The 6 Habits of Financial Health
"Never spend your money before you have it" Thomas Jefferson
From the moment you wake up to when you go to sleep, you make constant choices. Should I eat the salad instead of the burger? Should I go jogging after work? And much much more. Over time we form habits, good and bad ones. Every day, we constantly try to implement more good habits in our daily routine. "Running on Tuesday, Friday, and Sunday; High-Intensity Interval Training (HIIT) on Monday and Thursday", those are mine with few "Should I go and grab a coffee with a friend and skip the HIIT for today?". Of course, the better your lifestyle is the better your physical fitness will be.
Financial fitness, like physical fitness, is mostly about good habits. Here are the 6 habits to adopt for better financial health.
Know how much you make and how much you spend
Knowing how much you make every month is where you should start. If you have a fixed salary, it is easy. More difficult if your salary depends on commission. Even harder if it is purely based on them. If you work in a cyclical business, then you will probably have highs and lows throughout the year. You should average your last two to three years income, excluding special bonuses.
"A penny saved is a penny earned" Benjamin Franklin
Spend less than you earn
This habit is at the core of all good financial management. It is how rich people get rich. When you spend less than you earn, you save. And what you save becomes wealth. First, you need to know how much you spend. You need to start to register all your expenses. Starbucks, Movie ticket, Milk,... , everything goes into it. The first three months should be taken as "survey months", I am sure you will be surprised on how much you actually spend on certain things. If you carefully register each of your expenditure without intervention, it will be easier for you to take actions.
"Gold cometh gladly and in increasing quantity to any man who will put by not less than one-tenth of his earngs to create an estate for his future and that of his family" The Richest Man In Babylon
The first law of gold in the amazing book "The Richest Man in Babylon" Says to save 10% of your income. The 50/20/30 rule for minimalistic budgeting is a proportional guideline that can help you keep your spending in alignment with your saving goals. This rule allocates 50% to your essential spending, 30% to your personal spending. The remaining 20% is for saving. More "extreme" and frugal people will save up to 80% of their income. Your personal situation and commitment play a role in your saving percentage, however, do not go below 20%. To achieve it, follow this simple rule: "Play Yourself First". As you receive your salary set aside 20% and do not use it.
A study done at Harvard University indicates that Medical Expenses are the biggest cause of bankruptcy, representing 62% of all personal bankruptcies in the States. A good health insurance can protect you. However, one of the interesting caveats of the study I just mentioned, shows that 78% of filers had some form of health insurance. My own take is that you need to select an insurance that is personalized to your needs. If you have dependents you would need a different insurance compared to your single friend.
Be prepared for the unexpected
One year ago I lost my job, my monthly salary went from five figures to zero within two weeks. With today's mind, I can say that being laid off was probably one of the best events for my career. When that happened I was emotionally devastated. Before I started a new adventure in the special place I am right now, I spent few months without any income. I was able to sustain my previous lifestyle with few adjustments, thanks to the money I had saved. Most will call this "rainy fund". I much rather call it "Opportunity fund". Rainy fund brings the memory of scarcity, whether opportunity fund is something full of optimism. I had to use some of my funds during my unemployed days, and having a positive mindset helped me go through that difficult time.
"Make all you can, Save all you can, Give all you can" John Wesley
Develop a long-term financial plan
If you do not know where you are going, you will probably end up somewhere else. Your financial future is much more important than your next holiday. My work colleagues are always busy planning their holidays, if you do the same, channel some of that energy and focus on what your long term plans are. Write them down.
Your income matters. Saving 20% of 1,000 is different than saving 20% of 10,000. Everyone has the opportunity to tap into their free time and find something that could produce extra income. Baby-sitting, tuition, music lessons,... The only limit is your imagination. It may be awkward and difficult at first, but with time and persistence you can succeed in developing one or more sources of extra income
For more http://www.mydailycaffeine.com