HOW TO TAKE CONTROL OF YOUR FINANCES AND LIVE THE LIFE OF YOUR DREAMS…
When I was growing up, I met two very different women.
They were part of my life and, amongst other things, they gave me two very different examples of how you can live your financial life:
Old Lady had always lived a frugal life. She worked hard, she saved more than she spent, she had a little black book in which she kept all her receipts and manually wrote and added up all her expenses. Old lady never looked like she was depriving herself and was always a very proud and happy lady.
Since I was a child she always said to me: “Never throw away anything that you can still use, and never spend more than you earn!”. She never even had a mortgage and always paid for EVERYTHING in cash! She is now 90 and still lives a happy life to this day.
Young Lady had her own business and was a keen entrepreneur. She and her husband managed to create a profitable business, but she liked to spend. She liked it so much that she often spent more than she earned.
Young Lady had a nice car, expensive clothes, she would go to the beauty salon every week and spent hundreds of dollars on groceries, most of which ended up in the bin. But there was money, and everything was great! After years of this life and during a financial crisis, Young Lady and her husband lost most of what they had. Her happiness was based on having stuff and spending money, and now that she couldn’t any more she got depressed and tried to take her own life.
I learned a lot from these two women in my life, and I think you know which one I took the inspiration from to start learning more about making money, saving money and living a happy life!
Here are a few things I learned about personal finance:
1. Love a Budget!
I know, I know, most people say that budgets are boring! After all, lots of numbers on a spreadsheet…how much fun can they be? But I LOVE them!
You should check out my intentional budget system and you’ll start to love budgeting too!
Without knowing how much you spend every month and how much you have spent in the past; how can you look at planning your future? You don’t have to keep track of how much you are spending every single day. There are so many good apps that can help you keep track of where your money goes with just a few clicks. A couple of great ones to look into are Mint and You Need A Budget.
If you have never recorded your expenses, I would suggest you look at your last 3 months of bank statements. Split the expenses into categories, analyze what you spend, and see where you can make cuts.
This is what my categories look like:
- Bills and Utilities
- House Maintenance
- Shopping (Clothes, Books, Electronics)
- Travel and Holidays
Make a monthly plan of how much you will spend in each category, based on your past spending. Any improvements you can make, stick to them!
2. Pay yourself first
It’s payday! Yeah! So, what do you do? Let’s buy some clothes, shoes and go out for dinner with friends!!! Yep…well, no! If you want to have enough money to live the life of your dreams, that’s not the right thing to do, unless of course, you want to spend the rest of your life going from paycheck to paycheck until you are 65+.
What you do is: you pay yourself first.
What does this even mean? Before you start going off on a spending spree, decide what your goal is and set aside a predetermined amount. Once you have set your goal, move the money out of your current account.
- Add it to your pension savings and invest it
- Invest it in your taxable account
- Move it into a cash savings account
But, do not touch it, and move it away! If it’s not in your easily accessible account, it’ll be harder to spend! Then live off what’s left, and forget about the rest!
3. Stay out of Debt
Debt is a bad habit, once you get into it, it’s hard to get out of it.
As far as I am concerned there are two types of debt:
VERY BAD DEBT
I want a luxury car, a new Louis Vuitton bag, a holiday I can’t afford and I have no money. Let’s get a loan for that or put them on my new sparkly credit card! This is very, very bad debt. If you can’t afford it, you can’t have it! It’s as simple as that. If you want it badly, work harder for it! Get a new job that pays more, come up with a side hustle to make some extra money or save a bit more every month!
Debt is debt, and it’s never good, but there are some instances in which having debt could also have some financial benefits in your future.
With student loans, we need to be careful. There are people that pick the most expensive path in history for their studies and spend the next 15 years of their life getting out of debt. Try to pick a university you can afford, and keep your student loans to a minimum. I know for example going to a university near your home and staying at mum and dad’s house isn’t always an option, and it’s definitely not the most glamorous one, but you have to weigh your gains.
Ultimately, with a student loan, you are investing in your future, but you have to be careful and choose something that will give you a return on investment either through a job that will bring you more money or by learning something you love!
We all need a place to live, and there are endless arguments about whether renting or buying is financially the better option. There are strong arguments for both, but I also think it depends on where you live and what lifestyle you want. I love having my own space, and as much as I enjoy traveling around the world, I feel the need to come back home.
With the low-interest rates, we have had for the past 10 years, having a mortgage does seem to be a good way to leverage your money, as buying a house in cash could be very hard for most of us. But always remember you have to buy a house you can afford and don’t overstretch your budget! Do you really need that beautiful 5 bedrooms, 4 bath house with a massive garden? Remember that a big house needs to be filled with a lot of stuff and you need to heat it in the winter and cool it in the summer.
