Grow Your Finances Outward
Free Capital Or Extra Money
Once your roots are established you must push beyond the threshold of emergency funds and start developing free capital. Again you must set up a separate account to differentiate the two and discourage spending in excess. By sticking to a plan of active and passive saving, you will develop yet another reserve and with this, you can set your sights on investing and entrepreneurship without the same degree of risk. During this stage it is also important to educate yourself on the options available along with their pros and cons to further minimize exposure. These practices develop and emergency fund of capital and knowledge for your budding endeavors to fall back on.
Free capital is any and all money held in addition to your emergency fund. Set a benchmark number for this number in preparation for the next step which is investing. If you have a business idea or investment in mind, calculate the principal costs then multiply by three. Again generating triple the amount of what you need serves as a point of security for your investment in the event of additional fees, and unforeseen costs. Implement another active saving strategy to grow this fund; hopefully, now that you’ve established a few thousand dollars in your emergency fund you can build your free capital at a quicker rate without experiencing many financial hiccups.
At this point the importance of furthering your education becomes all the more crucial. As your reserves grow stronger so will temptations to spend, be it for leisure or business. In either case you must practice diligence with strong research and critical thinking to see through to true opportunities and not spend frivolously. Moreover you’ll want to focus yourself on a single idea of interest that you think will be fruitful. Rather than go in wallet first, take your time understanding the market or industry. In most cases, you’ll find a critical flaw in your thinking or that some ideas just don’t work as well. Better to find this out in theory than lose your wits and your savings trying to get blood from a stone.
Take the ideas from Money Seeds chapter five a step further in the next installment here.