Making financial decisions which will affect our lives is one of the more important things we do, as it has an impact on almost every other area of our lives, and so it must be done with a minimum amount emotion.

What this means is developing and implementing a plan before emotion becomes a driving factor in the financial decisions we make. If we’re not prepared, then the events we face will drive the actions we take, and that is largely based on emotion when we’re surprised or caught off guard.

This is why setting aside savings to deal with the unexpected is so important, as once you start being driven by unexpected circumstances when you’re not prepared to deal with them, emotions are the key driver, and they can deceive you and leave you down all sorts of paths which aren’t financially healthy or sustainable.

It’s not the unexpected which is the cause of the emotions, it’s not being prepared for the unexpected which causes emotions to get in the way of common sense at times like these.

The problem of course is what happens when you’re working a good financial and investment plan and you’re caught in the process of putting it into action, but it can’t take care of an event which happened?

At this time it’s best to stand back, calm yourself, and reevaluate your overall circumstances. We must strongly resist making any decision immediately without going over everything.

There’s a reason you made a financial plan in the first place, and a reason you made the specific plan for you and/or your family. Nothing in that should change, even if you must temporarily put the plan on hold to deal with whatever has come up to disrupt it.

If it’s as simple as losing a job, and you are collecting unemployment benefits which allow you to only live at a very basic level, you can’t press to continue on with your savings and investment plan if you aren’t able to afford it.

On the other hand, you don’t want to throw the plan out as unattainable either, as that would develop habits which will harm your finances and goals over the long term.

The best thing to do is deal with reality and face the situation that is handed you. Don’t fall into despair where you make decisions which override what you’re trying to do over a lifetime.

Everything is a temporary setback, and it will change. That’s how to deal with emotions attempting to overwhelm you.

If you can get hold of your emotions and manage them, you’ll find all that has happened is your march toward financial independence has only been temporarily thwarted, and when things change they’ll continue on as they were; whether or not it’s through getting a different job, recovery from health problems, or whatever it is that caused the situation to happen in the first place.

Always take yourself mentally and emotionally out of the circumstance you’re in to get an objective look at the overall financial picture. Understand what it is you can or cannot change in the immediate future and the adapt yourself to what you face.

This is vital become emotionally-driven decisions of any sort are usually harmful over the long term, and that includes financial ones. What inevitably happens is you extend the financial pain you’re going through and make it much harder and deeper than it originally would have been.

In the end, you can’t control the unexpected in life, but you can control how you respond to it. Controlling responses deals with being calm and relaxed and trusting in the financial plan you’ve made, even when the circumstances you face scream for you that they don’t work.

In a new book named ‘Lifecycle Investing: A New, Safe, and Audacious Way to Improve the Performance of Your Retirement Portfolio,’ Yale professors Ian Ayres and Barry Nalebuff, alleged economists at the University, recommend that people borrow money to invest for their retirements.

It just shows you scoring good on test doesn’t guarantee you have and common sense or knowledge.

Of course since being an economist has nothing to do with knowing how to invest, that fact is irrelevant to their suggestion, as the suggestion itself shows.

Anyone with a tiny bit of common sense knows this is a ridiculous idea, and it won’t work for the vast majority of people, and in fact, would cause them more harm than good financially.

The bottom line in their recommendation is that in the early stages of a person’s life they don’t invest like they should, so they’ll have to make up for it by borrowing money.

The very first fallacy of that argument is the idea you’re behind in something and so you have to catch up by taking even more risk. It doesn’t matter what area of life it is, when you develop that mentality, you’re setting yourself up for failure, as the increased risk of course means you’re increasing the possibility of failure.

In essence they’re saying you have to buy back time, but that is also not that impressive, as the extra cost of buying back that time, is partially eliminated by the cost of the capital to invest in the first place.

While we know in the U.S. money is about as cheap as you can get, it still takes away from your overall investment, and increases the cost before you have a chance to win or lose.

At a young age, it’s best to simply put as much as possible into your 401(k) accounts to get the top match from your employer, and to invest as much as possible in any IRA you have that is sheltered from taxes.

Probably most important, is there is so much discipline and knowledge required to make this happen, that the average person can in no way make it work, and so it should be thrown aside as a legitimate way to prepare for your retirement.

I don’t care what their arguments or logic is, this is just a really bad idea, and when you’re young the last thing you need to do is use a margin account of some sort to invest over the long term.

If you have that type of discipline and knowledge, you already are ready to invest in the usual retirement vehicles without the added expense and risk of borrowed money. Don’t waste your time, energy and money on this foolish advice.

There only a couple of reasons to keep our money in a low-interest savings account, one, to have immediate access to your money when unexpected circumstances arrive, and two, having it parked while you wait for quality investment opportunities to put you capital to work.

Now the first one is obvious and what we talk about all the time on Savings Toolbox, offering numerous encouragements and strategies of how to be sure you’ve got that safety account ready to protect you when you need it.

The problem with many people at that point is they tend to keep filling up these savings accounts with money because they aren’t sure what to do next.

Well, once you have reached your savings goal for the purpose of having a safe financial cushion to work with, at that time it is important to move out of the safety mentality into an investment mentality.

It’s a perfectly good strategy to have your safety money in a low-interest bearing account because it’s purpose is to buy you time when unexpected financial emergencies arrive; it’s purpose isn’t to build you wealth with solid returns, but to protect your wealth in times of trouble, by not forcing you to tap your important investment money.

