How To Manage Your Money For Financial Freedom

Leave a Comment 1179 views

Money is a delicate subject for many people these days, but the most important question that most people have on their mind is how to make more. Before answering such a question, we should ask ourselves first how we are managing the money we have now.

9 times out of 10, the answer is kind of scary. It blows my mind how everyone wants to make more money but don’t even know what to do with what they have now. Spending more than you earn is a destructive habit and I learned this the hard way.

These days, countless people still don’t have a financial plan. They spend more time thinking about other facets of their lives, such as marriage, job, career and having children, but so many forget to create a plan so as to achieve their financial freedom.

Before you worry about making a ton of cash, learn how to manage properly the money you have already. I am saying this because if you are making millions one day and you do not know how to treat it or use it, you will get in serious trouble.

2 Suitable Formulas

There is numerous formulas being shown out there on how to effectively allocate your income but there are 2 ways I have been taught. The first way is by an old mentor who also happens to be a millionaire and calls it the “Divide and conquer” strategy used usually in investing or politics. I personally use the second method taught in the book “Secrets of the Millionaire Mind” by T. Harv Eker.

The first technique says to start by opening multiple bank accounts and then:

  • Have them all linked together in the same bank.
  • Have each account in a different bank.
  • Open accounts and name them: Living expenses, education, fun funds, rainy day and charity.

The second method is to open 2 bank accounts:

  • Personal.
  • Business.

It is your call to choose which way is best suited for you. To clarify this, I am talking about personal income here, nothing to do with business income. The specific numbers down here are the money you pay yourself, and yes, if you own a business, you need to pay yourself first as if you are getting a salary. We as people, innately, like rewards and function better with them in our lives.

6 Steps to Manage Your Money

So, every time you get any amount of personal income, manage your money by following these 6 simple steps:

  1. Take 55% for living expenses and necessities. Use it to pay for things like rent, utilities, food, phone, insurance, etc.
  2. Tuck 10% aside for financial freedom such as investing, mutual funds, real estate, businesses, etc.
  3. Another 10% should go towards self-education like books, courses, trainings, coaching, etc.
  4. Drop an extra 10% for “Fun Funds” and spend it how you like. You want to give yourself pleasure, travel or have some crazy fun, then figure out how to make your fun funds account bigger.
  5. Take 10% again for “Rainy days” towards taxes, long term savings and use that one only for security or emergencies. Don’t touch it for anything else, no need for excuses.
  6. The last 5% should go towards giving back like helping, charities, foundations, etc.

Most of your money should be kept in your business if you have one, and know that business income is a completely separate thing. The way you divide your business income up is a completely different system. Grasp the personal part first before trying to move onto the business part. I will get to it in a later post.

Adjust the percentage above a little if need be, but do not start to tilt the ratio too much, and regardless of how your income levels change, stick to these rules. Manage your money in this way and you will be on the right path to financial freedom.

The Secret to Financial Freedom

The secret to financial freedom is to spend less than you earn and invest the difference. Books on successful money management all mention a main rule of thumb: Pay yourself first. To understand this concept, I do recommend 2 great books: “The Richest Man in Babylon” and “Secrets of the Millionaire Mind” because it says that you need to pay yourself first and re-investing money. Yet, I’ve come to realize that only a handful of people really do this.

It is no surprise. I’ve only been only doing this since a short period of time. Remember, if you’re not investing your money again and again, then no possibility to get ahead. Living pay check to pay check is a dead end if you want to progress financially.

A lot people are living way beyond their means. In general, most people have around 80-95% of their income going for necessities, which is crazy. You may have to downscale your lifestyle and cut back for a while, so that you have more money to invest in assets or self-education.

It is worth it. Your objective here is to build up your net worth and accrue assets. Find resources that could pay you some extra cash or a passive income. But to achieve it, you need to manage your money.

It really doesn’t matter how much money you make. The crucial part is to learn the habit of managing money. So, master these skills, and you won't ever get in trouble financially anymore.

You need to manage your current money so that you may start earning more. If you create a solid foundation here and now, divide your money efficiently and make intelligent financial choices, you will achieve financial freedom. It is never too late, start today.

Share your thoughts below.

           undefined                                              

Sergei VanBellinghen, Founder & CEO of First-Class Lifestyle, currently a Self-Development & Success Expert Consultant, using self-development techniques to help you succeed and have a better life. Visit my website at sergeivanbellinghen.com

Free online business startup bundle