You might be making a lot of money but if you don’t know how to manage and save it then you might never be rich.
Managing your money is so important and this narrows down to understanding where your money goes hence the (50%/30%/20% rule).You might be making a lot of money but if you don’t know how to manage and save it then you might never be rich.
|50%||Needs – these are things that will greatly inconvenience you hence you can’t live without e.g. housing, health insurance, groceries, utilities|
|30%||Wants – these are things that cause a minor inconvenience in your life like shopping for clothes, dining out, hobbies, etc.|
|20%||Savings& paying debts e.g., emergency funds, credit cards, student loans, retirement funds, etc.|
By doing this, you’ll understand where your after-tax dollar is going, and below are some of few steps that will enable you to improve your finance skills.
- Kill impulse purchases
- Pay yourself first – you can do this by paying yourself at least 10%of your income every month and by doing this your savings will be growing monthly.
- Preplan your shopping–Writing a list of everything you need before going shopping will help you avoid buying anything that you don’t need hence avoiding unnecessary spending and saving your time as well since you already have a list of what you need to buy.
- Reassess your expenses – by doing this you’ll be able to avoid unnecessary expenses. Hence, saving more to build real wealth. You can always review your expenses on a monthly or quarterly basis to rule out expenses that aren’t necessary.
- Generate more income – your ability to save is restricted by how much you earn. Sadly, most people’s only strategy for saving more money is by cutting costs. This is a great start because you can realize quick wins in the savings department but realistically you can’t reduce your monthly cost by so much since you’ll always have to pay for things like housing, food, transport, etc. meaning that if you want to take your savings to the next level, then you need to focus on the other half of the income statement which is your earnings i.e., find ways to generate more income which will enable you to increase your savings.
- Change your mindset – when it comes to personal finance, your mindset is more important than any other tip. Your mind dictates your actions which can either be positive or negative depending on how you see things. A good example is: an alcoholic blames their actions on the fact that they self-identify as having a drinking problem and people do the same with money. When people overspend, they excuse themselves by saying they aren’t good with money or no one has ever taught them money management techniques. Either way, if you tell yourself, you’re a frugal/a saver, you’ll naturally find yourself identifying opportunities to save money allowing your wealth to grow much faster.
Once you have that mindset, the next thing is to perceive how you save. All in all, making money can be instrumental in how fast you can save.
Author: Everlyne Malimo
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