I had a conversation with someone who said he is living hand to mouth and that he is somewhat worried with how things are developing in the world now.
The Eurozone debt crisis, the persistently high unemployment in the USA, the political instability in the Middle East and the credit tightening in China seem like a recessionary cocktail.
So, my friend is right to be fearful if he was indeed living hand to mouth. If he should become unemployed, he would be in deep trouble. For people like him, we cannot even start talking about investing in the stock market.
Using some common sense, what would I do if I were him? He must first get his finances in order:
1. Look at his expenses. See what are necessities and what are not. Remove the latter, mercilessly.
For example, I know someone who sold his 5 year old car recently because the very bouyant COE prices now means that he could sell his car at a higher price than two years ago, minimising losses, losing $6K instead of >$10K. He now saves $800 a month in monthly repayment and is taking public transport for now. The car was not a necessity.
Some financial advisors say putting aside 6 months salary is the rule of thumb. For me, I would say measuring how much we should put aside in terms of expenses is more meaningful. If we should have enough money put aside to cover expenses for 10 years, not considering inflationary pressures, are we recession proof?
3. Any money in excess of the emergency funds, he should put to work, investing for greater returns. Having excessive savings is silly given the paltry interest payment on savings.
Having said this, with the stock market weakening continually now, we should be prudent and not throw everything including the kitchen sink into stocks.
4. I would also suggest that he looks into ways of increasing his income in his current job or a new job. He might also want to look for supplementary income. Be more productive.
No one owes us a living. Unless we can show that we can make valuable contributions, no one will think we are valuable enough to pay us!
Living hand to mouth is being a wage slave. Wage slaves are pitiful but someone who is living like a wage slave when he does not have to is NOT pitiful.
Wage slavery refers to a situation where a person's livelihood depends on wages, especially when the dependence is total and immediate. (Source: Wikipedia.)
Money management: Needs and wants.
Do you want to be richer?