If there is one thing that I can happily share at ease while hope the audience to start practicing it, it’s my money management techniques.
It’s super amateurish, but that’s why it works. The terms and jargons in the, say, investment, is not for the faint of hearts or beginners, hence I’ll provide ample simple tips and tricks to this article.
So, I’ll split this article into two sections, the why’s and the how’s.
I believe that God provides us with abundance, that the source of wealth and necessities are here with us. That makes me think that I’m a manager of this resource. As a manager, if I manage whatever I must manage successfully, my boss will provide me more or even a raise. That’s the same principle of how things work in money management. If you take your wealth for granted, not knowing how to utilize it properly, you’ll never be promoted. Law of attraction, ladies and gentlemen. Wealth attracts wealth. I’m not saying this so that you might become a stingy capitalist, but to help you accumulate wealth to achieve a purpose ethically.
As to how we manage our resources, let’s start it with something simple. The tips below can be applied to single people or parents. I try to make it not too specific so all of you can benefit from this post.
1. Know Your State
Yes, this is the first step. Spending without knowing what you earn is a recipe for disaster. I know or read articles about people who are stuck with the lifestyle so that they’re accumulating credit card debt…forever.
Since I get my monthly allowance during my scholarship here, I learned how to live only on that paycheck to suffice. And I survived, without asking for more money from my family or doing extra work because I didn’t want to. I had my internship bonus in the last 5 months I was there because I had to do my internship for a thesis defense.
After I got back to Indonesia and started my first job, I always keep in mind that before spending every rupiah I receive, this rupiah is earned by hard work and sometimes tears. So, think before I spend. So do you.
2. Upfront: Save, Whatever You’re Doing
Save it upfront. Whatever you’re doing, allocate a portion of your regular earning into saving. Don’t do it later because you won’t have something left. Be disciplined. Beat yourself up if you don’t save. Some people make it 10%, some can make it 30%. Whatever, do your best with your situation. Just practice the mass balance. I was in chemical engineering major, but this balance is easy to understand. Basically, you should accumulate something by making sure the output is less than the input. If your saving proportion is small, you need longer time to accumulate, and vice versa, which brings us to the next point.
3. Have an Emergency Fund
Seriously, people, I’ve heard enough stories with people don’t have an emergency fund. From my previous job experience, too many people got laid off with enough release package that could sustain them…until a few months. Apart from improving your skill and knowledge, you have to be able to live on your accumulated wealth till you find another job or business. The rule of thumb of this is 6 months of previous income, but I’m against that. Nobody guarantees after 6 months you’ll have stable income again.
Use this calculation:
Say you can save regularly 20% of your monthly income. So, in 5 months, you’ll have accumulated a month income worth of saving. To make it 6 months worth, then you have to save 30 months, or 2 years and a half. So to build an emergency fund worth of 6 months income if you save 20% of your monthly income, you’ll need to work on this income by at least 2.5 years.
See a pattern? To save it faster, you have to increase your saving proportion or invest in something that generates extra money from yield rate, which brings us to the next point.
There is only one thing I regret not doing it sooner: investing. People have many channels of investment. Some traditional folks prefer land/house/building or gold. Some financially-aware people try stock trading or mutual fund.
I tried land and stock trading. Now I’m trying to do mutual fund. Investment is fun. It can be fun if you do it while you have regular and stable income. It’s not fun if you’re forced to decide quickly like your life depends on it. Now that I still have my regular income, I try to save a portion of it in a mutual fund. It’s not something to be reaped in a few months, that’s why I’m okay with treating it as my saving account.
The only reason to invest is because there is this inflation rate. Have an online session of learning about the time value of money and inflation rate and you’ll understand why we have to invest our money in something that returns more than the inflation rate. Same as saving, do it upfront so you invest regularly rather than leisurely.
With this knowledge, you won’t want to spend too much in depreciated assets anymore, such as phone, cars, luxury items, etc if their time value doesn’t increase.
There is an exception, though, for example, cars. Antique cars would be purchased in an insane value by future collectors. But since the value is more of sentimental reasons, it’s hard to forecast their future value. I don’t recommend this if you’re not particularly smart about it.
5. Live Frugally
Oh, yeah, honey, people will stop reading at this point. I mean, after saving 20% of my income and investing like 10% of it, I still can’t enjoy the full 70% of it?
If you could see my smirk while writing this, you’d dislike me and the whole population of INTJ for our resting b*tch face. There is something about minimalism that attracts me. The basic principle is owning fewer items. It means you’ll toss your half pair of socks. You’ll sell the skirt you no longer fit into. You’ll donate the books you think you’re not gonna keep. Have a room of tidiness, not for more. Stop organizing your storage, start minimizing your properties. It helps you to focus, I promise. I love white color on furniture, because it represents cleanliness. Not only that, white will also look better if it has only a few items on top it (say, items on my working desk). Hence, my love for white is also my love for minimalism. What does it have to do with money management, then?
Well, living minimalism means you’ll also be a minimalist in your budgeting and money. You’ll stay away from credit card debt, you’ll opt for a prepaid credit card or debit card, which directly withdraws balance from your bank account. You’ll avoid having two cars in your garage if you only need one, hence, car loan. You look at the debt with disgust because having debt reduces your minimalism experience as you are tied to something outside your scope.
6. Last Step: Stop Reading, Start Doing.
People know but won’t do. Reading thousands of money management articles doesn’t make you sharper in money management. Actually practicing it does.
Till next time,