It is always a lovely experience to receive proof of payment for the work we do, whether it is done on a weekly or a monthly basis, it is an indication that we are being rewarded for our efforts. After the money comes in, we immediately begin to think about how much of our bills need to be sorted, the party we need to attend, the servicing of our vehicle, dream vacation amongst others.
However, financially conscious people, always remember to add to this long list of financial needs, how much needs to be saved and invested. Saving periodically should be as important as feeding and paying for electricity.
pexels.com
A key principle of personal finance is learning how to pay yourself first, and that is learning to save before you put your money into any other thing. The amount we choose to save is dependent on several factors like the size of the family, overall income, and age.
The 50-20-30 plan is a common financial rule that has helped so many people get their financial plans right.
The first 50% belongs to the necessity list, this is where we have shelter, food, clothing, and transportation, these are the things you are unable to do without. The second section of the money which is 20% should be given to long-term saving and clearing off debt if there is anyone available.
The third portion which is the 30%, which will be used for lifestyle spending. This involves things like entertainment, gym, vacation, cable TV, and others.
pexel.com
Investment and saving are great ways to attain financial freedom, lifestyle inflation is a great destroyer of finance, and it is always a difficult thing to recover from. When there is an income fall, people do not know how to reduce their consumption to match the current income level. People would normally protect their standard of living either through the fast consumption of past savings or borrowing.
When this is done, it is done at a great cost, money should be seen as a means to buy things and live life, it should instead be seen as a means for financial freedom.
Investing is not just a way to build wealth, but it is also a form of security for an individual when the time comes to retire. There are other income division strategies available beyond the 50-20-30 percentage, it depends on what works best for you, but in total, you just need to ensure that you are not spending all that you are earning and you are setting aside some in terms of savings and investment.
Posted Using InLeo Alpha