It’s February! (hello, Mrs. Obvious) I cannot believe how fast the time has passed! Moreover, this blog has been my baby for already a month! And I have to admit, launching this blog, connecting with people in the personal finance world has been empowering, fun and exciting! I know the world is full of opportunities, and I cannot wait for more to come my way as I am embracing my new passion! As Simon Sinek has said: “Working hard for something we don’t care about is called STRESS; working hard for something we love is called PASSION.”
Furthermore, it’s been a month since we have started living and breathing our 2019 goals and budgeting our personal income (maybe for the first time ever! Congrats!). This is the time to look back at January, assess the performance, learn from the mistakes and celebrate the success, and collect all your forces for the month ahead to combat all the challenges coming our way!
Whether you’ve achieved your monthly goal (go for a stretched goal, so you can sweat more to achieve it) or have a few things to acquire, you’ve made the step towards your ultimate goal- FINANCIAL FREEDOM! I believe that consistency and the right mindset are keys to success so KEEP GOING or FAKE IT TILL YOU MAKE IT!
However, it might be you are missing the last push or feeling like a hot mess and don’t have any idea where to start with your finance “situation”? Your income is not predictable, highly volatile, or life is full of emergency expenses (don’t even start on the upcoming Valentines Day… can a walk in the park with a homemade coffee count?)?
Well, as messy or unpredictable the life can be, there are a few rules (and, no, these are not meant for breaking…you rebel!) that you can always keep in mind when keeping up with your financial situation, not the Kardashians this time.
6 Golden Rules of Personal Finance Management
Rule #1 Earn more than you spend
And Mrs. Obvious returns! If this is not the first money management blog, you are reading then you’ve probably read this almost 100 times. This is a pillar in cash management for both individuals and companies. Everyone and their dog will tell you this!
Though, as easy as it sounds, there would be no need for any money management tools if all of us would be successful in achieving this.
Whether your goal is to decrease your expenses or increase your income with side hustles, the following rules will provide you with additional support.
Rule #2 Set your financial goals
You might be spending more than earning, but it seems an easy problem to resolve? Nothing that a credit card or payday loan couldn’t solve? Living from paycheck to paycheck is not a worry for you…
Though, imagine a life where you don’t have to think about the date of your next paycheck, the life full of opportunties and adventures, free of limitations set because of money! That sounds nice, right! Yes, it’s called Financial Freedom and it’s completely achievable. I can do it and you can do it, even if you don’t believe in it now.
Start with a baby step – set your intention to become financially free. Come up with the action plan and define an amount that you want to earn per month to achieve financial freedom. Recognize why it is a necessity for you and see how your motivation and determination drives you closer to your goal.
Rule #3 Create a budget
Believe it or not but setting up a budget or a way to follow up on your finances will definitely be one of the tasks on your to-do list. Your first thought might be that putting your income and expenses in excel file is like your worst nightmare coming true. Yet, you’ll be surprised at how freeing it is.
The budget provides you control over your money! Plus, there are many more ways how you can approach budgeting. Check out this post to get more ideas!
Rule #4 Set up an emergency fund
Let’s be honest; life is not a smooth sail in a calm ocean! Life loves to challenge us and throw at us the unexpected – car repair, unemployment, pet emergencies and plenty of other “fun” experiences. When an emergency comes up you want to be able to cover it in cash, not on credit.
Most will say that your emergency fund should be equal to 3 – 6 months of your fixed expenses. What I would advise though is to look at your opportunity cost. If you have a stable monthly income and no one is dependent on you, it might be enough to have 3 months worth of expenses saved up at all times. Though, if your income is highly volatile and the possibility of emergencies is very high (e.g. if you have pets, kids and you are dependent on your car) 6 months worth of fixed costs saved up in an emergency fund will allow for much better sleep at night!
Rule #5 Pay off your debt
Debt management guru Dave Ramsey suggests paying off your smallest debt first. Even though I can see his point for those of you who are living paycheck to paycheck, paying off the higher-interest loan seems like a smarter choice to me in the long-term.
Paying off the higher-interest loan first seems to be the new rule of this generation. And why? If you can invest (see the next step) in financial instruments with a higher return than the interest on your debt, you can enjoy the magic of compound interest while not experiencing any loss from your debt liabilities. Time is your friend in terms of investing so the earlier you start the better!
Rule #6 Invest!
I love this part of the personal finance playbook! It’s probably the scariest for any beginners in the financial world. Though the opportunities are so vast nowadays! Banks and start-ups are searching for new investors. Whether it is a real estate and real estate rentals, bonds, stocks, crowdfunding, and peer-to-peer lending platforms, you don’t have to be an investment professional to create a long-term passive investment strategy aligned with your risk profile.
But investing does not mean only basking in the sun of the compound interest. There is one more thing to it!
INVEST IN YOURSELF! Set up your personal goals, join a reading challenge and read at least 30 books this year or learn a new skill! And you will be surprised by the results!
Reading might open up your mind and give you a new business idea. You really don’t know how to invest in stocks but want to start… invest time to learn about it or learn by doing it (though be sure you are comfortable with losing money, in that case).
Linkedin has summarised the top 25 in-demand skills for 2018, maybe it is time to put your skills to good use and open up new job prospects for yourself?
I cannot stress how important it is to grow, evolve and learn. So even if you are not ready to invest in financial markets, invest in yourself and reap the benefits!
“That’s how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.”
Warren Buffett
Don’t study because you need to. Study because knowledge is power. Study because they can never take it away from you. Study because you want to know more. Study because it enhances you. Study because it grows you!
These are the top 6 rules of personal finance management to live by. If you don’t know where to start, define what you want to achieve and everything else will fall in place – budget, emergency fund, debt repayment and knowledge about it. Financial independence is possible for all of us and achievable with the right set of tools. Play around, try and experiment to find your path to financial freedom!
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