This is how you take control of your finances.
You can take control of your finances. Regardless of how much money you come in or out of each month, you can expect greater financial success and more freedom in the future.
These four rules help me create more financial freedom every day, every week, every month, and every year. It is only about Understand your finances on a basic level and stick to a plan. Develop a strategy that works for you and fits your lifestyle. If possible, be a little ambitious, but first build a foundation and start with these four rules.
Basic financial independence starts with creating a budget. You need to know what money you have each month and what money you have. What’s your income? What are your expenses These are the most basic questions to ask yourself.
Make a budget that represents your life.
Income and expenses look different for different people. It is important to have a budget that represents your life. I have a table that shows monthly, quarterly, and yearly sources of income and expenses. It’s dynamic and I use Google Sheets so I can access it from anywhere.
Things To Include In Your Spending:
- Rent / mortgage
- Bills / Utilities
- Average food cost
- Average gas (car) spending
- All subscriptions (i.e. streaming, food, fitness)
- Outstanding Debts / Loans
These are very common elements that need to be considered in your budget. Other items may be less common, such as: B. Insurance payments, tax payments, possibly an increase in purchases during the vacation months, vacation travel, childcare expenses, etc.
What about your income?
If you have money, make sure it is properly represented in your budget. Do you have a fixed salary or are you paid hourly? Do working hours vary or are you paid on commission or in some other non-standardized way? Take into account how you will be paid in your budget.
Are there any income gaps during the year? For example, teachers may not be paid during the summer months. Maybe you work a seasonal job. In any case, consider this in the budget. You can split the table by month. Make as many recurring line items as you can for expenses and income and adjust them every month if necessary.
Group the non-monthly line items into the month when you are most likely to make these payments or receive the income. If you’re not sure where that might be, take a look at what you did last year.
A budget works for everyone.
It doesn’t matter how much or how little money you make or spend. A budget works for everyone. I would especially say if you want to make more money or save, you need to budget. This way, you can have more control over your finances.
Even if you make what you would think is a small amount of money, By creating a budget, you can see the overall flow of your finances. You can find places where you can eliminate expenses and maximize your income. But you need the budget to see it in the first place.
Now that you have a budget, you can start looking for ways to better use your income and expenses in your favor – that is to save and invest More. Without the budget, you’re just guessing.
Save vs. Invest
I see saving as money for something that is needed in the short term. Investing, on the other hand, means putting money aside to work for you over the long term. It’s an automated process, and it’s money you won’t need anytime soon.
You are investing for your retirement. You save for a new car or for even shorter-term items such as gifts or an upcoming household repair. You may also be saving to pay off a debt or loan. We’re not going to go into fully delving into your debt, but these are important elements to consider in your monthly budget and when deciding what to save or invest.
Reduce your debt and increase your income – that is the ultimate goal. For now, consider debt payments as part of that monthly budget.
The investment is made for larger, longer-term bucket items. Saving applies to smaller, shorter-term bucket items.
When you’re on a budget, you know how much you can save and invest. However, let’s talk specifically about investing. Investing is a way to grow your wealth. Saving as a short-term measure is not intended to increase your wealth, but to achieve something more immediate.
How to create wealth.
Investing prepares you for future success.
With investments, your budget should work for you in the future. It also means that you cannot overwhelm your current budget while you are investing. The number one rule in investing is – Don’t invest more than you can afford to lose. In other words, don’t gamble with the rental money.
Step 1 – Create Your Budget – will tell you how much money you have left over each month. Then, You have to decide what to do with that money. When there is no money left, you need to reevaluate your expenses or consider how to find another source of income. This can mean going out for help, which is 100% okay. If you need help, it is a good idea to reach out to friends, family members, or services that are specifically designed for that purpose.
It is better to invest or save than nothing. Even if it’s only $ 50 or $ 100 more per month, it’s great if you can put that money aside and invest it regularly over time.
I am not going to go into specific ways to invest in this post as there are so many that will vary depending on the stage of your financial life. The good news, however, is that Financial services are becoming fairer and more accessible every single day. There are many banks, fintech platforms and the like that offer verification, savings and investment options on one platform.
Find a system that works for you.
I’ll keep it general for now. Every month, take what you have left and use it to make it work the best it can. I have a retirement account that I am contributing to. I also have a standard brokerage or investment account and a 401k account through an employer.
You may also have guessed this from my account name I invest in cryptocurrencies like bitcoin. Regardless of the investment area, I invest in them in a methodical, recurring manner that I track in my monthly budget spreadsheet.
Savings accounts are no longer what they used to be. You are lucky enough to find a savings account that only earns 1% interest. Finding a way to make your money work for you and generate returns is critical to advancing financially. That’s why I like to say this Cash is rubbish.
Cash doesn’t mean much to you if you’re just sitting in a checking or savings account. As a rule of thumb, in an emergency, you need to have the necessary 3 to 6 months’ worth of expenses on hand. You could be fired from your job or suffer an unexpected injury that increases your expenses in the short term. You will need cash for this.
Look at your budget and determine how much cash is there, worth 3 to 6 months. Then make a plan to start saving towards that amount and keep it month after month. That can be your savings and whatever is left can go into your investment bucket.
3-6 months is just a guideline.
The number of months of cash you should have on hand can vary. I would consider my job stable. I am also part of a double income family. Maybe the same is true of you. That means you can potentially get away with only 3 months worth of cash on hand, compared to a little more at the top of the range.
Make your money work for you.
Once you have that safety net set aside with a steady supply of cash, you can put the remaining cash to work for you. This is where you get it in your investment bucket and find a way to generate returns.
Cash alone doesn’t make you money. It will lose value over time. Because of this, you see other assets like Bitcoin or gold or even things like real estate appreciate in value. These are all ways to put your money in a bucket that has the potential to grow. And again, if this is too much in your current situation, don’t sweat. Take your time and seek advice from those around you.
You can start slowly and invest and save in a way that is manageable and suits your risk tolerance.
By now you have realized it – you can settle your entire financial life on paper. You can see how your budget changes from month to month and over time in general. That said, you can manipulate it too.
One way to further optimize your savings or investments is to automate where possible.
After you’ve set your budget and your savings or investment goals, you’ll know what to do with the leftover money each month. You can basically automate, for example, adding a line item to your budget every month to save a certain amount of money on that car repair. This is a more manual type of automation. You build it into your budget and only touch that money for the purpose you assigned it.
However, you can automate using your financial platform or bank. Having money automatically deposited into an investment account, savings account, or straight to a credit card or loan payment every month (or at a specific time interval) can be critical to keeping your budget working better for you over time.
Make sure your budget works for you.
I mentioned above that every budget is different. It applies to your specific life, so make sure it works for you. Greater financial independence allows you to live with less stress and knowing what is around the corner. And if something unexpected happens, at least you are better prepared for it when it does.
Try these four rules of financial freedom to get started. Once you have a better grip on your budget and how you can use it in your favor, you can really start tweaking things for you, your family, and the future. Let me know how to manage your finances in the comments and share any other financial tips you may have!