All-Time High Inflation and Rising Interest Rates: The Ultimate Guide to Setting Up Finances
Your path to financial freedom is here with these easy processes.
I was on my way to sleep in the gutter but now I am on my way to financial freedom. Meaning I will be able to do what I want when I want.
I lay curled up in the fetal position on a single mattress during a Primal Therapy session.
“I was 8 years old. I was in the back seat of my dad’s car and he was showing me his checkbook.”
Dad wanted to show me he was flat broke. Which I later found out he wasn’t. This was all to do with some power-play between my then separated parents.
You learn about money from your parents.
For me, money was a source of arguments, worry, and high anxiety.
So unconsciously I self-sabotaged myself to not have any. No wonder I was broke.
However, after this 1 therapy session, everything changed when I walked out.
I went on to buy books on wealth creation, watched Youtube clips, went to financial seminars, constructed budgets, changed spending habits, invested, gained multiply income streams, and talked openly with people about money.
My financial life changed and so can yours.
Who’s Your Daddy: Work with Personal Issues
Money use to go through my hands like water.
Soon as I get it, it would leave. And I had no idea why.
I drove a 20-year-old car. I never bought new clothes (I would rarely buy clothes if I did was it was at a thrift store.) I didn’t go out much. I don’t drink alcohol.
Where the hell is my money going?
When I released the demon around money in that therapy session. A weight had been released. Money didn’t seem to be the issue it once was.
Your action points:
Sort out your issue/s around money
- You can either do it by yourself, with a friend, or with a therapist.
- Talk or write (if doing it by yourself) what memories you have about money from when you are young. Be specific. Give details about the story around your memory then talk about how you were feeling.
- Identify what conclusions you made about money.
- Decide if you want to change this narrative.
- If yes, take action (see below.)
Establish Your Own “Money Philosophy”
“You are just a penny pincher! Scrounging around trying to save a few cents. I tried to get away from this thing with my ex-husband and now you are dragging me back down!” my partner, in a not-so-subtle way, was explaining to me how she wasn’t as enthusiastic about my newfound excitement around wealth creation.
The best way to think about wealth creation is from a top-down approach.
Think about the lifestyle and experiences you want to have in the future. From there you work backward.
What amount of income will be required to fund this lifestyle. The income can come from various asset classes. Assets will come from wise investments.
This then filters down to looking at your various income streams, expenses, and investments.
Your action point:
- Write down your endpoint and work backward. What type of lifestyle do you want to live? What goals do you have?
- Align current-day actions with those that will take you towards your future lifestyle.
Tattoo this little philosophical nugget on your forehead:
Increase your income and assets. Decrease your expenses.
Income
Your full-time job is only one source of income. To maximize your earning potential it’s best to have multi income streams. Also, this stops you from being too dependent on your income from your job.
These are the ways I implemented this:
Unused Items. I sold a lot of unused items online (such as on Craigslist and Facebook market.)
High-interest accounts. Put your savings in a high-interest saving account.
Compounding Interest. The interest you get from your savings. Don’t spend it. Leave it in there so you will earn interest on the interest.
Shared Car Platform. I don’t use my 20-year-old car that often. So I put the car on a platform that is the same as Air BnB but for cars. For the last 2 years, I get $300–500 per month.
Monetizes Hobbies. I receive $300 a month from writing.
Dividends. I receive dividend payments from investing in stocks.
Amazon. I sell a product that I had designed and manufactured in China on this platform.
Invest property. For a number of years, I had an investment property that I received rental income.
Credit Card Churn. I change my credit cards every 11 months. When you sign up for a new credit card you get bonus points and/or a cash advance. Be careful not to let it tick over the 12-month mark as you would then need to pay the annual subscription fee. We have had holidays and bought white goods from the points earned.
Income from the job. Get pay increases. There is an art behind negotiating this.
Expenses
When I was in high school I had a part-time job. The little money I received from it covered my expenses. At university, I had another part-time job that paid a bit more. Similarly, it covered my expenses and not much else.
What I have now noticed was that I learned to live within my means. This meant when I received more money, I spent more money. But at the time I didn’t think that I was spending that much more than when on a lower salary.
The way to wealth creation is to set your expenses low and keep them low. The word low is relative. Hence you will need to set up your budget. And stick to it.
You may not like having to set up a budget but if you want to turn your financial situation around and increase your wealth this is a must-do step.
Getting your expenses down isn’t necessarily about doing less.
Instead of stopping or doing less of something. Find a cheaper alternative.
Get creative.
For example:
Grocery shopping. I shop at a grocery that is cheaper than the previous one.
Cheaper brands. With some things, the cheaper brands are the same quality as the more expensive items. Don’t be followed by companies that have a larger marketing budget.
Less is Best. Sometimes using less is ok. For example in ads for toothpaste the company will show a smoking hot girl in a bathroom running the toothpaste from one end to the other on the toothbrush. You need less than a quarter of that!
Buy in Bulk. We use a lot of rice so we buy it in 66lbs bags. This can work most of the time. But not with vegan chocolate. As I cannot control myself and eat a month’s worth in 1 week!
Gas. Some apps show you the cheapest place to buy fuel for the car.
Bike/walk. Use your bike or walk instead of using the car.
Lights. Turning off lights if you are not in rooms saves a lot on your energy bills.
Wearing more clothes. During winter instead of cranking up the heater. Just put on another jumper. You will be surprised how much of a difference this makes to how warmer you are and lower your electricity bill.
Negotiate. I live in Australia but have spent several years living in India. Those guys are the kings of negotiation! I now negotiate on a lot of things. I recently got a rental decrease in a rental market that is increasing.
