This video is sponsored by skillshare!
You probably spent a fortune on gifts on new year eve especially when a week before that,
it was Christmas.
How do I know that?
well, Americans on average spend over a thousand dollars on gifts, goodies, and travel.
That might not look like a fortune but when you look at the other data that says 60 percent
of Americans can't cover unexpected thousand dollar bill, it gets sad because emergencies
happen and they are full of surprises, it might be unexpected doctor visit, your car
breaks down or something else that could prevent you from
leading your normal life.
There is nothing wrong about buying gifts and having fun but when our holiday spendings
keep going up year after year while we stop saving and getting into debt more and more,
it starts getting scary!
So here in this video, we are going to take a look at where exactly your money should
go once you get paid?
what steps should you take once you receive that paycheck so that when you are faced with
that unexpected thousand bills again, you don't have to get into debt because you have
been planning your cash flow pretty well!
Allocate your necessities
the first thing you should do is to have a list of your necessities, what are the things
you literally can't live without, your house, groceries, transport.
Whether you like it not, you have to pay your bills every month otherwise you will end up
in the streets.
But here is the problem.
A lot of people can't differentiate between their needs and wants, your Starbucks coffee
might be important but its definitely not a need but rather a want.
The reason why this is important is that a lot of people complain that their income is
not enough, that's why they are living paycheck to paycheck.
I am not gonna argue against that, you are probably underpaid, maybe not, but that doesn't
mean, you can't manage your cash a bit more effectively at least.
Especially if you want to get out of this desperate financial position, you definitely
need to be much more responsible with your paycheck.
denying yourself some of the pleasures might be difficult but at least, you know that you
aren’t going to be broke soon, you don't have to spend every penny in your pocket to
make till the next of the month.
2.
Emergency fund
Once you are done with that, you should start building your emergency fund.
a lot of people would say that you should have at least a thousand dollars or maybe
even a few thousand dollars in case if things go south, and they have a point.
that makes sense
but I don't like complicating things.
Your emergency fund should be your savings fund as well.
Before you throw me your comments, let me explain why.
here is how it suppose to work.
once you are done with the first step, you should have a clear idea of how much exactly
you need to live decently a month.
Take that amount and multiply it by 6, that's your number, that's how much your emergency
fund should have at any point.
Of course, you cant build that fund in a month or two, it might take you an entire year to
do that if not longer.
There isn't an exact percentage of your income you should allocate to that, because it will
highly depend on your income.
If you hardly making enough to make till the end of the month, you might consider a small
percentage, if you are making much more than you possibly need, then you probably will
build your emergency fund faster.
Maybe you should not be having an emergency fund at all, because you are hardly making
ends meet.
what’s the point of saving money when you barely pay your rent, in this case, you should
forget about this fund and focus on increasing your income first.
It might not be easy, but there are plenty of ways to do that.
When you have multiple accounts to save money, it starts consuming a lot of time, which means
you probably won’t stick to it.
You will do it once or maybe twice and then you are going to forget about it.
That’s why I do my best to simplify everything as much as possible.
And secondly, there is no point in saving a lot of money, you gotta do something with
that money to keep it growing, but let’s not get ahead of us, we will talk about that
in a moment.
3.
Entertainment
Now, let's move to my favorite part, entertainment.
This is the part where you initially plan to spend the least amount of money but then
your entertainment spendings even exceed your rent bill.
Come on, be honest about it!
how many times did it happen! probably every single time.
No matter how disciplined you think you are going to be, most of you won’t be able to
spend the entire month without spending on entertainment, it's just part of our life.
Hanging out with friends, going to a bar at night or going for a movie with your homies,
it's just part of modern life.
just a little advice, never ever go into debt for entertainment!
no matter how badly you want that! borrowing money to have fun is the dumbest financial
decision you will make!
You can somehow justify your student debt, mortgage, rent, or any other necessity, but
not entrainment!
So for god’s sake! do not disappoint me!
Let's try to be a little bit specific, what do we mean with entertainment?
I consider entertainment everything else that's not considered as a necessity.
that Starbucks coffee, casual eating out with friends, that new hoodie you bought but you
don't need.
Of course, you cant break down your spending habits into little small parts and micromanage
it.
From my experience, micromanagement doesn't really help unless you are a real nerd. after
a few days or maybe even a week you will just dump your plan and start spending randomly.
So do not underestimate your entertainment spending and set a realistic amount.
4.
Investing Finally, Invest the rest!
many of you might disagree with me because I am not making investing as the first priority.
you might think it should be on the top of the list, and I am not gonna disagree with
you.
You have got a point!
But from my experience, I would say, what’s the point of investing when you barely cover
your necessities.
Talking about investing is a lot different than actually putting your money at stake.
you invest only when you make enough money after covering your basic bills at least.
But enough doesn't mean millions of dollars, not even hundreds of thousands.
Once you start making a little bit more than you need to make ends meet and you have some
basic savings, you can consider investing.
Of course, that might mean, working harder, or getting a second job or maybe hustling
on the side, it's going to be different for everybody.
But that's probably the only way.
What I would do is focus on building the emergency fund first, because when you invest your money,
it's not always easy to quickly liquidate it in case if things go sought, of course,
it depends on the nature of your investment but you don't want to pull out at the wrong
time and make a loss when you were intending to grow your money.
Isn't that the purpose of investing?
5.
redefine your purpose
However, I would always say, redefine your why, before you spend even a single penny
out of your paycheck.
The payday should be the day when you shouldn’t be bothering yourself with all of that nonsense
but if you do not revisit your purpose of saving money or leaving some cash on the side
to invest, you are going to procrastinate and eventually would do it when it's too late.
it’s easy to blow your money at the beginning of the month once you are paid since you have
been waiting for this moment for weeks already.
It supposes to be the first thing you should be doing when you are paid because it's really
difficult to put aside some of your cash when you don't have a clear why in your mind.
However, investing isn't like throw your money here and there and boom, your money is growing
like a tree.
It's a bit more complicated than that, let's take an example of the stock market, from
outside it looks like a world filled with complicated charts, but each of these charts
represents something.
I would like to talk about that but This video has to, unfortunately, end here
but that doesn't mean you aren’t going to learn more about the stock market because
this class on skillshare is going to teach you all the basics of the stock market in
a simple and an animated way.
What is a stock, whats a broker?
what its an index fund?
why do companies go public in the first place? and a lot of other cool things.
I have taken the entire class a while ago and I can confidently tell you that it worth
your time.
over 24 thousand people haven this class, so should you!
Skillshare is an online learning community for creatives, where millions come together
to take the next step in their creative journey.”
“Skillshare offers thousands of inspiring classes for creative and curious people, on
topics including illustration, design, photography, video, freelancing, and more.”
Make 2020 a year where you explore new skills, deepen existing passions, and get lost in
creativity, with Skillshare’s online classes.
What you find just might surprise and inspire you.
In fact, if you want to make animated videos such as this, there are plenty of classes
that can teach you that.
Including this class by in a nutshell.
Click the link in the description to get 2 free months of Premium Membership and explore
your creativity.”
Thanks, guys
for watching and I will see you in the next one!