Money management. Financial literacy is not something fantastic, it is simply knowledge of some principles. They are not a secret and you can find some excellent advice in many books on the subject. However, it is impossible to do without an integrated approach, because half-measures cannot give the desired result.
We have collected most of these tips in
this article and will consider each of them separately. But first, let's talk
about why many people fail to be financially literate. Or rather, about the
excuses that people come up with for themselves.
Excuses for financial illiteracy
Psychological excuses
It's all about how we look at wealth
accumulation. For example, you may have many limiting beliefs about money that
have been ingrained in your psyche over many years as a result of your
upbringing or traumatic events.
It should be said right away that beliefs
affect the way you look at money - both for the better and for the worse.
Here's what they can be:
a. Wealth is the origin of all wrongdoing.
b. I will not like the life of a rich man, he has too many problems,
and I am free.
c. You have to work hard into old age to become rich.
d. To make money, you need money.
e. To become rich, you need to cheat, lie and steal.
f. I'm not smart enough to be rich.
These beliefs are deeply rooted in the psyche and often get in the way of making good financial decisions.
Physical excuses
These are addictions for which we ourselves
are to blame. For example, watching TV, surfing the Internet without purpose or
meaning, playing video games, impulse purchases. They distract from thoughts
about becoming a wealthy person, that is, they become a kind of defense
mechanisms.
Social excuses
These excuses usually come in the form of
the phrase: “I don’t have the right connections to become rich.” To some
extent, this may be true, because the people with whom you communicate
determine your thinking.
But this is still an excuse. Especially in
the information world, where with due persistence you can meet, if not the
greatest businessmen, then at least quite ambitious ones.
You need to stop making excuses for yourself.
Firmly decide that you are ready to change your thinking - this is the best
thing you can do. And it may take years, but it will pay off in full.
Learn how to manage your money
Start budgeting
This is the basis. A budget is not only an
accounting of income and expenses, but also a plan for saving money and
investing.
Many financial experts believe that the
budget should be maintained according to the 60/30/10 principle:
a. 60% of the income should go to your needs;
b. 30% of your income should go towards your desires;
c. 10% of your income needs to be put aside.
However, if you want to become financially
independent, you need to put yourself in more difficult conditions. For
example, the budget can look like 50/10/40 or even 50/5/45. It all depends on
your living conditions, income and expenses.
Of course, you need to not only keep
records, but also manage your finances. The following information is about
exactly this.
Minimize your monthly expenses
This should become a habit. Once a week,
think about what expenses you can cut. At the same time, it is important to be
in a good mood and not think that you are making sacrifices. Turn the process
into a game.
Here are three key questions to help you
stick to this rule:
a. Do I really need this?
b. Can I do without this?
c. What are my options?
Save money
The more money you have saved, the stronger
your financial situation. To properly tune your thinking, ask yourself the
following questions:
a. Why do I want to start saving money?
b. Why is this important to me?
c. What are the long-term consequences of
such a habit?
We'll talk more about this a little later.
Spend only your money
No matter how much advertising assures you
of the profitability of the next loan offer, even if there is a need to take
advantage of it, approach it carefully.
It doesn’t take much intelligence to borrow
and manage other people’s money. This habit leads to incorrect thinking, and
even to debt. We will also talk about this topic later.
Create a financial cushion
A financial cushion should be understood as
the amount of money on which you could live for 6 months if you lose your job
or lose all sources of income. This time is needed not only to find a new job,
but also to find yourself, develop skills, study, and read.
Some people create a financial cushion just
in order to temporarily retire and engage in self-development or, for example,
write a book. This is also a great solution, just remember that it will not be
too easy to return.
Calculating the financial cushion is quite
easy, although some people use long formulas. Find out how much money you need
to live for a month - just calculate your expenses for the last six months and
take the average. This way you will get an approximate final result.
Of course, the financial cushion does not
take into account inflation, price increases and unforeseen circumstances, so
it is more correct to add a reserve fund to it. Here you are free to decide
whether you need to create it and, if so, how much money should be contributed
to it.
Set financial goals
Psychologically, it is very difficult to
save money or save money if you don't have any goals. The question constantly
arises in my head: “Why am I suffering so much?” When you don't find the
answer, you give up.
So set yourself financial goals. Here are examples:
Become financially independent
This means receiving enough passive income
to become independent from work. You can quit and live peacefully on the money
that regularly goes into your pocket.
How much money do you need per month to
feel good? Write down this amount. After that, start thinking about what you
need to do to get that passive income.
Get financial protection
It's a simple goal: how much money do you
need to cover all your monthly needs and save a certain amount? For example,
you earn a thousand dollars, of which you save two hundred dollars every month.
You spend the rest. If this is enough, it means that you are financially
protected and are able to feed yourself at this stage of life.
Get financial security
This is a certain amount of money that will
allow you not to depend on other people. It is needed if you want, say, to go
to India for a year to get acquainted with the culture of this country and
indulge in spiritual practices. How much money do you need to quit and not ask
anyone for money?
We previously wrote about the financial
cushion and reserve fund. These are also goals that you can and should set for
yourself.
In order to learn how to manage money, you
need to start saving it. We will dedicate a separate section to addressing this
issue.
