Spend It. Save It. Invest It.
If only management of our finances could be as easy as saying these three phrases, all of us could have been millionaires already in our own rights. But financial management entails a lot of things. You need to have that motivation that is way bigger than your temptations, an income that is marginally greater than your necessities, and less time for luxuries and unnecessary whims in life.
We have our own ways of budgeting our money. Sometimes, we even tend to invest into insurance so that the future of our family is already secured before the need arises. But I wanted to tell you that there’s one key in financial management that is readily dismissed – the Emergency Fund. This is one of the most important personal funds that you should keep and you should invest into.
Are You Financially Fit?
According to Robert Kiyosaki of “Rich Dad, Poor Dad”, there are only two problems that people face with money – having too much of it and having very less of it. But in this case, we beg to disagree sine we know that there are different variations of financially capabilities. There are people in the middle-class who are just earning fine and are financially-abled to access the basic needs to sustain a quality life.
Financial fitness refers to attitudes towards money. If you think that money is an end in itself, then you’re not financially fit. But if you think that money is a means to get through other objectives, then you have a greater likelihood to be financially fit.
So first, you have to identify whether you are financially fit. Are you a value-seeker, big spender, non-spender or experiencer? After that, use it to gauge where you’re going to begin in your financial plan.
Build Your Financial Plan
A financial plan is a flexible plan that is based on your financial capacities. Since you are fully aware of the cash inflow and outflow that you have, you have the upper hand to control what aspects in your life receive closer financial attention over the other. Always ask yourself, “How can I make my money grow?” “How much money will I have to save this month so that I can start my business at the end of the year?”
You have to be optimistic of the plan in a way that it’s going to work if you strictly follow it. The way you behave towards this plan determines the success percentage that you’re going to have.
Save At Least 10% of your Monthly Income
Saving at least 10% of your monthly income wouldn’t really hurt your entire necessities. You work for a job to aim higher than where you are right now. If you drain out all your money every time the payday comes, you’re not going to grow financially.
If you have more profit to save because of bonuses or overtime work, then better save it. The secret to be able to build your Emergency fund is to just spend the right amount of money for your expenses.
The Amount of Emergency Fund That You Need
By the name itself, you don’t know what emergency could happen in the future. Whether it be for payment of hospital bills or sudden death of a family member, your emergency fund must be good enough to get you unaffected even after being hit by the storm. So the way to deal with this is to think about allocating more for this fund. Separate your personal income bank account and your emergency fund.
Emergency fund is not for those instances when you simply saw an appealing leather jacket in the shopping mall and you just randomly want to purchase it. An emergency fund has to be the last resort of the most important needs. At least when you don’t have anyone to turn to, you still have a emergency fund to resort to.
Segregate your emergency fund from the rest of your other funds and never spend it for temptations. Always be aware that emergency fund, as flexible as it is, can save your entire family from future expenses you could have never expected to arrive. If possible, put it in a time deposit.
But since we never know when does emergencies happen, always make sure that you can access it by the time the need arises.
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