Day 3 - Money Management
Good morning, how are you today?
In this episode I’m going to teach you an amazing money management system that will no doubt change your whole life for the better.
“Choose a job you love, and you will NEVER have to work a day in your life.” – Confucius
So first let’s see how we can break the Time and Money Link!
I want my money to work hard for me, and not the other way around. I’m sure you can resonate with that statement.
Most of us are exchanging time for money. Unfortunately, that is how society works. The good news is that we don’t have to accept this situation; we can break the time and money link once and for all. (I’m sure you are familiar with the concept: when you are stuck in a position, working all day, earning just enough to pay your expenses, leaving you with no extra cash to invest.) In order to become financially free, firstly we need to have an excellent money management system in place and secondly we always need to keep our eyes open for the amazing opportunities that are everywhere around us.
So our first step is to become a fantastic money manager!
There are many programmes and articles that teach us excellent techniques on money management. The best I have found so far is the jar system. It is very simple and is available to anyone. It doesn’t matter how old you are or how much money you receive on a monthly basis. As long as you are consistent with the execution and follow the rules, you will be surprised how dramatically your life will change within a few months. Nowadays, many people have financial issues, not because of the lack of money, but because they are missing the knowledge to manage their income. It is crucial to track where our money goes, and to know how much we have spent each month. Let me jump right in the middle of it, then.
You need to separate your net income into 6 different accounts for the following purposes: necessity, financial freedom, long term savings for spending, play, education, and contribution. Let me start by explaining what each of these accounts means, and the percentage breakdown of how your total net salary should be allocated.
Necessity Account – 55% of your Net Income
First of all, we all have essential bills to settle, insurance to pay, food to buy, and clothes to wear, etc. These everyday expenses need to be managed from your necessity account that contains 55% of your net salary. If, for some reason, you think the 55% could not possibly cover your expenditure, then it only means that you either need to simplify your lifestyle, i.e. use public transportation instead of driving your car, or earn more. Let me ask you how much of your net income is spent on your necessities each month?
Financial Freedom Account – 10% of your Net Income
10% of your net income should be allocated to your financial freedom account, which is your golden goose. This money should be used for investments, building you a nice passive income. Please remember, sometimes, very little or no money is needed to create passive income streams. Be creative! What investment opportunities do you know of?
Long-term Savings for Spending Account – 10% of your Net Income
Another 10% should be put into the long term savings for spending account. You would use this money if you went on holiday, to educate your kids, etc. Do you have a separate account for this purpose?
Education Account – 10% of your Net Income
Education is one of my favourite accounts. I am talking about your own ongoing education, not that of your children. Unfortunately, many people ignore this great way of investing in themselves. 10% of your net salary should be spent on courses, books, and educational DVDs and CDs. After all, we are our most valuable asset.
Play Account – 10% of your Net Income
The next account will probably be your favourite one. 10% of your income must be used for pampering yourself. It is there for you to blow it on things that your heart desires. Whether it is a helicopter ride, a massage, or a bottle of champagne in a nice restaurant, it doesn’t matter. The main idea of this account is to teach you how great it feels to have money and spend it too. I have to tell you that for me, this account was the most challenging one to get used to. Being a saver all my life, at first I felt guilty to spend that money on myself. Now I have learned to treat myself better and enjoy life more, and I love the new me for that. Are you a saver or a spender?
Charity & Contribution Account – 5% of your Net Income
Last but not least, please allocate 5% of your total net salary for charitable contributions. There are so many people who need help. It is an amazing feeling to give a small percentage of your money to others. You will be so proud of yourself, as by doing so, you will make the world a better place. Remember, you can also give away your time as opposed to contributing your money. So when was the last time you helped others in need?
These questions are just food for thought. You can reflect on them whenever you feel like it.
Well, I know what you might be thinking right now. This money management method sounds so simple and profound that you might not believe it would work. Give it a go. Please do this for a month and I can’t wait to hear about your results. Are you up for the challenge?
CALL TO ACTION:
WHAT I WOULD LIKE YOU TO DO RIGHT NOW IS TO IDENTIFY YOUR NET MONTHLY INCOME AND THEN DIVIDE THE AMOUNT INTO 6 ACCOUNTS ACCORDING TO THE SYSTEM I PRESENTED BEFORE. SO LET’S SAY THAT YOUR NET INCOME IS £2000 A MONTH, THAT WOULD MEAN THAT YOU HAVE £1100 TO SPEND ON YOUR NECESSITIES, £200 TO INVEST, £200 TO PUT IN YOUR LONG-TERM SAVINGS & SPENDINGS ACCOUNT, ANOTHER £200 TO EDUCATE YOURSELF, £200 TO GIVE YOURSELF ANYTHING YOUR HEART DESIRES AND LAST BUT NOT LEAST £100 TO HELP OTHERS IN NEED. PLEASE PAUSE THE VIDEO HERE AND CALCULATE HOW MUCH MONEY YOU HAVE EACH MONTH FOR EACH OF THESE PURPOSES.
THE NEXT THING I WOULD LIKE YOU TO DO IS TO DOWNLOAD YOUR LATEST BANK STATEMENT ONLINE AND THEN GO THROUGH ALL YOUR SPENDINGS ONE BY ONE TO SEE WHICH OF THESE SIX CATEGORIES THEY WOULD FALL INTO.
THE LAST STEP IS TO COMPARE THE TWO RESULTS. ARE YOU UNDER OR OVERSPENDING IN CERTAIN CATEGORIES? I ENCOURAGE YOU THAT FROM NOW ON, YOU FOLLOW THIS SIMPLE BUT GREAT MONEY MANAGEMENT SYSTEM AND NO DOUBT IN NO TIME YOU’LL SEE SOME AMAZING RESULTS.
I hope you enjoyed this presentation and that you are ready to crack on with your task. See you tomorrow
on Day 4.
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