Getting control of your personal finances requires a plan with set rules and routines
that keep you on track.
If you don't have a set of rules and procedures that you can rely on, sooner or later you
will fail.
This is true everywhere in life, be it in sports, in nutrition or even in your finances.
As an example, when it comes to investing and trading on the stock market, it is of
utmost priority to create a trading plan that gives you certain criteria to either buy the
stock, sell it or do nothing at all.
And that's exactly what we do with your finances, we create a plan that gives you the foundation
with firm rules that you should follow if you want to get your personal finances under
control.
But before we get to the main topic of the video, first of all welcome back and if you
are new on our channel...
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Financial problems can be immensely stressful, especially for families.
It is not only the bank balance that is sobering and frightening for parents.
Often, financial distress also affects the parents' relationship and the family situation.
Money worries are part of everyday life for many.
But people with debt, few assets or low incomes in particular often face financial anxiety
or experience financial stress.
But what is financial stress?
Financial stress - also known as financial anxiety - is very different from everyday
money problems.
It is, in fact, a constant, downright debilitating feeling.
At its worst, it can take over you completely and affect numerous aspects of your life.
Money worries can become chronic if your brain has persistently elevated cortisol levels.
You're constantly irritated, have a hard time relaxing or making thoughtful decisions, and
feel weighed down by external stressors.
If financial stress goes untreated, it can have dire consequences for your physical and
mental health.
However, chronic money worries show up in very different ways.
The good news: you can change that!
How you can get your financial problems permanently under control even without credit, private
insolvency, I show you now!
The Rule of 72 The first rule you should follow is the 72
Rule.
But what is the 72 Rule and what does it do for you?
The 72 Rule is a short and useful formula to determine in how many years your investments
have doubled for a given return.
This has the following advantage: you know exactly when your investment has doubled and
you can get a rough overview of how the value of your investment has developed in the future.
As an example, rule 72 says that $1 invested at a 10% return will take 7.2 years to become
$2.
The formula goes as follows, so you can calculate it yourself:
Doubling time (number of years) = 72 / Annual interest rate.
As an example you are an owner of a coffee machine factory.
Due to the fact that you need a large sum of money for the start-up, you contact a private
investor who is willing to invest $1,000,000.
However, he is willing to invest this sum only if he gets 12% return.
He now wants to know when his investment has doubled.
In this case, the rule 72 goes like this = 72 / 12% = 6 years.
So it will take almost 6 years until his investment has doubled.
The 4% Rule The next rule is the 4% rule.
This rule helps you determine how much money you need to retire.
So a very helpful formula to determine, for example, what your budget should look like
if you want to retire earlier and thus determine what you need to save and invest to reach
this amount.
Here's how to calculate that: Imagine how much you want your annual income to be in
retirement and multiply it by 25, then the rule is that each year in retirement you can
then subtract 4% from the total.
For example, if you want to have $30,000 available each year in retirement, you must multiply
that $30,000 by 25, which would be $750,000.
Then once you retire you can deduct each 4% from the $750,000 which is your annual $30,000.
Based on that, you can now budget so that by the age you want to retire you will have
$750,000 saved up.
20/4/10 Rule For Cars Imagine you want to buy a new car, but you
don't want to buy it above your means or below your means, you want to buy it exactly according
to your income.
How do you determine the exact sum that is available to you?
The 20/4/10 rule will help you.
Put 20% down, no more than 4 year loan and don't spend more than 10% of your gross income.
Of course, this rule is not meant to buy you the best car, but one you can really afford.
Now we have set up 3 rules that you can use to determine how profitable an investment
can be, how much money you need to retire and a rule that will help you buy a car that
is really within your means.
Now here are 2 rules that will help you build a solid foundation that will help you get
your finances under control.
50/30/20 Rule Of Budgeting Everyone knows it, the 50/30/20 budget.
I've talked about it many times on this channel and yet it's one of the simplest and most
effective budgets because it's so simple.
50% of your monthly income is for your needs like food, drink, clothes and for example
rent.
30% is for things you want, such as going to the cinema, vacations and so on.
Another 20% is set aside to save and invest, for example to build an emergency fund or
invest in an ETF.
If you have never kept a budget or have always had trouble keeping one, this simple method
can help you take the first step in the right direction.
3 Months Emergency Fund Rule As just mentioned 20% of your monthly income
should be used for saving and investing and if you don't have an Emergency fund yet, your
top priority should be to save an Emergency Fund of at least 3 months salary.
The goal of this is to protect you from unexpected expenses.
For example, if you lose your job, do you think you can find a new one in 3 months?
You will.
And if you want to know why your budget fails every time and how you can fix it, watch the
video on the right!
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