Last week’s post covered what I considered to be the last of the main elements in our day-to-day spending habits; all of which impact one’s personal cash flow statement.
Quick check-in on previous action points suggested:
• Did you analyse what you are spending money on – weekly or monthly (print-out your bank statement and analyse it)?
• Are all expenses necessary; did you find any unused or duplicated subscriptions that can be cancelled or any regularly incurred frivolous expenditure (the key is to live lean and not live large)?
• Are you beginning to pay down/off bad debts, especially credit card bills (pay it off in its entirety or pay more than the minimum payment to get rid of any existing debt)?
• Are you now budgeting (to help plan and control how to spend your income) and keeping within budget?
It may take time to reach one’s goals, but it is important to keep at it and not give up. Being persistent will yield the desired result in the long run. The goal is to end up with less outflow than inflow.
Keeping the goal in mind helps to curb the urge to go splash out on something luxurious – taking a step back from the goal. Beyond the goal of generating a higher inflow then outflow, is the why? To have enough to maintain a certain life style, to be able choose if and when to work (sack your boss), to be able to concentrate passion projects (freedom to choose what to fill time with), to be able to spend more time with friends and family, to be able to travel the world, etc. So it isn’t about the money itself, it’s about what one wants to do with it and whatever that is, keeping it in the forefront of one’s mind, is what keeps the focus on achieving the goal – keeping a vision board or rewriting ‘the why’ on a daily (or other periodic basis) might help keep with this. This is where mind-set comes into play.
The temptation to slip back into old spending habits is definitely there, but it gets easier over time and having the ‘why’ at the forefront of your mind helps keep the focus and makes the journey bearable; remember money is a tool to use for your comfort and pleasure, so depriving yourself now, will only serve to give you pleasure in the long term – delayed gratification!!!
Speaking about income, anyone started a side hustle yet or secured a second job perhaps off the back of reading my post.? I haven’t quite managed this yet! This would definitely help with paying down/off debts and being able to generate a monthly surplus much quicker. Below are more examples of side hustles I found.
Finally, important to remember is; KEEP EXPENDITURE LOW. DON’T GROW IT AT THE SAME RATE AS YOUR INCOME GROWS, so don’t go spending all the income generated from the side hustle, is what I am saying.
So as I said in a previous post, I found that I was already generating a surplus when I analysed my personal cash flow statement, but it is a great achievement to get there if one has had to consciously go through the process of cutting expenses, paying off/down debt, etc. so it is an achievement worth celebrating (don’t go throw a party though, as it would only set you back 😊).
So now we begin to “save” – that age old wisdom shared by generations past 😊 Yes, it is important and is the first stage to being financially independent/free in my opinion; and more likely than not, I will come back to it again soon.
Below are a couple of suggestions on how you might want to split your income once you get to this stage.
Note how the first picture says minimum saving of 50% – suggesting it is okay to save more if possible, but suggest that be aiming for expending no more than of 50% of your income. The second picture suggests 10% for wants; I think this is a good percentage, especially for the months where you might be struggling, and then get back to the suggestion in the first picture.
The general concession seems to be that once you are at a place where your income exceeds your expenditure (i.e. you are generating a surplus), the first thing to do is build up a saving pot that covers at least six months of your living expenses (not of your salary, but of your essential monthly expenses – needs) – this being your emergency fund. I recommend an emergency fund that covers one year of your living expenses; at least was my target. I believe this gives you longer time to regroup/bounce back if adversity hits or you lose your job, as has been the case for many during the pandemic of 2020. However, you could build it up to six months’ worth of living expenses then continue to top it up over time.
An emergency pot is for exactly what it is called; for “emergency” only. Dipping into should be reserved for emergencies only and once the emergency has passed, it should be topped up again.
Note: I am not a financial advisor, my posts take you through my past experiences and discoveries I am making on my journey to financial freedom. If you find my suggestions useful, please do your own research and make decisions on the basis of your findings.
I look forward to reading in the comment about discoveries you make on your journey to financial freedom.
📝 Originally shared under my first blog, bitalks; part of the journey that shaped Life’s Riches.
Let’s keep moving forward, together; one mindset shift, one saving habit, one step at a time.
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