First Three Steps On Managing Your Money Like A Pro
Coming up with a financially secure aspect in life can be challenging – it looks like you would need some proper advice from a self-made millionaire to figure it out. The truth is you need to determine where you are today, as well as where you want to be 10 or 20 years from now. Once you figure these things out, you can establish the right route and avoid detours – luckily, it is doable.
Consider your goals
When it comes to goals, you need two different types of goals – first, you have the long term goals. Then, you need to consider short term goals. Financial security is not a simple one time job – it takes time. In fact, it is mostly about the journey to get there, rather than the actual result – there will always be something else to do.
Come up with a master list of all your goals. Some of them need to be achieved within weeks or perhaps a few months. Some others may take years or decades. This is the first step. Just make sure you take your time and do it right. Sit down in a quiet place and think about it – what would make you feel good from a financial point of view?
There are more things to consider and different people have different needs. For instance, short term goals could imply an emergency fund to ensure you can leave for at least three months without getting any income. Limit your credit card expenses too. In the long term, you could save for a home deposit or perhaps your child’s education.
Decide on a budget
Your budget targets all your finances. Think about all your sources of income, as well as your expenses. You need to write everything down in order to know where your money goes. One simple method is pretty classic and involves the 50/30/20 rule. Basically, 50% of your income goes on rent or mortgage, food, insurance and so on. Up to 30% of it goes on nice things to have, such as clothes and going out.
The rest of 20% should go in your savings. If you find it difficult to stick to this rule, you might consider some lifestyle adjustment. Perhaps you should dine out two times a week instead of five times a week. Maybe you can push for your side gig or ask for the promotion you deserve. Whatever it is, you need to find a way to make it work.
Build your emergency fund
You need an emergency fund that you will never touch and this includes some money to help you survive for months without an income. There are all kinds of unexpected situations and the 2020 pandemic is one of the most recent examples. But then, how do you come up with this fund? The first step is pretty clear – decide on how much protection you actually need.
The minimum should be enough for at least three months. If you can push for six or 12 months, it is even better. Finding it difficult to pull it off? Stop with the big goal and come up with an automated system that adds money to this fund month by month. It might help opening a new bank account just for emergencies. An online saving bank could be a great choice – set some automatic payments to it and watch it grow.
Bottom line, these are the first three steps in achieving financial freedom while managing your money. No matter what your goals are like, planning is critical for successful results.