Sequential Investing Hierarchy – Stable
After establishing an emergency fund and implementing the proper insurance policies, the “stable” step comes along. Households begin to feel more comfortable because they have liquidity in the bank, proper insurance in place to protect against calamity, and don’t feel slave to consumer debt any longer. Just as importantly, there is a feeling of confidence due to giving each dollar a job in the spending plan.
In the “stable” foundational step, the next goal is to start saving for major (short-term) purchases. As a pro-tip, we recommend to determine the amount needed, the timeframe until the purchase, and then backing into the monthly savings needed to fully-fund the purchase. For example, let’s assume a $20,000 vehicle needs to be purchased in 7 years. Over that 84-month timeframe, $239 saved per month will meet that $20,000 need. Not so bad when it’s broken up!
This strategy can also be used for major purchases like home renovations, furniture, and a down payment for a home purchase.