The majority of the population continuously struggle in their day-to-day job, trying to make ends meet every month, leaving little to no cash in their wallets. It’s a “rat race,” as financial experts would define, and the only way to get out of the race is to be financially independent by mastering your money.
The school system doesn’t teach about financial education. Most graduates struggle in facing reality and handling their finances once they have jobs after college. Some might have no idea about investing, budgeting, debt, and taxes. As a result, they’ll work eight or more hours a day while still experiencing difficulty in accumulating wealth and escaping the rat race.
Of course, not all have equal privileges to save money and be financially independent. Although having no financial claims or inherited wealth should not be a hindrance to mastering your money. It is a long journey, and reading this article is its start. So prepare yourselves as you’re about to begin a once in a lifetime experience since once you master your money, there is no going back!
Planning Through Budgeting
Mastering money starts by budgeting. It seems pretty simple when you think of, but the majority are not even doing it. When people receive money, the first thing that comes to their mind is to buy something they want, whether it’s a new outfit, accessories, or the newest gadgets. In just days, they are left with almost no money, and during then, they’ll start to budget and plan how to survive until their next paycheck.
Budgeting requires discipline even before you receive money to become financially independent. Budgeting is planning where you’ll allocate your money weekly or monthly. It considers four factors, namely, needs, wants, savings, and investments, which we will discuss later on.
The most common percentage allocation for budgeting is 50% Needs, 20% Savings, 15% Wants, and 15% for Investments. You can also make your own percentage allocation, and you need to remember that the highest percentage must be for the needs, followed by savings, then the remaining is for wants and investments. Later on, once you learn about investments, you might want to consider allocating a higher percentage, but for now, we’ll only look at the basics.
One effective way to follow your budget is by using a budget tracker. You can use the traditional listing method, use a spreadsheet, or use any budget tracking applications. It will help you track how you spend your money, and once you notice any unnecessary expenses, you can realign your budget plan.
Remember that budgeting needs discipline. It will surely be hard for starters since you won’t be able to buy anything you want or spend on other leisures outside of your budget, but it is the start of mastering your money. In the end, you’ll realize that budgeting is essential for wealth preservation and financial independence.
Getting Rid of Debt
Debt significantly affects your finances, hindering you from saving and accumulating wealth. There are two types of debt which are good debt and bad debt. Good debt is used for financial reasons, such as real estate and other business ventures. On the other hand, bad debt is used to buy unnecessary things or liabilities.
Commonly, some people use debt to get out of another debt, repeating the cycle until they find a jackpot to pay everything. Well, lucky for those who have, but some unfortunate individuals cannot get rid of their debt.
Getting rid of debt is a challenging task, but let’s first understand why you are in debt. The most common mistake of availing a debt is buying something unessential with the thought that you can pay it off. What’s worse is that there are people who turn to debts with higher interest rates without considering that they’ll pay more than what they’ll receive. Having said these reasons, what must be the proper action?
To get rid of debt, the first thing to do is have a budget, as we’ve discussed. You can allocate a significant portion of your funds to pay off the debt as soon as possible. Delaying your payment would make you pay higher due to its interest. Next, try to find other ways that can generate income. Make use of your skills, and find tasks to work. Doing so will lessen the time for paying off your debt, allowing you to focus on saving and investing. Lastly, you can sell things you don’t need anymore to earn extra cash. Selling is highly effective, especially if you can secure a good deal, so try to find stuff to sell to get out of your debt.
Remember never to avail a loan, or another debt, to pay the existing one. Be mindful about your actions, and plan your decisions well so you’ll be able to get rid of your debt efficiently. If you have many debts, prioritize those with higher interest or those that charge fees once you cannot pay on time. It’s a difficult task, but once you set your mind that you can get rid of it, then you’ll surely be able to in no time.
The Investing Journey
Before starting your investing journey, there are two things that you must have. First, you need an emergency fund. It is a savings fund worth six or more months of your income, which you can use if you lose your job, or there are unexpected occurrences in your life. Second, you need health and life insurance to protect you if something happens. The insurance will be responsible for paying your hospital bills, and it can be a source of funds once you’re in the recovery phase. Having an emergency fund and insurance is essential for your investing journey so that you won’t have to withdraw your investments if circumstances arise.
The reason why you may be interested in investing is to master your money and become financially independent, but there is a broader reason why people invest. You may already have heard of “Inflation,” which is the increase in the general level of prices and the decrease in currency value due to printing large volumes of money. The average inflation for the last four years is 2.35% in the UK. It means that your money in 2022 would be worth 2.35% less in the succeeding years, assuming the inflation rate stays the same. Saving your money in banks cannot cope with inflation since banks only offer 1% interest at most, which is below the inflation rate. By investing your money in asset classes that yield an interest rate of more than 2.35%, you’ll be able to preserve and accumulate wealth over time.
By this time, you might be already interested in starting your first investment. There are numerous assets like bonds, mutual funds, stocks, real estate, businesses, and cryptocurrency that you can invest. Each asset class offers significant returns, but know that higher returns come with a higher risk. So before anything else, you must always invest first in knowledge. Start reading about the different asset classes and determine which one fits your comfort and risk tolerance. After learning your asset classes, it’s time for you to take action. You cannot know everything through reading. That’s why experiencing what that asset class offers can contribute to your knowledge.
Let’s say, for example, you learned about stocks or cryptocurrencies, and you want to try them for yourself. Once you begin investing, you’ll face a lot of volatility or market swings, where the money you invested can be 50% less or more. It is an experience that will teach you a lesson to strengthen further your knowledge in mastering your money. Remember that it’s your money, and it’s your responsibility. Never follow or listen to what others recommend, but instead add them to your research. Learn before you buy.
Once you start investing, try to diversify your assets. There’s this saying, “Never put all your eggs in one basket,” which entails that you must have multiple asset classes. Diversification serves as protection if one asset class fails; you still have others that can prosper. The way you diversify your investments depends on your conviction to a particular asset, so again it is still up to you.
Mastering your money goes along with investing, since despite being financially independent someday, you’ll still be committed to investing. It’s a lifetime process where you continuously learn and grow. The important thing is to apply what you’ve learned and to keep on accumulating your wealth. As the most successful investor, Warren Buffet would say, “The ideal holding time for your investments is forever.” Keep on investing and be the master of your money.