This is not an easy subject people can openly talk about so I want to let you know this is a safe space.
I encourage goal getters to take charge of their lives by having the power to negotiate and control their finances. Being fiscally prepared is truly always in style and, not to mention, extremely sexy. Fun to talk about? Not so much.
I’ve broken down a few simple rules that are easy to follow to make what can be stressful much easier. Take a load off with these 4 steps:
1. Have a safety fund
The key is to build 3-6 months of your monthly expenses. First, aim for saving for 1 month. Then 1-1/2 months. Then 2 months, on and on. If you go big right away, there might not be much wiggle room for you to enjoy your life like ordering delivery or going out with friends.
3-6 months is the goal and is for emergencies only so don’t touch it! Forget it’s there. The easiest way to not touch it is by putting it in a separate account labeled “Emergency! DO NOT TOUCH!” or something along those lines.
This is trickier than it sounds and really easy to dismiss when your savings are not automated.
If you have a steady income from a secure job or business you’ve created that is finally breaking even/profiting congratulations! That’s fantastic. Automate your savings so you can completely forget about it and not worry. Put a target goal for your savings with an app or just check it monthly or biweekly to reassure you are climbing toward the goal.
For those who don’t have a steady income but are making enough money to live off of. Plan carefully. Whatever you get paid put half away. This is difficult but a rule to live by especially if your pay isn’t consistent. You are the ultimate candidate who needs to have an emergency fund.
How much to put away you ask? In general the rule is 1/2 of your paycheck.
The goal is to SPEND HALF & SAVE HALF.
After taxes take half your income to….
The spending half:
Break it into quarters. Half of your spending half should go toward bills and expenses (i.e., rent, subscriptions, electricity, car maintenance). Those are best automated too so you’re never late and credit doesn’t go down.
The other half goes toward your recreational spending as getting a bite to eat outside of your home, purchasing a gorgeous lingerie set, seeing a show with friends, etc. All the things that keep you human.
The saving half:
Break this into 2 pieces also. Half of your saving half should go directly to savings no matter what. This could go toward your 3-6 months of expenses emergency fund if you haven’t already built it up. Or if you have saved up those expenses, put it toward a separate savings account labeled “Retirement”.
This is your go-to backup so you don’t dip into the super special emergency savings. That’s in case all goes wrong and you have no rainy day savings. This is the account you can touch if you are desperate. You can be moving to a new place and need a deposit or having a car emergency. Last resort things.
Fight with the bank about your lowering your interest payment to be 0.01% or as small as possible. If they don’t offer that, look into another bank. It makes a huge difference when you calculate how much money they can be taking away from you in the long run.
Still don’t touch it and watch it grow. You’ll be amazed at how you feel with money consistently in your account that you don’t spend. The more it grows the less it also makes you want to spend. So it benefits you psychologically in many ways in the end.
The other savings half is optional. However, it’s highly suggested to use it to invest. If you have no idea what investing means or is that’s fine. It’s very broad so let’s break it down as a second rule:
Still hanging in there?
Firstly, invest in what you know not what your friends know.
You can invest in anything. It could be interests, hobbies, anything personal. If you know intimately what you’re investing in you’re less likely to lose money.
Investing is a way to have your money work for you without you really doing much work.
Pick an interest, any interest. I personally am interested in gold, silver, and real estate. They’re really intriguing to me how rates stay the same but currency fluctuates–a whole boring lesson I won’t get into much detail. But for you it could be very different. Always educate yourself on investments. Knowing them inside and out will put you ahead of where you were before.
The most important thing you can invest in is yourself.
If you work in computers and say you want to take a computer course to excel at your job that’s great. The biggest return is in yourself especially in improving education to make more money an hour. You can buy a book, attend a class, listen to podcasts, earn a degree, or just find any way to develop your skills!
For business owners taking a bookkeeping class and writing it off toward your expenses–the IRS will say that’s fine.
