Here is a checklist of the things I am trying to follow in order to eliminate financial stress.
My strategy is to choose one goal at the time and then move on to the next one in order to be not overwhelmed with information by knowing it all but without any execution, which makes all the theory useless. Therefore it is important to track the progress and do not forget to reward yourself when you achieve any of the milestones.
Before starting the journey, write down your goals on a piece of paper as that makes them more real and more likely to be pursued. Also, find a reason behind the goal/s you set and the motivation to make them happen will be much stronger.
Here are strategies that I believe are the core in order to achieve financial success.:
- Pay off debt
- Build an emergency fund!
- Start your retirement account
- Start saving money on a monthly basis
- Purchase a home/flat
- Earn more money in order to save even more!
Pay off debt
Whether you are paying for a student loan or mortgage for a house or even just simply paying for the newest shiny electronic devices, my rule of thumb is to not buy something you cannot afford. It will hurt the finances from the long run, however, everyone needs to live somewhere, hence buying an apartment or house is a wise choice. I am a fan of delayed gratification and this is because personally I haven’t taken any single loan or home mortgage, I tried to save up since my first full-time job as I value money since they are easy to spend but hard to earn. Look at how many hours you work and what you get, compared to how quickly you can spend them. Always rethink where your cash flows. When you really need to borrow some money, then try to ask your family that will not charge you huge interest, but always pay back to them on time and with some reward for borrowing it from them, this way it will be a win-win situation. Another thing worth to mention here is that in case of death, somebody else needs to take care of the loan or debt. If you are not coming from a “rich family”, do you really want to put this on the shoulders of your beloved once?
Taking a debt/loan is fine as long as it is for home/apartment or business, otherwise, we should always try to avoid it.
Build an emergency fund!
I have read so many opinions on this topic, in the United States, for example, a certain percentage of people do not have saved up even 1000$ for emergency cases. I would say we should be targeting to save even more than that, off course all depends on where you live and what your currency is. Generally speaking, the best is if you can target to save up to half-year or year of your current spendings as a first step. The next target from my point of view should be to save up to 6 or 12 full months of salary. With savings like that, there will be less stress to live even when you lose the job, the saved money will serve you well during the hard times until you find a new job. You need to also count that something unexpected can happen, for example, the car can stop working and needs to be repaired or even worse somebody from family members can die. I know, it is hard to save up 6 or 12 months of salary, however it is good to set the goal and then break it down to something smaller, let’s say start tackling savings for 1 month spendings and then move the bar higher and higher and I am sure you will get to your goal one day. I am not saying make an emergency fund to be exactly 6-12 months, you are the master, make the decision to whatever make sense, so that you can balance your other goals, just make sure there is at least some emergency fund, so that you do not have to use credit card and go to debt.
Start your retirement account
Different countries have different rules, I am based in Europe, hence the retirement accounts and options are much different compared to the United States, however, the core of the idea is the SAME everywhere! And that is to open a retirement account when possible use employer match or contribution it provides. If an employer contributes to your retirement, just use it, it is free money! You can decide to put there additional money, as they are tax-free and helping you to secure a better life during your old age.
Start saving money on a monthly basis
When you have paid your debt, it is now time to start saving. Determine where the money flows, in order to figure out what areas you might be spending too much and can easily cut down. The idea is to save on areas that are not that important to you so that in the future you can use that money for the things you enjoy and value the most. As a first step, you should try to target to save up to 10% of your salary and use rest for paying bills and entertainment. My ultimate goal is to save up 100% salary from the main day to day job and cover necessities like food, electricity, utilities covered by side hustles, or other income streams. I will keep you posted on the journey and what actions I am taking on this blog, so stay tuned!
Purchase a home/flat
As the biggest expense in life is living cost, it is important to make a wise choice on where to live as that will also determine how much our monthly spending would look like. Depending on whether you are planning to stay at a certain location, research rent price for a flat or house and compare to the cost living in case you will become a flat/house owner. What is more beneficial for you? In my situation, it was at the beginning of my career obviously renting flat as I was not sure how stable my job would be and whether I want to live in the country or move out. In order to save up as much as possible, I have opted for a small apartment that downsizes the monthly required payments. However, over 5 years, the idea of paying constantly somebody else starts to bother me, I could use that money to invest in my own living place, which will be much cheaper in the long run. Therefore I have decided to buy the home which I never regret, but rather the opposite, I am questioning myself why I haven’t done it so much earlier!
Earn more money in order to save even more!
If you have built up your emergency fund and able to save already up to 10% of your earnings then congratulations! Now you are ready for the next stage to save even more!
Understand where the cash flows at the moment. Meaning, identify your current earnings and spendings in order to determine where are you at. This will help you to get your spendings under control and create a budget. This helps you to determine your lifestyle and it is an essential thing for financial independence.
After reviewing your in and out money, ask yourself: are you really living frugally?
The advice here is to move the saved money out of checking account to a savings account, so that money can start working a little bit for you and you will start gaining interest. Do not expect this to be huge at the beginning, all takes time. Just realize that it is better to save up money and where you can, build some interest rather than putting your money to the jar, there the value of money will be the same today and tomorrow and also in years in the future. Therefore start by simply creating a savings account in your internet banking system where you have a checking account, this will be easy to manage and transfer money between accounts.