Have you ever made a plan about how you’re going to save your money,
where it’ll be invested and what specific items you’ll purchase with it? I have.
Have you then gone completely strayed from the script and decided to spend on
whatever you want, whenever you want? I have. Sometimes we do mindlessly spend. We’re human
after all; not all of us have the power of restrain. But the least you can do in
that situation is be aware that having financial freedom may not be your top priority. The moment
I realised that was the moment I understood I knew absolutely nothing about money management.
It wasn’t until I started abiding to the following rules that I had a glimpse of financial freedom.
You too can change your life around and grow
your bank balance by following these relatively simple tips.
1. Be financially disciplined So last year I had this job that really paid well,
and according to my calculations, I only needed 30% of it to spend on everything I wanted,
like shoes, clothes, outings, etc., and save the rest. I was so pleased with myself that I
couldn’t deny the fact that, that was going to be my best year. Well, after I got paid,
I found myself spending more than what I had initially planned for, and by the time
I was getting paid again, I only had 40% left. I was so disappointed, but on careful analysis,
I discovered I wasn’t disciplined with the money. Being disciplined in your finances
means that you have to maintain the balance between income, investments,
and spending. If you do all this right, eventually you’ll have saved a lot of money.
I understand it’s not easy to save money from a fixed income because along the way,
there’ll be bills that pop up, be it hospitals or TV subscriptions. Paying for them is definitely a
must, but still, you have to be disciplined in the sense that you avoid spending your money
on all the good stuff you see. I know for a fact that there’s no day I left out a good
sneaker I found online if I could afford them. To be honest, this was a stupid move because
when you’re dependent on monthly payments, being a spendthrift is the worst thing you could do. Being
disciplined also means that you avoid debt by all means. I get that sometimes we need something so
badly that we end up getting a loan. It sure feels good at the moment, but later on, regrets always
kick in when you’re calculating how to spend your salary only to remember the debt you owe someone.
2. Make a budget and start saving Did you know that it only takes 25
days to create a very good budget? All you need to do is track all your expenses for this month
as you note them down. After you’re absolutely sure of what you need to spend each month,
you can then plan your budget. In your budget, you should also include saving
your money. Personally, I use the 50/30/20 rule to make my budget, which I do recommend you try out.
It simply means that 50% goes to essentials, 30% goes to wants, and 20% goes to saving or
investment. I’ve been saving my money for so long that I've come to realise that it’s not
good to have your money idling around. That is why I also advise you to choose high-yielding
savings accounts. The reason for this is that if you want to be wealthy someday, you should take
advantage of any compounding opportunity that comes your way. You see, the rich didn’t just
get rich by stacking their money on every pay day; they also made their money work for them.
I am talking about a high-yielding savings account. Despite the fact that money in this
account compounds slowly, it’s definitely a start. So, what are you waiting for?
Go make a budget, then start saving. 3 Frame your financial goal
‘Great! I now have a savings account. What next?’ I hear you say.
To which I reply: ‘it’s time to frame your financial goals’.
There’s no point in just saving for the sake of saving. You need goals for which you are saving.
Not just that, you need to specify how long it will take you to save up to that goal and exactly
how much you will need. In order to do this, it’s best to put your goals into three categories:
short, medium and long-term. The titles sort of give it away. By doing this, you now have
a bigger picture in mind with regards to your savings account. Make sure you actually put pen
to paper (or finger to keyboard if you’re a tech wiz like me) to note down these goals. So many
of us simply have these goals in mind but without any specifics; there’s no use for this ambiguity.
Top tip: make sure you calculate your finances according to rate of inflation.
How upsetting would it be to have a goal priced at today’s market
only to then learn you are actually behind by a million dollars?
