We live in an era where debt is normal and save money is not really that important any more. The fast pace world that we live in now makes us buy things that most of the time we do not really need.
But due to easily accessible money like credit cards and loans, it is now very easy to go on a debt and then spend the next few years paying that debt back.
In the UK alone, 53% of the 22-29 years olds have no savings at all, and one in three Brits as less than £1500 saved. Also, two-thirds had no financial plan back in 2018. The Money Advice Service in the UK recommends that we should have at least three months of expenses saved.
Source – https://www.finder.com/uk/saving-statistics
So, in this article, I’m gonna share with you 3 steps that will help you start on a new journey on the financial world.
3 Steps to Achieve Financial Freedom
1 – Spend less than you earn and Save Money
The first step is, of course, spend less than you earn. If every month you end up using credit cards to pay bills because your income alone is not enough, this can become a vicious circle and you just losing your money paying credit cards interest instead of saving.
You can use this simple strategy 20%/50%/30% to set up your monthly financial planning. Calculate all your monthly income then divided into three parts.
- 20% – Emergency Funds, Savings and Investing.
- 50% – Utility bills like house rent/mortage, Food bills, Car Loan, Phone Bills, Etc.
- 30% – Social life, Holidays, Traveling, Birthdays.
So if you divide your income into these three sections, you will have an idea where all your money is being spent.
You don’t have to follow this percentage from the beginning. But you should within time try to match your income to this strategy.
You may now be spending 50% of your income in socializing and having no savings. Or your utility bills are higher than 70%, you can see the point I’m trying to make.
The most important is that you now have a very simple strategy to spread your income monthly. It can be very challenging in the first few months to allocate the money to the right things.
Also, you will possibly need to do some changes in your lifestyle. To start creating your financial planning and start saving money.
For things to change you have to change.
Jim Rohn
2 – Create an emergency fund
The first thing you should do is start building an emergency fund. Like mentioned before experts advise to have at least three months of expenses saved.
So you will need to make a plan of how much money you can save every month. To build that emergency fund as soon as possible.
This is were in the first few months you will have to tidy up your bills a bit harder. This to put that those first thousand in the savings account.
Also if have any descendants, you should get life insurance just in case. Having a financial backup will leave your descendants in a better position if anything happens too you in the future.
This is a painful process for those that can’t control their expenses. But just think – short term pain long term pleasure.
3- Save Money and Invest wisely.
So the third step will follow when you got your emergency fund more or less sorted. You now can start thinking about save a certain amount of money and investing some as well.
The first investment you should start looking into it should be in your pension. Most of these day’s employers offer a pension package to their employees.
Some of them match the employee contributions or even more for the pension. This will offer best return for your money.
If you don’t have a pension scheme yet, you should ask your employer HR department for more information.
Also, you should look into opening an ISA savings account. Which you will not pay any tax on any interest you earn till a certain amount.
With savings and investing money, its always best to think in the long term. Five, ten and twenty years from now.
There so many ways to invest your money, the ones in this article are the more common ones. It’s up to you to look for the more suitable solutions. But always think about the inflation rate and charges that may occur when investing money.
Also, don’t put all your eggs in one basket, spread them around but no more than five accounts. More than that will become more difficult to review and control your savings and investments.
In a nutshell
Three simple steps that followed with discipline can take your financial life to another level. You now have a basic structure to make a financial plan for the years to come.
From how to spread your monthly income wisely following the 20/50/30 strategy. Creating your emergency fund and start saving and investing your money for your future.
Please feel free to comment below your thoughts on this article. Also, share any tips you may have on the best ways to save and invest money.
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I agree with you in all of these ideas.