So here are three baby steps you can take towards ensuring your financial wellbeing. Three steps to take towards financial independence. They are sequenced to start with easier stuff, find success and build momentum for the more difficult steps. This blog looks at reducing your anxiety towards money. Reducing your stress from not having it. A note of caution though, this is not going to happen overnight. It will take some time (not a lot) it will take patience and it will take perseverance. Are you up for the challenge? Here goes.
1. Create Your Emergency Fund
Do you get stressed out by money issues?. Are you paralysed by fear of what would happen if you met with an accident or fell sick? A loved one was sick or in distress and you cant help them. Well here’s where you need some breathing space. Your Emergency Fund. A chunk of money you set aside in good times to help you manage the curve balls that life throws at you. A cushion that can tide you over when you’re desperate. So how much should you put aside as your emergency fund? I would say start with at least 10,000 INR (Ten thousand rupees). While it’s not an astoundingly large figure, it should help tide you over in a crisis.
But remember like it says this money is for emergencies only. So while it needs to be accessible to you it shouldn’t be so accessible that you can dip into it willy-nilly. This money is not for partying, it’s not for when you want to buy the latest gadget and it’s definitely not for you to use to impress your girl or buy her an engagement ring. (Ladies this is not the money to use when you have to buy a new outfit to impress). This is purely for emergencies so use it that way. I love this idea of one guy in the US. His emergency fund is a thousand dollars. So he has a thousand dollar bill that he has framed and put up on his wall and it reads “In emergency break glass”. How cool is that? It’s accessible but inaccessible enough for when temptation comes calling.
2. Kill your debt
Debt is good, right? It helps you fund a lot of things in life. Helped you buy your car. Your bike and even your home. In fact we’ve reached such a state that almost everything can be funded by debt. Mobile phones are an easy example all the way up to some companies fund loans to take vacations. There are tons of people that will tell you how to leverage your business (take on more debt) to grow your business. So why am I asking you to kill your debt?.
Well, firstly debt needs you to pay interest. And that interest slowly bites away at your ability to save. Secondly, there are 2 kinds of debt at least form the personal perspective. Debt to fund things that grow in value, like real estate for example. And debt to fund things that depreciate. Your car, your phone that big ass TV you bought to watch Man U. So take on good debt but stay the hell away from the bad debt.
A side note here. We have become addicted to shopping on our credit cards. Credit cards have some of the highest interest cost. And if you miss a payment, add the late fees and other charges and you’re screwed. Long story short, stay away from credit card debt. Again side note I’m not saying don’t buy stuff with a credit card. By all means, go ahead and buy things with a credit card. The points and discounts that you can get for buying with a card a fabulous. But ensure your buying stuff only once you can pay for it. In this instance for example. I would only buy something on a credit card when I already have the money in the bank to pay for it. That way when the bills come in its paid in full. Always always always pay your credit card bill in full. No exceptions.
3. Build yourself a financial cushion
Have you ever slept on a bed without a mattress? Or tried to rest your head on the arm of a couch that’s not upholstered?. Uncomfortable isn’t it. A cushion helps you reduce the harshness of objects. Provides space to manage your discomfort. Use the same concept here and build yourself a financial cushion. Something to help you manage the vagaries of life. So what should this cushion look like?
Set aside 6 months to a year’s expenses. I know that sounds like a lot but ask yourself is it really all that much? 6 months is a reasonable amount of time to find a new job in case you loose your current one. If anything happens to your income, shouldn’t you be able to continue living your life? In the last step, you’ve killed all your debt so your EMI payments should have taken a long hike. But bills don’t take a holiday. Electricity, water, rent, groceries. These are all things you need to be able to cover. So start building that cushion.
How do you calculate your monthly expenses you ask? Well put down all of your expenses each month and calculate the sum. Then multiply it by 6 or 12 as you might see fit and that’s the amount you need to target. Referring to an old article. Reducing your expenses can help you boost your savings rate and reach this amount much faster.
You’ll hear a lot of people tell you “money is not everything” and I agree with them. It does not have to be the center of your life and that’s how you should live. The problem is when you don’t have money, funnily it becomes everything. It becomes the center of your life. And the stress and worry and time it sucks out of your life is just not worth it. So start with these baby steps towards your financial Independence. Take a big chunk out of the worry and stress away from you and start becoming the person you were always meant to be
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Till then may the poixe be with you.