Do you feel like you’re not in control of your finances?
Do you want to get ahead financially and really build your wealth? Maybe you’re dreaming of buying a home investment property or shares to set yourself up for the future. If you’re anything like the old me, you probably find finances boring, time-consuming or confusing.
Now, I’ve learned to manage my finances, save and build wealth without having to write down everything I spend my money on, or do weekly budgets. It wasn’t always like this, trust me. But I can honestly say, it’s not as hard as you think to feel on top of your finances.
I picked up these tips from the Barefoot Investor, Scott Pape, who has some really great, practical and trustworthy advice about all things finance.
1 x Everyday savings account
2 x High-interest savings accounts
Take your net income and divide that into 60% for ‘needs’, 20% for ‘wealth building’and 20% for ‘fun’. For example, if you earn $1,000 per week, $600 would go towards ‘needs’, $200 to ‘wealth building’ (or paying down debts first) and $200 for ‘fun’.
60% is the stuff you ‘need’ to live:
- Bills (electricity, phone, etc.)
- Health/medical-related expenses
20% is for wealth-building (or paying off debt first):
- Use this to pay your consumer debt first (i.e. credit cards, car loan, student debt, etc.)
- When you’ve paid off your debt, put away enough in a ‘rainy day’ high-interest savings account (e.g. three months of living expenses). This is so if you lose your job or some other unforeseen financial emergency happens, you have a safety net.
- Once you have a safety net of 3-6 months’ living expenses, start to use these savings to build wealth (i.e. invest in shares or property) and put you on the path to financial freedom.
20% is for FUN!
- Keep 10% of your pay in the other interest account. This is for longer-term fun (e.g. holiday, saving toward a new car)
- Take 10% out of the ATM each payday and keep it in your wallet. This is your play money to spend however you choose.
Once a year, do a budget of what you spend your money on each week, fortnight, month and year (remember there are 52.2 weeks in a year and 26.1 fortnights in a year). If you’re finding it hard to fit into the 60/20/20 split (e.g. spending too much on ‘needs’ or ‘fun’ and not enough on wealth-creation), look at your annual budget for ways you can cut these expenses back.