"Never spend your money before you have it" - Thomas
Jefferson
From the moment you wake up to when you go to sleep, you
make constant choices. Should I eat the salad instead of the burger? Should I
go jogging after work? And much much more. Over time we form habits, good and
bad ones. Every day, we constantly try to implement more good habits in our
daily routine. "Running on Tuesday, Friday, and Sunday; High-Intensity
Interval Training (HIIT) on Monday and Thursday", those are mine with few
"Should I go and grab a coffee with a friend and skip the HIIT for
today?". Of course, the better your lifestyle is the better your physical
fitness will be.
Financial fitness, like physical fitness, is mostly about good habits.
Here are the 6 habits to adopt for better financial health.
1. Know how much you make and how much you spend
Knowing how much you make every month is where you should start. If you have a
fixed salary, it is easy. More difficult if your salary depends on commission.
Even harder if it is purely based on them. If you work in a cyclical business,
then you will probably have highs and lows throughout the year. You should
average your last two to three years income, excluding special bonuses.
"A penny saved is a penny earned" - Benjamin
Franklin
2. Spend less than you earn
This habit is at the core of all good financial management. It is how rich
people get rich. When you spend less than you earn, you save. And what you save
becomes wealth. First, you need to know how much you spend. You need to start
to register all your expenses. Starbucks, Movie ticket, Milk,... , everything
goes into it. The first three months should be taken as "survey
months", I am sure you will be surprised on how much you actually spend on
certain things. If you carefully register each of your expenditure without
intervention, it will be easier for you to take actions.
"Gold cometh gladly and in increasing quantity to any
man who will put by not less than one-tenth of his earnings to create an estate
for his future and that of his family" - The Richest Man In Babylon
The first law of gold in the amazing book "The Richest
Man in Babylon" Says to save 10% of your income. The 50/20/30 rule for
minimalistic budgeting is a proportional guideline that can help you keep your
spending in alignment with your saving goals. This rule allocates 50% to your
essential spending, 30% to your personal spending. The remaining 20% is for
saving. More "extreme" and frugal people will save up to 80% of their
income. Your personal situation and commitment play a role in your saving
percentage, however, do not go below 20%. To achieve it, follow this simple
rule:
"Play Yourself First". As you receive your salary set aside 20%
and do not use it.
3. Stay Insured
A study done at Harvard University indicates that Medical Expenses are the
biggest cause of bankruptcy, representing 62% of all personal bankruptcies in
the States. A good health insurance can protect you. However, one of the
interesting caveats of the study I just mentioned, shows that 78% of filers had
some form of health insurance. My own take is that you need to select an
insurance that is personalized to your needs. If you have dependents you would
need a different insurance compared to your single friend.
4. Be prepared for the unexpected
One year ago I lost my job, my monthly salary went from five figures to zero
within two weeks. With today's mind, I can say that being laid off was probably
one of the best events for my career. When that happened I was emotionally
devastated. Before I started a new adventure in the special place I am right
now, I spent few months without any income. I was able to sustain my previous
lifestyle with few adjustments, thanks to the money I had saved. Most will call
this "rainy fund". I much rather call it "Opportunity
fund". Rainy fund brings the memory of scarcity, whether opportunity fund
is something full of optimism. I had to use some of my funds during my
unemployed days, and having a positive mindset helped me go through that
difficult time.
"Make all you can, Save all you can, Give all you
can" - John Wesley
5. Develop a long-term financial plan
If you do not know where you are going, you will probably end up somewhere
else. Your financial future is much more important than your next holiday. My
work colleagues are always busy planning their holidays, if you do the same,
channel some of that energy and focus on what your long term plans are. Write
them down.
6. Earn more
Your income matters. Saving 20% of 1,000 is different than saving 20% of
10,000. Everyone has the opportunity to tap into their free time and find
something that could produce extra income. Baby-sitting, tuition, music
lessons,... The only limit is your imagination. It may be awkward and difficult
at first, but with time and persistence you can succeed in developing one or
more sources of extra income
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