If you take a skydiving class and try to write it off saying you need it to build confidence–the IRS will not like it.
Using this optional aside money can include investing toward a vacation. Time away puts you in a better state to work back at it with a new perspective.
For those who are wary of investing and not sure how to take the leap even after all this, don’t worry. Just keep saving the money you would invest with the rest of your funds in the bank.
I say just jump in and start. They say nobody is ready even after they’ve started so just do it. Learn a new language or even teach your native language to others. Invest in yourself, in your time. Start early. It’s never too early to invest.
3. Spend less every month than you earn
This sounds really silly but people actually look past this. Credit is a North American notion where we borrow to buy a huge, beautiful house and space for a yard. It’s how we start businesses and make a profit before we pay people back. It also helps us save faster if we spend less.
In other countries, for example in France, people don’t fully buy a paid house until they’re 40. That’s not a bad thing but we are really lucky in the USA to have this concept! It propels our nation forward to have a thriving economy and pushes us to do even more.
However, there are people who take advantage of credit because it’s so readily available. Sometimes it’s not even credit card debt. It can be rappers asking for an advance to purchase $1,600 designers socks. Tom Ford says you should change your socks and undies every 6 months so they are fresh and not worn. Especially depending on the precious material being utilized so close to our intimate parts.
So that means $3,200 would be spent on socks alone. You say the rapper an afford it because he makes millions. That depends on his shows where he performs, personal appearances, how much his label makes off him and managers make off him, how much his records actually pulls in, how much people are paying for his tickets, etc.
Take that minus taxes, expenses, savings rules applied, and all the advances he keeps asking for. If you’re dipping into your next paycheck to something off this month that’s not a good spending strategy. That means you already owe more money, thus having less freedom by having to plan for the next month’s expenditures.
10% is what is suggested to pay for clothing but even that’s a lot for the average person’s income in the U.S. Yes, some of people spend more than that but let’s put into perspective with this example. That means he is making $32,000/month if this rule is applied. $384,000/yr doesn’t sound bad. If you’re truly making that consistent amount.
There can be loads of others factors and reasons why we overspend that doesn’t necessarily mean we are trying to take advantage of credit. I understand what it’s like to be a business owner as loans are only available for those who don’t need it. Banks want a guarantee you can pay it back as long as you have pay stubs to prove it. So those who have nothing to start with have an even harder time climbing to the top. It’s the journey that matters anyway 🙂 Always have new goals. Just don’t make them slower to reach by spending money you don’t have.
Always know where your money is going.
This only applies to spending half of your income.
You can give yourself a cushion so the lines aren’t so fine when you are spending. It’s your money do what you want with it!
You do have to spend money to live when you’re living paycheck to paycheck. This means you have bills and a heartbeat.
Check all the subscriptions you are paying for whether they be Sephora or Ipsy (at one time I had both for a year omg don’t do this), Netflix, HBO, Apple TV, Hulu, Starz, Amazon Prime all stacking up? Take out the things you don’t watch. Do you have a Dropbox account you never use? Remove!
Check your automated payments on PayPal, your credit cards, debit cards.
Do you want to have even more freedom? Close one of your credit cards. Focusing on one credit card is like focusing on one Instagram account: so much easier. Less stress is the best.
Sometimes I will find something I don’t bother using anymore or just a random transaction on my card. Be sure to call your credit card company if you find these if you haven’t figured out what they are by googling them or checking past purchases. It takes 5 minutes and will save you a small fortune.
Question every transaction and fight your credit card company for what you want. If you reach for the sun you’ll land on a star. Negotiate big and you’ll reach an agreement both of you are happy with.
Go the extra mile for your expenses. Automate everything and make these simple rules a goal. You already work hard as it is. You don’t want to make your life difficult by having to constantly worry about your spending, if you have savings and where your money is actually going. Nothing is more attractive than being in charge of your life. Financial freedom is just another way of saying you know what you’re capable of.
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