Rule your money gives your more security.
What is the most scariest things that can happened in our life other than our health condition?
For me is unsecured financial condition. I think you will also feel the same.
Before you want to invest you money, you should consider these steps.
There are 5 simple strategy to rule your money steps here. It have been help me to control and secure my finance condition, I hope they are also helpful to you.
1. Record All Your Expenses!
This is first very annoyed to me when comes to record down where are the money goes. But to manage and improve my financial condition, this is the first step I force myself to go through.
If we don’t know where are the money go, then how can we secure our money? Right?
Normally I will do it in a phone app. There are various types of expenses recording apps out there, you can grab any one of those a start today! Normally I will record my expenses 2 times a day (after lunch hour and after work), so that I will not forget where did I spend.
For me, collecting receipt for the expenses of the day also can help me to record my expenses if I have no time to actually record down to my app.
2. NEED VS WANT
Based on the expenses history I start to think, “is this the things I NEED or the things I WANT?”.
By asking this question, I actually cut off some of the expenses and save some of my money. So ask yourself this, “Do I NEED or Want it?”.
I’m not telling you to live below your mean, I’m telling you that you have a greater goal (Financial Secure) waiting you to achieve which a small sacrifice is needed.
After the goal is achieved, if you still want to buy the things you want, then you can go for it!
3. Set Your Daily/ Monthly Budget
About 2 months of recording of my expenses, then I start setting a reasonable budget depend on my expenses history and cut down the expenses from the things I don’t NEED.
After I know all my expenses, I will separate it to daily expenses (e.g. transportation fees & food) and the monthly expenses (e.g. house rental/house loan & utility fees).
Using the numbers of daily expenses and divide by 30, then I will get my daily budget. Which I can know how much I can spend per day excluding the monthly payment.
4. Prepare For Rainy Day! The Emergency Fund
Emergency fund Is very important for everyone especially like us earning paycheck by paycheck.
In this days, everything could be happening, including being fired by the company the next day. When this happened emergency fund acting it’s function.
So how much do you need for the fund?
It is normally about 3 to 6 months of your monthly expenses.
With this number of emergency fund, it is more secure and no need worry much when a money-can-solve problem pop out in an unexpected way.
5. Slice Your Salary into Parts
The next thing to do is the most psychologically difficult to rule your money.
It is to divide our income into 4 portions.
The ratio I’m using currently is 4:1:1:4. Which make up the income of 100%.
The first 40% of my income is for developing a Financial Freedom Fund. If you want to be financial freedom, your first step is to save money and invest it, build your asset.
If not, you will still need to save up the money for your retirement plan.
The next 10% of my income, I’m spending on the insurance. Some of you think that insurance is a waste of money, it depending on what insurance product you are buying.
The basic medical insurance is one of the thing needed when you buy insurance.
I remember after about half year I bought myself an insurance (medical card), I get sick very seriously and hospitalized for one week.
The bill come out was about 3X the yearly insurance cost I’m paying for. Luckily I’ve made a wise choice.
The other 10% of the income is for the short or long term goals that I wanted to achieve. It is include saving for a wedding, for child education fee or other goals you want.
At last, the 40% of income. It is all for the daily expenses. It is including the loans, food expenses, transportation fee and others you can think off.
The ratio to proportion my income is just my way to do it. If you have a larger scale in your expenses, you can increase the expenses ratio to 50% or 60% and decrease the Financial Freedom Fund to 30% or 20%.
When we can manage our money, we can have the financial security that we control ourselves. Before we reached financial freedom, we need to rule our money.
If you want to learn more about this topic, I have a summary of the book The Automatic Millionaire, I think it will help you to learn more about personal finance.