1.
Become Financially Independent
The measuring stick for being rich
is different depending on who you talk to. However, the one thing that the
notion of “being rich or wealthy” means to most people is having financial
independence and savings to depend on. Calling your own shots, financially
speaking, means having the freedom to make choices in your life separate from
earning a pay check.
This may mean being able to take a
vacation whenever you want to, leaving work and going back to school to switch
careers, starting your own business or investing in someone else’s start-up,
helping family members, taking on a lesser paying job that is more personally
satisfying than financially beneficial, or a big one these days - retiring when
you want to rather than working because you have to.
Financial independence isn’t the
same as being rich, but not having to depend on receiving a certain pay check
can sure make you feel rich beyond your wildest dreams! Having savings that you
can rely on is what it takes to become “rich,” no matter how you define it.
To learn more about financial
independence, check out Jonathan Chevreau’s popular (and easy to
read) novel, Findependence Day.
If you normally charge all of your
purchases on your credit card, and then you don’t pay off your credit cards in
full every month, because of added interest charges you are probably
paying at least 50% more for everything you buy. If you are relying on your
credit cards to afford your lifestyle, break your expensive credit habit by
saving up for your purchases ahead of time.
With savings, you can buy things
when they are on sale and take the time to make better spending choices. People
with savings can also stockpile groceries when they are on sale (items that are
non perishable or which can be frozen). One author suggests people who do this
can possibly skip one grocery shop a month and save 24% a year on their grocery
bill.
3.
Buy a Home
The bank won’t lend you money to buy
a house unless you have a down payment, and you are not allowed to borrow a
down payment. You must have this money saved up or have someone give it to
you—and not lend it to you. Your down payment needs to be at least 5% of the
purchase price of the house, and then the bank will consider lending you the
other 95%. There are all sorts of other costs and fees that you need to pay
when you buy a home, so you will need an additional 5% just for those costs.
Savings is what will open the door to owing a home.
4.
Buy a Car
When you want or need to buy a new
car, you will need to have a down payment in order to get a car loan at a
reasonable interest rate. You could of course “borrow” the money from your
credit card, but at 20+%, how is that getting you ahead? Zero percent financing
is reserved for great customers, so a car loan is bound to cost you
something—and it could be a lot. The best thing you can do is save up as large
a down payment as you can afford, and then consider your options. Maybe buying
a quality used car rather than a new one will be what it takes to get you the
vehicle you want.
If you ever want to get out of debt,
you have to have some money saved. Sounds ironic, doesn't it? However, the
credit cards are never going to get paid off if you have to keep using them for
every “emergency” that comes along. Even if you are an awesome planner, stats
show that half of us experience at least one totally unexpected expense each
year (and half of those will be unexpected car trouble).
So before you start aggressively
paying off your credit cards, you should save up P500 to P1,000 as a reserve
fund. Then when unexpected things come up, you can pay them out of your reserve
fund rather than put them on your credit cards. Maintaining a “reserve fund”
will also help you to notice if your spending is getting out of hand.
6.
Annual Expenses
If you want to have a good,
relatively stress-free financial life, you need to save for annual
expenses. These may include money for gifts, vacations, vehicle maintenance,
minor home repairs, fixing appliances, property taxes and possibly income tax. It
can be tempting to refinance a mortgage to pay off debt or to use a line
of credit to pay off high interest credit cards, but it is dangerous to
endlessly put expenses on credit without actually paying them off. The best way
to manage these types of expenses is to save for them in advance. This will not
only save you money, but it will give you peace of mind.
7.
Unforeseen Expenses
What will you do if your car needs
some major repairs? Do you have P500 to P3,000 on hand? What if your house
needs some repairs, or it is discovered that you are living in a building that
leaks? You can’t always count on the bank to lend you money for all of these
things. It is much better to anticipate a worst case scenario and have some
money saved.
8.
Emergencies
As much as we hope that emergencies
won’t happen, we all know that they do. A family member can develop a health
issue, you might need to make an emergency trip, you may have a car accident or
breakdown, severe weather could flood your basement or crack your pipes, or you
may have to fly to a loved one’s funeral. Any of these emergencies can be
expensive, and we all know that we will likely encounter some sort of emergency
from time to time. So why not be prepared rather than potentially become
another victim of an emergency.
9.
You Could Lose Your Job or Get Hurt
In good times, everyone thinks that
their job is secure, but in bad times, many begin to realize that bad things
can happen to anyone. You could suddenly lose your job, your business
could dry up, you might get injured—either physically or psychologically or
become too sick to work. Any of these things can happen to you. Employment
Insurance (EI) doesn’t kick in until you have been unemployed for 6 weeks. Do
you have enough savings to tie you over or will you be living on credit? Living
on credit during a time like this can quickly make a bad situation worse.
Minimum payments become higher and higher until they are unaffordable and
credit limits no longer budge. Then when you finally do get some income, what
used to be enough doesn't get you by because you have all these new debt
payments to make each month. So now you actually need more income than before
because you'll need to pay down these debts and eventually work to get them
paid off.
There are huge emotional, psychological
and physical consequences to always living stressfully, from hand to mouth, . People
who don’t plan for their future seem to run from “crisis” to “crisis.”
There is a little known truth that
happiness can come from being organized. Being organized isn’t going to make
you happy all by itself, but it can sure help. There’s so much in your future
that you don’t have control over, so putting aside some money to spend when you
need it is actually organizing and taking control of your future and
financial affairs. You have nothing to lose by saving - and only a happier
future to gain.
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