You probably spent a fortune on gifts on new year's eve, especially when it was Christmas
a week before that.
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 everyday life.
There is nothing wrong with buying gifts and having fun, but when our holiday spendings
keep going up year after year while we stop saving and start 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!
1.
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 it 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 at me your angry 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.
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 are 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 should 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.
But before you build your emergency fund, make sure to pay your debts, especially high-interest
debts.
3.
Debt
Borrowing money isn't cheap, especially borrowing for short term periods.
I am a big fan of using credit cards to pay the bills, but only if you know that you can
close your balance at the end of the month.
That way, you are not just paying your bills but also building your credit score.
However, if you end up paying interest on your debts, then that's insane.
Imagine working so hard to make a thousand dollars and then spend 20 percent of it to
cover your credit card interest.
I have never paid a dime in credit card interest in my entire life, and I would suggest you
to do the same.
But if you already have high-interest debts on your shoulders, before you even save a
dime, make sure to pay them all as soon as you can.
4.
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 end
up splurging most of your income.
Come on, be honest about it!
How many times did it happen!
It happens 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 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 ever 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 by 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
them.
From my experience, micromanagement doesn't 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 budget.
5.
Invest the rest!
Many of you might disagree with me because I am not making investing 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 everyone.
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 south.
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 intended to grow your money.
Isn't that the purpose of investing?
6.
Invest in yourself But that doesn't mean you shouldn't invest
in yourself.
If you spend a single day without learning or growing, that's a day wasted.
Because if you are not a better person today than you were yesterday, then what is the
point of living that day.
So regardless of how big or small your income is, always invest even a tiny portion of that
amount into yourself.
Get a book on personal finance and learn how to manage your money better, pick up a course
on the stock market and learn how to invest in the stock market (by the way, if you use
the link in the description, you can get this amazing course for free on skillshare).
But investing doesn't just mean reading books.
Going to seminars, meeting new people who are smarter than you is another way to invest
in yourself.
I would even say that traveling is investing in yourself because it forces you to get out
of your comfort zone and think outside the box.
And lastly, make sure to invest some of your money in an index fund.
7. index fund.
Investing in yourself is great; investing in different stocks is great, but a portion
of your investments should be in a low-risk ETF that would grow to a substation amount
in the long run through the power of compounding.
You shouldn't touch that amount in any cause, because the whole purpose of investing in
an ETF is to rip the rewards of compound interest.
So even if your individual stocks suffer or your investment in yourself won't pay enough
for one reason or another, you can be confident that you have something to fall on should
something chaotic happen, god forbid.
But if someone would give you free stocks, then you probably shouldn't care like Webull.
Yeah, if you use the link in the description, you can get at least two free stocks.
And now it's your turn, how do you spend most of your money?
What is your financial plan for 2021?
Let me know in the comments below.
And as always, give this video the thumbs up that it deserves and, of course, subscribe
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Thanks for watching and until next time.