Following the Hierarchy of Financial Needs
There was a time I had about 3 months worth of expenses in my savings account, I was steadily buying stocks, and would go on regular trips, both local and abroad, with my family and friends.
I recently reminisced about those happy, flush days while I filled out another stock withdrawal form and I couldn't help but ask: "How did it all go downhill? Where did I go wrong?"
And the answer was simple, I tried to do too much too soon.
If I had only seen this financial needs pyramid from Boomer & Echo 2-3 years ago, I bet I would have been smarter with my financial decisions. Or so I tell myself :)
There was a slight period in our early married life when we struggled a bit with the basic necessities, but once I started to get paid in my government job and my husband's freelancing career took off, we had the basic necessities taken cared of.
This was also the time I stumbled into the exciting world of personal finance so I was fired to shore up 6 months worth of expenses into a savings account, take out life insurance as investment, and buy stocks.
In short, I was taking on "Security/Safety" and "Accumulating Assets" at the same time. But more than that, I also dipped my toe into the "Enhance Life" tier of the pyramid by saying yes to regular travels, fixing up our condo units, splurging on jewelry, etc. etc. etc.
So when the real emergencies came one after the other, my emergency funds were easily depleted and I had to sell my stocks and take out loans just to make ends meet.
Fortunately, the storm has ended and we're still standing. Sure, my emergency funds are currently non-existent but the bulk of my consumer loans will be paid off before the year ends and with the upcoming windfalls, I can even start rebuilding our emergency funds by next month.
I have since realized that I shouldn't have spread myself too thinly while getting my financial house in order. The millennial mantra of having it all, has no place in building up your financial future. Slow and steady, with repeated mindful acts geared towards the goal of financial independence, are what will get you the prize.
Ideally, you should go from one tier to another, focusing all your energy on finishing one step before moving to the next one. But I find that tackling two tiers at a time is workable as long as I focus most of my energy and resources towards the lower tier, and then slowly shift the balance towards the higher tier as I accomplish more of the lower tier.
For example, we already have the "Basics Necessities" covered so we can move up to the "Security/Safety" level. However, since we still have consumer and personal loans to deal with, those have to be demolished first before we can start building up our emergency funds. There is thus a need to create a sub-tier between "Basic Necessities" and "Security/Safety" for our case.
The majority of our financial efforts currently revolve around "Basic Necessities" and "Debt Payment" but once the end of year bonuses come in, I can allot a small portion of that towards "Security/Safety" while reserving the bulk towards "Debt Payment" until our consumer and personal loans are fully wiped out.
In the same vein, once all non-mortgage debts are gone, we can go full throttle on the "Security/Safety" tier and then slowly start inching towards the "Accumulating Assets" tier (i.e. start buying stocks and mutual funds) once I have a substantial amount for emergency expenses safely tucked away.
Again, achieving financial independence is not a sprint and there's no need to try and do everything at the same time. Control your emotions, take your time, and make small but repeated mindful acts that have the effect of positively affecting your net worth. And two tiers is ok, but three is no way.
Enjoy the rest of the long weekend!