Round 2: Math Edition.

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Math, the basics, round 2:

Now, after you track your money, you need to understand the flow of it and maybe make some changes... 

Some Crucial Questions: 

How much is your income, and what are your bills? 

How much are you spending on necessities, and how much are you spending on luxuries? 

How much are you saving, and how much are you investing? 

Some Guidance for Comparison: 

A good guide for a prosperous life is spending at most 50% of your income on necessities, 25% on savings, 15% on investing, and the last 10% on luxuries, if you can! 

-> Please answer all these questions and do the math to figure out exactly how much money is going where. How close are you to this guide? Can you change the flow of your money?

Talking savings... 

How much money do you need to cover 6 (minimum) to 12 months of your current expenses? You need to save that money! 

Why? Unforeseen events are part of everyone's life.

You must save for the occasional extra expenses with the house, appliances, car, or that extra seasonal hefty tax, and there's more…

 Yeees more, because the examples above are things that you know you will have to deal with at some point, but there are many more unforeseen events in our lives.

Something will appear along the way, from employment to health issues, and you must count on these future bad situations in your money-math plan to prepare for them.

I can’t give you an exact number to guide your savings. That depends on the cost of life in the country you live in, but let’s put it this way:

For a European (in general), a good start would be to save around 1-2k for expected occasional extra expenses and around 10k (minimum) to be prepared when unforeseen events hit.

-> Make a savings plan if you haven’t yet, and commit to saving the same amount every month. If you don’t want to be vulnerable, you need to have some money to “lean on.”

The hard truth... 

When you complete your savings and have your mattress to fall on, you don’t touch that money!

 If you want to have some money set apart for luxuries, you start saving from 0 because the savings we just discussed are for specific problems, not money you can go and pick up whenever you want to spoil yourself.

You need to live your life as that money does not exist.

The BEST true... 

You are in control of your money, and you vote with your money. 

(but let’s focus on the control for now).

After you track your money, an action that is generally done at the end of the month, after you have spent your money, you can evaluate your situation and what you should change.

-> This may sound impossible to do, but it is not. Are you going to be in charge of your money habits or going to let expenses take over your life?

Telling your money where to go:

You should plan where you want your money to go before the new month starts.

Dave Ramsey, host of the Ramsey Show, talks extensively about this. 

To sum it up, this is what you should do:

You take a look at your expenses, and first, you list your necessities 

and cover them.

After all necessities, you should have a small amount for stuff you forgot about, because we all forget something that’s going to happen or that

 we need to do next month.

If, and only if, you have money left (hopefully you do).

 You divide it into savings, investments, and luxuries in that order, yes, luxuries are always last. 

 That’s how millionaires do it!

You do this every month, adjusting accordingly to your needs.

But please, everything outside, house, food, transportation, and health are luxuries, don’t confuse your Netflix subscription with your needs…

-> This is how you start to take complete control of your life, you need to control your money ahead of time. This is how you define the flow of your money. 

You don’t want to be wondering where did your money go.

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Last thoughts:

This was not a fun talk, but necessary if you want to prosper in life and have a bright future. It is not complicated, the hardest part is the confrontation we experience between how we spend and how we should be spending.

Not an easy step, but a simple one. The foundational habit to be in charge of your life and your future.

When you accomplish your “non-existing savings,” you start saving money for investing.

 If you can do both at the same time, perfection!

-> For this step, you’ll need to pay close attention to how well you are meeting your spending goals. If you don’t match your goals perfectly, don’t give up, adjust and keep going. 

See you in a week.

Your Zine.