How to learn to save money
Are you saving money? If so, do you think
you can increase this percentage? Do you save where others impulsively spend
and then regret it?
These are all questions that you need to
give yourself an honest answer to right now. The habit of saving money is very
difficult to develop. And that is why there are so few rich people in the
world. This requires a different kind of thinking that will lead to completely
different decisions throughout the day.
However, if you want to achieve financial
freedom, the first thing you must do is start saving some of your income. You
can decide what to do with them later.
To start saving money, you need to save.
This does not mean that your life will immediately turn into hell: for this you
do not need to go on a hunger strike and go to live in the forest.
Create your saving plan
First of all, set achievable goals and
commit to saving a certain amount of money (or transferring it to a bank you
trust).
It is believed that every person, if he
works, can save 10% of his income. You don't need to dramatically increase this
number right away, but try going to 15-20%.
Think economically
Whenever we hear that a person is thrifty,
we immediately begin to consider him a miser. Sometimes this is true, so try to
clearly define: what does frugality mean to you?
For example, frugal people tend to:
a. Prepare meals at home rather than ordering takeout or eating out.
b. Opt for free apps rather than paid ones.
c. Exercise outside instead of buying expensive gym memberships.
Some people even think in the spirit of: “If I buy a membership, I will
definitely go to the gym so that it won’t be so offensive.”
d. Buy good and not expensive clothes (and there are such things).
e. Think about borrowing books from the library rather than buying
them.
Perhaps you think it's important to buy
books because you love self-development and just reading. In this case, do not
use the last advice, it is not an axiom.
Overall, these are just a few examples. We
believe that you can create a personal list by analyzing your behavior over the
past month. Think about how much money you have wasted before, and then start
saving it. A decent amount will accrue in a year (yes, we have already said
that accumulation is a long process).
Consider working remotely
Instead of wasting time and money commuting
to the office, try convincing your employer that you can do all your work at
home (at least 1-2 days a week). This way you will save, including a lot of
time. However, keep in mind that working at home is not easy - you will have to
learn to motivate yourself.
Play sports to prevent illness
We rarely think about it, but we should.
The US is experiencing a boom in interest in sports, since medicine there is so
expensive that it can make almost anyone bankrupt if they start getting sick
often (insurance does not cover all cases).
Therefore, be smarter too. The body wears
out one way or another. To slow down this unpleasant process, you need to
exercise and take care of your health: take care of your body and your teeth,
stop drinking and smoking, and switch to healthy foods. After all, what’s the
point of earning a lot of money now if you end up spending it all on treatment?
How to get rid of debts
Our tips are aimed at managing the money
you have. But what to do if you are deeply in debt? What strategy is needed?
You can use the following 7-step program.
However, this does not mean that it will be easy. Quite the contrary. Any
difficult situation is different in that you first need to change your
thinking, and not act according to the usual algorithms.
Step One: Admit There Is a Problem
If you live in debt most of your life, it
can become a habit and create a parasitic mindset. You should eliminate it as
soon as you can.
First, openly admit that there is a
problem. Take full responsibility. Whatever happened in the past, you are
somehow to blame for it. Forgive yourself for this. You got a second chance and
won't make those mistakes again.
Acknowledging the problem helps to create
new thinking and get rid of whining and blaming.
Step two: take inventory
What we mean here is this: list all your
debts. With knowledge comes power. When you understand who you owe and how
much, you can pull yourself together and make more informed financial
decisions.
List your debts, starting with the smallest and ending with the largest. Then clearly decide how much money you will allocate to repayment each week or each month.
The idea is to pay off your smallest debts
first. This way you will reduce the number of creditors. This will relieve stress and allow you to focus on just a few people.
Step Three: Eliminate Everything Non-essential
Start living frugally. Sit down, think a
little, and make a plan for what areas of your life you can cut back on.
This is one of the most unpleasant stages,
but it is necessary. Stop feeling sorry for yourself and give up unnecessary
pleasures. Leave the essentials. Don't buy anything you can't survive without.
Step Four: Create a Realistic Spending Plan
This is a budget in which you set monthly
limits on categories of items and services. It is important that you are strict
with yourself. Once you indulge yourself, the process will spin out of control.
You yourself know how this happens.
Step five: sell everything you don't
need
Let's now get out of debt by adding some
cash to our pocket. Selling necessary things is the last thing, but you can get
rid of unnecessary things without losing self-esteem.
Make a list of such things. You will be
surprised, but you can earn a decent amount if you manage to sell it all.
Thus, your apartment will become more
spacious, which will have a positive effect on the quality of thinking.
Step Six: Think about how to increase your income
At this stage you need to turn on your thinking
to the fullest. There are probably some ways to earn something quickly without
taking a second job.
Sit down and write down a list of a hundred
ways to make money. It seems impossible, but if you just think a little, it
turns out that there are a lot of opportunities around.
As a last resort, talk to your boss.
Perhaps he can provide additional work or help you find something else.
Step Seven: Find Support
It is not easy to cope with such a period
of life alone. Therefore, ask your loved ones for support. Explain to them that
you need them and that you really want to get out of the debt hole. Some of
them may even help you find a part-time job.
We wish you good luck!
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