Have you ever pondered how to gain financial freedom so that you no longer have any money worries? Are you spending more than you earn and accumulating more debt? Well, I have good news for you. You CAN reverse that trend!
The first thing you need to understand is this: if you are making financial planning decisions based on the money you have in your bank right now, then you are being controlled by your money, not the other way around! And this usually causes constant worries about money matters. So, to gain financial freedom, you must first take control of your money.
Fortunately, there is a simple money management system that you can apply to control your income and liabilities to embark on the path to financial freedom. Even though it is simple, not many people are aware of or are using this system as it does take some effort on their end to plan the finances. However, I can assure you that your finances will get back on track if you apply this system.
Here are the seven steps of this money management system:
1) Accurately predict how much money is needed to pay for your expenses and liabilities every month. Find out precisely what you have spent, by category, over the past year. This information then helps to form your budget. The budget essentially refers to the money it takes for you and your household to function. You can also think of it as a breakeven point as it tells you the minimum amount of income needed to stay afloat. This is the first step in effective money management.
2) Figure out how to increase your income or reduce your expenses to do better than just breakeven. Keep in mind that you are going after financial freedom here and not just making ends meet.
3) Find out exactly how much you owe in bills and other obligations. This takes a bit of effort and time, but what you don't know because you are not paying attention to it can hinder your profit and wealth-building progress.
4) Figure out how much of your income is truly available to spend. Many people tend to forget that when their salary comes in, part of it is already committed. When you spend more than you earn, the difference typically ends up on a credit card as debt—spending less than what you make is a crucial factor when you aim for financial independence.
5) Set aside fixed amounts of cash from your income regularly to plan for the future. Remember always to pay yourself first and put some money towards your savings in order to gain financial freedom in time to come. A minimum of 10% of savings from your income per month is recommended for healthy wealth accumulation.
6) Set aside some of your money toward paying past-due bills, debt, current bills, and future big purchases that are hard to pay when they come due. When debt is not paid on time, there is a high late payment fee or interest imposed. As such, debt or bills should always take priority when it comes to money allocation. Careful, consistent cash flow management can speed up your wealth-building progress.
7) If you have any money left over at this stage, use it in ways that improve your ability to generate more income. For example, you can invest in stocks, mutual funds, or a savings insurance plan that will grow your savings at a higher return than putting it in regular savings account that yields close to 0 returns.
And here are the 7 steps of an effective money management system. Doesn't it sound simple to you? This system can be quickly learned and applied to your financial planning process. However, it does take personal discipline, effort, and commitment to achieve financial independence. When done correctly and consistently, the result is having all bills paid on time and sufficient savings to finance your lifestyle or goals. In the long run, you will achieve true financial freedom.