Do you want to reach your financial independence now? You can speed up the process if you know the right steps to take. These are the habits will help you achieve your dream more quickly:
What is it? Bad debt is debt that doesn’t help you grow or does not generate income. For example, if you buy a new smartphone with a credit card and the expense generates interest charges and you didn't really need that phone, that’s bad debt. When is the debt worth it? Debt such as a study loan can be worth it because once you get your degree, you can get a better job and earn more money.
How can you get out of debt? You have to either earn more money or spend less. For example, you can prepare more meals at home and avoid going out to eat. With the money you save, you can pay back your debt. To make progress, you have to make payments that are greater than the minimum payment. How can you avoid debt? In the next step you will learn how to avoid debts. One important part is not using your credit card to pay for your fixed expenses. If you do use it, pay the total balance every month.
You must have control over your budget and your cash flow. You should not spend money on things that you do not need or that are of low priority. But how can you avoid spending your whole paycheck? There are some rules to follow:
Only spend money you’ve already earned. This means that you pay your expenses for the current month with what you earned the previous month. For example, in March you pay your expenses with what you earned in January or February. This way, you are never waiting for a paycheck to pay your bills (or get stuck using a credit card and paying interest).
Seek out alternatives. If you don't earn enough to cover your basic needs, there are options. You can find ways to earn money online, start a business, rent a room in your home or buy another property to rent. Also, look for chances to save more. For example, you can lower your electricity bill by not using your air conditioner. Another strategy is to use coupons when grocery shopping.
Saving should be a priority. I suggest you automate it. After saving (a good goal is to save between 15 and 20% of what you earn) you can spend what you have left. So if you earn $3000 a month, you should save $450 a month and live on the remaining $2,550. Of these savings, allocate a portion to an emergency fund. This fund covers if unexpected expenses come up and can help you cover your costs of living if you lose your job. Ideally, your emergency fund should cover 6 months of fixed expenses.
Every year, there’s inflation. If you save your money in a bank account, the value of your money depreciates. In the long run, this means you lose money! So, obtain assets that instead of losing their value, increase. For example, put your money in investment accounts or buy real estate properties. If you buy a property now, the value of the land is likely to increase every year so that if you decide to sell it, you will earn more than what you paid.
At the very least, put your money in a high-interest savings account. These accounts normally have an interest rate between 1.5 and 2.25% per year. This way you’ll at least cover what you would have lost with inflation.
With these 5 habits, you can work towards a carefree life without financial worries.