A house is possibly the most expensive thing you will ever buy, so if you do it, do it wisely! Also, if you are investing in real estate and rental properties, you can offset the mortgage interest from your profit, and leverage your capital.
You might want to become an entrepreneur and invest in your own business. You absolutely don’t have to invest a fortune, and you could even start a business for no money like the Pop-Up Business School teaches us, but investing a bit of money strategically in your business could bring you great returns and happiness!
READ: 5 MONEY HACKS TO GET YOU OUT OF FINANCIAL TROUBLE
4. Never use credit cards (unless they are repaid in full every month!)
I see credit cards as a virus of the 21st century. Why would you spend money you don’t have to buy stuff you can’t afford?
There is never, ever a good reason to use credit cards, unless you repay them in full every month, and “use” them in clever ways to give you stuff back for free. Travel points rewards are a fantastic example of a clever way to use credit cards to your advantage.
But always repay them in full!
5. Spend less than you earn
It doesn’t seem like a hard thing to learn, but I am always surprised when I see people in the office waiting for payday with trepidation not because they can’t wait to see their balance going up, but because they can’t pay the rent, or buy groceries, or pay their car loan.
Never ever spend more than you earn.
READ: 50 GENIUS MONEY HACKS THAT WILL SAVE YOU THOUSAND $
6. Have your own emergency fund
What would happen if you lost your job tomorrow? What if you had an accident and couldn’t work for a few months? If you want to rest easy at night and not feel this financial pressure every day, make sure you set aside your own emergency fund.
I suggest having between six months to a year of living expenses in an easily accessible account. You can, of course, start with less, but I would suggest a minimum of three months to give you some security and time to come up with a plan if anything happens and your earnings stop.
7. Set goal(s)
Saving for saving’s sake is boring! I’ve always been a good saver and seeing my account grow every month has always been a good enough reason to save, but it wasn’t until I started to set myself goals that I found a real purpose and a strong motivation.
Good goals to have:
- Saving for a holiday
- Saving to buy a house
- Earn enough to leave your job
- Save $10,000
- Get to $100,000
- Get to $1,000,000!
Whatever your goal is, big or small, make sure you have one. It will help you track your progress and give you something to achieve and strive for!
8. Start investing
If you want to live the life of your dreams, investing your savings as soon as you have any will help you to get there much faster.
It took us a long time to decide how to invest our money. We were always a bit scared of losing it and we thought about keeping it in a savings account was the safest bet. It was not until we started investing and seeing the potential returns with passive income that we finally realized how important having your money working for you is your path to financial freedom.
We split our investments in Index Tracking Funds and ETFs, but most of our investments are in Real Estate and Rental Properties (yes, it’s more hassle and hands-on, but we do like to own a tangible asset…for now).
Clever ways to invest your money:
- Index funds
- Real estate (physical rental properties or peer-to-peer lending)
9. Track your net worth
How do you calculate your net worth and how do you track it?
Your net worth is:
Assets – Liabilities = Net Worth
What are your assets?
- Cash in bank accounts
- Investment account value
- Investment property value
- Personal home value (many people don’t include this in their net worth as you are not really making any money from your home, but you are still saving rent and potentially building equity, so as far as I am concerned, it’s in!)
What are your liabilities?
- Student loan
- Car loan
- Any other loan
- Credit card balance
Knowing your net worth will give you an idea of your current financial position and help you measure your goals.
If you need an easy way to keep track of your net worth, you are going to LOVE Personal Capital. You just need to create a free account, and you’ll be able to manage your entire financial life in one place.
You can use Personal Capital to easily track your net worth, create a budget, manage your investments, plan for retirement and reach your goal faster!
10. Make more money
The easiest way to save more is, guess what? Make more money.
If your monthly spending is $3,000, and you make $3,500 a month, you can try and live more frugally and save a bit more. You can maybe reduce your spending to $2,800 but there is a limit to how little you can live off (although that limit could be bigger than you think).
But, if you managed to earn a bit more, let’s say another $100-$200 a week, you could double your savings every month! But how? There are many ways to make a bit more money, but don’t be fooled by the get rich quick schemes – making more money requires work!
You could do a bit of overtime every week in your current job, ask for a raise, take some extra qualifications and get a better-paid job or turn a hobby into a little business.
If you can put aside a couple of hours every day, there are great ways to make up to $100 a day.
Are you ready to finally take control of your financial life?
Follow these financial hacks and you’ll be on track to start living the life of your dream!