Here is why you should have a financial plan:
What the coronavirus pandemic showed us is that if you don’t have at least a year’s expenses saved up, you expose yourself to risk of insecurity.
Millions of people lost their jobs in a matter of days, without advance warning.
Countless people are now on the verge of being evicted from their homes and becoming homeless, all because they didn’t have money to pay a few months’ rent when they lost their incomes.
The reason: most people live paycheck to paycheck, as if they will always have the security of their salary.
Most people don’t save enough to even have as little as six months expenses covered.
This is a big mistake, as the lockdown and pandemic showed.
Living paycheck to paycheck and spending your hard earned money on things you can live without is not the way to go.
You need a financial plan to secure your future and protect your loved ones.
Unfortunately, the current economic system which thrives on your spending, programs us to spend more and more.
You feel you need an upgrade, a new phone, furniture, car, etc.
Every month, new wants arise.
Advertising and marketing don’t help. There is always something else put in front of you that you need to get.
You are made to feel rich only when you are spending.
Thus, you end up with a bunch of things which are actually worthless while exposing yourself and loved ones to the risk of an insecure future.
This is why you need to fix an amount of your paycheck that you cannot use, unless in an actual emergency.
Consider your annual necessary expenses: rent, utility bills, groceries, children’s school fees, transportation, medical, and the like.
Divide this amount on 12 months.
This is the amount you should save per month for the next 12 months to have a year’s expenses saved up.
You should aim at having at least 50% of your salary go toward unspendable funds.
Unspendable meaning what you don’t use on regular expenses.
This amount can be further divided into:
– rainy day fund (your one year expense savings).
– investment money (money that will earn you money, which could be in the form of buying a house, starting a business, or other type of investment).
– personal development fund (the world is constantly moving forward and your skills should too).
– vacation fund (you are entitled to a vacation which you can enjoy without worrying about money).
– medical emergency fund (from little emergencies to major ones, medical emergencies can arise and throw you off).
The remaining 50% of your salary / income should be for vital expenses (food, rent, monthly medical expenses, utilities, school, etc).
Less than 5% should go toward wants.
For this reason also, your salary should be 2-3 times your monthly expenses.
Some of your savings should be in the form of gold to protect against inflation. With gold, even if the price of gold decreases, studies show it is in proportion to a decrease in costs of goods and services, so you aren’t at a loss.
Comment below if you will start planning your finances and be more conscious of spending and saving??
**For general information purposes only. Not intended as financial advice. If you need assistance with planning your finances, speak to an expert financial advisor.