4. Invest in the right instruments A few years ago, I noticed that most of my friends
got pretty rich from forex trading. This made me so jealous that I decided to start as well, so the
moment I got paid I rushed to open a forex trading account. For a while I saw positive results;
my money was growing, and my friends were reaping the benefits too. I started making lists in my
head of all the things I’d become a millionaire – which obviously wasn’t a long while away. But
as with every great story, there was a drop. I lost all my money. My friends lost theirs too.
While I did lose all my money (and some of my sanity), I did gain a lot from this experience.
I learnt that one should only invest in what they know. On top of this, I was taught that someone
who has just started earning money shouldn’t jump into trading and investing. Instead they should
keep their short-term goals in debt, long term goals in equity, and medium term goals in both.
This is until they’ve fully comprehended the concept of liquidity, returns and tax
liability. The reason for this is that debt provides you with short-term capital security,
and equity provides you with the highest long-term returns.
Now if you have grasped the understanding of the aforementioned concepts,
you would be wise to rely on the guidance of an expert in this field. Don’t be naïve like me and
follow your friends and family because they seemingly have short term success.
5. Maximise tax savings It is genuinely very surprising how tax bills
can ruin your day. Now if you’re a young earner, unless you’re already making millions, this does
not concern you. But I’d still encourage you to learn about this so as to raise your awareness.
There are a number of ways you can maximise your tax savings.
You can, for example, tweak your W-4 in US. This is a form you give you employer telling them how
much tax to withhold on each pay check. You can also save money in your 401(k) account.
This will transfer a fixed percentage of your salary into your account each month. The goal
is to have less taxable income so that you pay less tax. Another thing you can do is
contribute to your IRA, fund your FSA or simply save for college or any other higher education.
All of these ways ensure you pay less in tax thereby keeping more money in your pocket.
6. Go for the right insurance. While it is true that the main
job of an insurance is to cover your risks instead of offering returns,
but did you know you’d manage to save a lot of bucks if you had insurance cover?
Let’s say you have an insurance cover for your house, and unfortunately a fire breaks out.
The insurance company will cover all the expenses which will leave your hard-earned money untouched.
One advantage of long-term insurance coverage is that you pay very small amounts of premiums.
The key is to take your time. You’ll need an insurance for almost everything you own:
your house, a car, even your being. Take your time to read all the available insurances and
find the ones which not only align with your goals but also which has your back through tough times.
7. Get a side hustle. If you stay with your 9-5 job,
you might eventually earn enough money to identify as ‘rich’.
I’m adding a strong emphasis on both ‘might’ and ‘eventually’; do with that what you will.
The point I’m trying to make is that one source of income is not enough to grow your wealth.
Aside from invest and/or trading, you should also look into starting a side hustle.
This could be writing and selling E-books on a topic you know a lot about,
or diving into your passion for painting and selling your art. The idea is to have another
source of income which can further be added to your savings account or even invested.
The is the biggest lesson one can learn from the most successful people out there;
they never put all their eggs in one basket. Find something you’re passionate about and monetise it.
8. Invest in potentially successful business I have a friend who is extremely business-savvy.
In fact, I recall once telling him that if he were ever to start a business,
I’d invest in it right away. A couple months ago he called me
announcing he had started a firm and (no prizes for guessing this) you best believe I invested
making me a silent partner. This was one of the best decisions I have made so far.
Now I know that I could blinding trust his business sense because I’ve known him for so long;
I’ve watched his every business move and listened to all his financial advice. He knows what he’s
talking about. So even though I’m advising you to invest in a successful business, I am also warning
you to do your due diligence. Once you come about a business that is extremely successful,
invest in it and watch your bank balance grow. Once you have mastered the art of financial
discipline, sit down and thoroughly go through all the various ways you can make money (on top
of your 9-5). The golden equation of financial abundance is to have multiple streams of income
along with self-control over your purchases. More importantly, make sure you have goals
of varying degrees that you will work towards. After all, there’s no point in just multiplying
money for the sake of having it; you must be able to enjoy your hard-earned money, as well.
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With that said, have a great day, and see you in the next one.