Review annually. Review all your various plans on an annual basis such as cell plans, utilities, home loans, internet, mortgage, etc. Call your providers and ask for a discount. If the operator says not able to tell them you are leaving or as to speak to their supervisor. Nearly always when you threaten to leave they will give you a better deal than what you were on.
Buy things online. Buy things second-hand on Craig’s list and the FaceBook market.
When you decrease the unnecessary things in your life, you then focus on what is important. Spending time with friends and family plus being out in nature is what makes me happy.
So I spent more time on these activities, such as:
- Camping.
- Hiking.
- Going to people’s houses for meals instead of going out.
- Bicycle rides.
- Going to the beach.
Your action point:
· For one month note down all your expenses. Annoying. I know but this will make you aware of how much and where you are spending money. I did this and it was a game-changer for me. I carried around a small notepad and pencil. Or do it on your phone. A lot of finance books I read state this as the first (and one of the most important) thing to do.
· Set up a budget. When I first set up my budget. I set it up for one month based on marginally higher figures than what I was spending. To get what you are spending have a look over your bank and credit card statements. Then over time, month after month I lowered the expenses figures. The reason for setting the figures higher at the start is you don’t want your budget to cause you anxiety. You are doing this to STOP anxiety. Be kind to yourself. And go slow. It was easier getting my partner on board doing setting the figures a little higher at the start. She told me she didn’t feel under pressure.
Investing — Play the percentages
“The big money is not in the buying and selling. But in the waiting.”
— Charlie Munger
Investing your money is a very personal decision. This also requires a lot of homework. You will need to do your research to see what suits your needs and circumstances.
There are risk profiles online that can show you what is an appropriate type of risk you are comfortable with.
You don’t want to invest your money and then lie in bed at night worrying you are going to lose it.
Only after a year of having a budget did I then start investing. Again, go slow.
How to set up Your Finances -> Buckets
I have found the easiest and most effective method to set up my finances is using the “buckets” method.
This comes straight out of the book, The Barefoot Investor by Scott Pape.
You set up 4 bank accounts which here are called “buckets.”
The buckets are divided up in the following way:
Daily expenses. Gas, utilities, food, cell phone, internet, rent/mortgage. All your day-to-day living expenses.
Entertainment. Spending money on weekends such as going to restaurants, and bars. Other things include buying clothes. Any type of smallish indulgence.
Long-term goals. Used for goals you have that are longer than 12 months. Like a yoga retreat for the following year. Expenses are associated with setting up a business.
Savings. Funds are put aside for long-term savings eg saving for retirement.
The amounts of money you put in each bucket are based on percentages of your current income.
The percentages are as follows:
Daily expenses — 60%
Entertainment — 10%
Long term goals — 10%
Savings — 20%
For example, if you earn (after tax) $1,000 a week, 60% ($600) of your income can be spent on your daily expense and 10% ($100) of your income can be spent on entertainment.
These percentages are fixed. Therefore you need to decrease your expenses if they are above 60% of your income.
If you are like me, you will find it very challenging at the start.
My expenses were higher than 60% of my income. I gradually over a few months implemented the ideas above for decreasing expenses.
Don’t be tempted to set your percentages. If you find it difficult you may reason around in circles to justify why your situation is different from everyone else’s.
I did this system for 8 months only then implemented some changes.
I based this change on the proviso that my expenses stayed below 60% and I was savings more than 20% of my income. The change I set up was for a bucket a side business I was starting in 2 years.
Not that my change made my financial situation stronger.
Review: Show Me Da Money!
For the first 6 months, I reviewed my budget once a month. Make adjustments as required. After that every 2–3 months.
I have been doing what is stated above for over 4 years. I hardly think about my finances now due to the processes in place. I would have a look over things every 4–5 months.
Resources
The following are books and websites with further details on how to get processes in place so you get your money works for you and you can sleep easy at night:
- Dave Ramsey — He has a no-nonsense approach to dealing with getting your finances in order. Dave is very good at getting you out of personal debt. At times he brings in a Christian spin on what he says. But I choose to just ignore that stuff and focus on his budgeting information.
- Mr. Money Moustache — Peter is very good at shifting your perspective on how you manage and view your money. He is in the FIRE (financial independence, retire early) movement. He is very good at advising on decreasing your expenses. And safe ways for investing.
A list of helpful books includes:
- The Barefoot Investor, by Scott Pape — More in-depth information on the 4 buckets that are mentioned above.
- You Money or Your Life, by Vicki Robin and Jo Dominguez — A nine-step guide to taking control of your finances. You can crush your debt, start savings and reach financial independence.
- The Richest Man in Babylon, by George S. Clason — Is a classic book that gives basic financial advice through the use of parables.
- I Will Teach You To Be Rich, by Ramit Sethi — Talks about how to effectively use credit cards, use high-interest bank accounts, and simple ideas on investing and conscious spending
I am Confused! Where and How to Start
With so much information where should you start:
1. Start reading the Barefoot investor book.
2. For 1-month list all your expenses down.
3. Put together a spreadsheet listing all your income and expenses.
4. Use this spreadsheet to put together a budget.
The start is the hardest it gets so much easier after a few months. And enjoyable!
Setting up some processing will take several months. Once you have things in place, it’s set and forget.
I found the start depressing. I didn’t realize how bad my finances were. But within a few months, I saw my savings increase. These small successes then created a more positive mindset. You then look for more ways to increase your wealth. Success builds on itself.
You can have the house you always dreamed of. You can now have the successful business you had never thought possible.
Your path to financial freedom is closer than you could imagine. Start now.