I want to share some thoughts on how we can all survive and in fact thrive during the current global financial crisis or any other financial crisis that may come your way.
First Secret – Know how much you are earning and spending each month
Write down everything you earn, including wages, bonuses, interest and dividend income and rental income if you have an investment property, so that you know precisely how much is coming into your bank account each month.Like a company, this is your total revenue and if you are to survive and thrive you need to be able to live within this income. If not, consider enhancing your income with a home business – there are lots of ways you can earn additional income from home.
Now write down everything you spend during the course of one pay period, be that a week, fortnight or month. Best to do this over a month, so that you pick up less regular expenses. Expenses that you pay quarterly, such as electricity and gas should be divided by 3, and added to your other monthly expenses. Don’t forget the insurance on your car, home and contents and on your life, if you have these items covered. You can’t take control until you know where you are spending your money.
Second Secret – Set yourself a financial goal
Set yourself at least one financial goal. Big or small, having clear goals will help you decide what’s important and give you an incentive. For example, you want to ensure that each month you will spend less than the total household salaries, so that any other income is seen as a buffer.
Third Secret – Develop a budget
Create your budget.
Hmm, you say, that is just too hard. Well, I say, it is critical if you want to take control of your finances and become financially free. How much do you need for your essential living expenses? How much can you set aside as savings and to pay debts? Do you want to invest for the longer term? Do you have a special project you are saving for? Can you allow yourself some ‘play’ money for longer term investments? Write this all down.
Fourth Secret – Create an Emergency Fund
Set aside a modest ‘emergency’ fund to pay for any unforeseen expenses. this should be about 3 months salary. If you can’t do this immediately, set up a separate savings account to build up your emergency fund over the next 6 months or so. Don’t touch this money for any reason. You will sleep better in tough times knowing you have this buffer fund available.