Simple Steps to follow to build your financial security
“Financial freedom is freedom from fear” Robert T. Koyosaki
You know you are financially secure when you can sleep at night knowing you and your family is safe in every way. When you can be confident that you can pay the bills when they fall due with a little bit of extra money left over in your bank account to do all those fun stuff you wish to do.
You know you are financially secure when you know you’ll be able to manage if the dishwasher suddenly needs to be replaced or a pet needs to go to the vet.
Financial security attainable, even for those with a low income, but only when you put in place a simple yet effective financial system that will see you financially secure.
And Trust me it won’t take as long as you think.
Here are three simple steps to securing your financial future.
1. Manage your cash flow better
Understanding and managing your cash flow is fundamental for managing your finances. Cash flow is simply money flowing in (income) or out (expenses). It might be an obvious thing to state but if you have more money flowing in than out (meaning you are spending less than you earn), then you are much more financially secure than you might have thought.
So how do you calculate your cash flow?
It is pretty easy, buy a small A5 book, keep it with you everywhere you go and start a habit of writing down your monthly expenses and income, stating every single thing that you give money out on. This is basically a small budget, this way you can calculate your monthly fixed expenses like medical aids, rent, food, electricity, etc. And then from there on you can see what you have left to spend on the nitty gritty stuff like going out for the fun stuff. If you spend money in any way, write it down and deduct it from your income.
This way you can keep track of your expenses during the month, and help you get a very accurate picture of what your finances look like.
The other tip is to start saving, even if it is a small amount every month, automate this function into a savings account that you can’t just withdraw money from, make this your rainy day fund.
Remember budgets can fail but it is not the end of the world. Life happens.
A budget is a game plan – not the game
A budget is a tool for measuring your progress and success towards your financial freedom.
2. Paying down debt
While debt isn’t normally a bad thing, the more debt you have the less financially secure you are. In some cases you need to make debt to make a purchase for instance when buying a house or a car, you might need to take out a loan.
To build a more secure financial base you need to
- Pay down existing debts
- Stop incurring unnecessary debt now and in the future by creating a savings and spending plan (as mentioned in the first step)
In the long term it is better to pay off debt and build your savings at the same time, but in the short term you will end up paying more interest. However if you do it right you will save money because you will have money put aside if something happens in the future.
If you don’t save, you will be relying on the endless cycle of debt that will have you paying high interest rates for the rest of your life. And this can cause over-indebtedness, however if this happens do not think that going for Debt Counselling is bad, it is a very crucial tool in helping you become financially free, read our blog from last week to see why Debt Counselling is Good for over-indebtedness.
3. Insure against risk
So just when you feel like you are finally on top of everything something happens to throw a wheel in the financial works, making you feel like you have hit another financial disaster in your life.
You need to do two things to avoid the financial impact of disasters, whatever the magnitude. The first is to be properly insured, and the second is to build a rainy day fund, which was mentioned the budgeting section.
The best insurance options will depend on your personal and financial circumstances. A qualified financial advisor will be able to help you decide what insurance is right for you.
The emergency fund is a savings fund there to cover the unexpected expenses. It works best if you build it consistently and don’t withdraw funds except on genuine emergencies.
If you have any more questions on how to handle your debt or need some advice, head over to our Contact us page and send us a message.