The biggest challenge once you have you money set aside is to change from a safety mindset to a wealth-building mindset. Neither one is right or wrong, they just need to be applied in the right circumstances.

Probably the biggest reason we keep funds in low-interest accounts is they’re the simplest and most easy to understand, the most safe, and we tend not to want to change what we’re doing, as familiarity becomes a friend we don’t want to abandon.

The point of this article isn’t to come up with investment ideas concerning what to do with your money once you have a financial cushion, rather it’s to help you move out of one mindset into another, so you will start to break out of your pattern and into a new one.

Once you reach you savings goal there’s no reason in the world to continue adding to it. The major reason for that is because inflation will eat away at its buying power and you’ll never build wealth with tiny interest rates.

This doesn’t mean to panic and move your money for the sake of moving it, what it means is sit on that money available for investment with an eye toward waiting for the right deal to come along. Once it does, then pounce on it.

Savings accounts aren’t ends in themselves, they should only be a holding place for money waiting for good opportunities to come along. Excluding your money set aside for crises, there should be no other purpose for putting and holding money in a savings account other than for the purpose of investing it at opportune times.

I hope no one reading this listens to some of the pundits saying it’s a lack of trust in the economic system in a country to save up money. That’s really a like, and I hope you don’t fall for it.

Incredibly, American politicians have told the Chinese their people don’t trust the financial system in China, and that’s the reason their savings levels are so much higher than it is in America. Again, that’s a false assertion, and needs to be discarded.

Savings has absolutely nothing to do with whether you trust the financial underpinnings of whatever country you live in, savings is valuable because it provides a cushion when hard times come, and helps you build wealth over the long term if you’re consistent in putting money away.

Many Americans say they’re going to change their spending habits by cutting back on buying goods and putting much of the difference into building a nest egg.

Analysts listening to those assertions say it’ll have to go beyond the present enforced austerity and become a discipline within someone’s life if it’s going to be successfully implemented.

It’s similar to someone having a heart attack and saying if they survive they’re going to change their lifestyles. Once they’re feeling a lot better though, not too long afterwards, usually they’re right back to what they were doing before.

The problem of course is the illusion of health, whether it’s physical or financial, while in reality problems are brewing underneath and ready to emerge again in response to how we live.

In America, and other countries where consumers are urged to spend in order to drive the economy, it’s a bad bit of advice, and something we largely need to ignore for our financial health and wealth.

Even though it’s expected that many will ultimately return to old spending habits, it’ll be less than before and take longer than in the past. Hopefully those reading this will find the discipline to continue on with your frugality while continuing to put money into savings.

Countries like Japan and China, where people save at a much higher level than western countries, didn’t have near the desperation and fear many had who had no savings to fall back on and have learned to live from paycheck to paycheck; this includes those who make a high income as well as low income people.

If nothing else, this great recession should have taught us that we need to have money put away for times like these, and we need to live within our means in order to have the extra money to put aside for when we need it.

Don’t follow the so-called advice of politicians who attempt to manipulate you into consuming for the good of the nation. Other countries do well without that practice, and so can we.

Once we have a solid financial foundation and savings habits, from there we can look beyond to things we may want or need and spend from a position of strength rather than the need to drain the last penny from our accounts or wallets.

In a couple of reports recently released from the U.S. Small Business Administration, the findings were over 50 million people working in the American workforce don’t have any type of employer-sponsored retirement plans, and of those offered them, over 50 percent don’t bother enrolling in them.

Now this is look upon as a big deal by the government study, but for those of us looking to increase out savings and build up a retirement fund, the importance isn’t what particular vehicle we use to build it up, but rather that we have plan in place we consistently contribute to.

First of all, let’s very briefly not that while the numbers above may be accurate in general, they don’t necessarily reflect the reality of the situation. Many government studies like this don’t delve deeply into what is happening, and can give a distorted view of things. For example, many people included in the study have a spouse which is building up their retirement through their workplace, and so the other spouse doesn’t use their particular fund, nor care about doing it. That skews the numbers, and changes a lot of the ominous feelings associated with it.

Another factor could be many people are saving on their own and investing some in a way that they aren’t attracted to a retirement plan offered in the workplace. I’m like that, but then I know a lot about investing and savings, and have the discipline to do it.

What I want to get at in this article is no matter what savings or investment vehicle we use to build our retirement fund or our cash on hand in case of emergencies, we must take charge of that strategy and own it. Nobody cares whether you’re prepared or not, and if we don’t take charge of our finances, nobody will.

Even if you do have an employee retirement plan you have entered into, you must make decisions on how you want you capital dispersed in it, in the sense of the level of risk you’re willing to take and other factors related to it. Do your homework even here, don’t just let someone else make the decision for you.

A basic rule of thumb is the younger you are the more risk you can take. While the older you get the more the term safety should be part of your practical investment strategy.

If you’re the type that has no discipline whatsoever in finances, then if you’re offered a chance at a retirement contribution through work, that would probably be the best way for you to do it.

What I’m saying is it’s not necessary to have that to build up your retirement fund, especially if you’re not offered it through your job or you don’t want to participate in it.
 
Again, it’s more important to have a plan you’re consistent in contributing to than what that plan is.

Many people say they aren’t able to afford giving to a retirement plan. Okay, if that’s you, just take a few dollars a month and start in a money market or savings account at your bank. Just don’t do nothing, as it creates habits that are hard to break even when you do generate more income.

Something is better than nothing no matter how small the beginning is. This especially true in building a retirement savings fund. If you don’t take charge of your financial future, there is no one else out there that will bother to take the time to do it.