expect a layoff, and feel comfortable at this lower level. Choose 6 month's worth if you have a more complicated situation, your income is shaky, you are self-employed, or are simply not comfortable at the lower level.
When tragedy strikes, you'll be ready . . . financially at the least.
Weapon 2: Hard Earned Money (Not OPM)
The second weapon is money that you can claim as yours. No, I'm not talking about having a line of credit. I'm talking about paying for stuff with cash that you've actually earned. Avoid using other people's money (OPM) that you have to pay back as much as possible. Shred those credit cards. Pay off the loans. Get serious about never adding to your existing debt.
Money in the bank. It's a beautiful thing. You'll have more of it and keep more of it if you avoid paying interest. Who wants to pay money to have money anyway? Ewww! Gross!
The more you use money that you can call your own, the less attractive OPM will become. Having liquid, spendable cash in your checking account is a powerful thing. Give it a shot, and let me know what you think in the comments.
Weapon 3: A Vision for the Future
I've learned that one of your best financial weapons is a vision for the future. Of course, you can't see the future, but you can have an idea of what you'd like to do in it. Follow your dreams and ambitions. Nobody likes working the boring day job that people dread. Not at all! You know what you love doing. So why not do it for money?
My vision is to write and manage websites. I enjoy taking the topics I love and turning them into something creative and fun. Writing is a passion. Online work is a joy. I thrive here, writing to you, the readers.
But everyone is different. Start by asking yourself what you do as a hobby for fun. Take that, and turn it into a full time job. That might take you years, but wouldn't it be worth it?
Having cash in the bank for emergencies, enough liquid money to get you by, and a vision for your future are three great weapons that will keep you from the hurt. Don't be concerned with your credit score. Don't be concerned if people are telling you to invest when you should really first be saving money in the bank. Do what you have to do to take care of your family. And that, my friends, is the ultimate pursuit.