We all want to have financial abundance, or financial stability at the very least. It feels great to know that you are able to buy your needs and still have enough money to splurge on the things that you want. We all have a lifestyle that we desire and truth be told, we need finances to achieve and sustain this lifestyle.
In order to achieve a life of financial abundance, there is the need to budget your finances well.
Managing finances transcends social status. Even billionaires with wealthy bank accounts see the need to do so. By managing your finances, you are able to monitor your spending, control the things that you are spending on, and allocate funds for future use. This is key to achieving and sustaining financial abundance.
You might aim to be financially stable and abundant but do not know where to start. The usual predicament that people come across is not knowing exactly what to do to get to the level of financial security that they aspire. In any case, achieving your goals can be a daunting task when you have no clear and precise action plan. This is why reading reference materials and learning about finances come pretty handy.
Read on as this article will help you jump-start your journey to getting the financial abundance and building the lifestyle that you desire. Here we will share with you 7 ways on how you can budget your money for you to attain a life of financial abundance.
Invest in yourself first!
The rule of thumb when it comes to managing finances is to allocate enough for yourself. It is advisable that you invest in yourself first. Putting yourself as the top priority over anything else does not necessarily make you selfish. Rather, it makes you practical.
How does investing in yourself first above all else make you practical? The answer is rather simple. Investing in yourself gives you the most opportunity to grow as an individual. You need this growth for you to be able to go further. Stephen R. Covey, in his book titled The 7 Habits of Highly Effective People, explains that you need personal change for you to effectively achieve success.
When you do not grow, you either remain as is, or as we call stagnant, or you downgrade, which is something you should avoid at all cost. More than that, when you invest in yourself first, you are giving yourself more time and energy to give back later.
7 Money Pot Principle For Financial Abundance
One way of budgeting your money well is to list all of the items that you would want to allocate for and divide your finances with it in mind. You can find a lot of equations in doing this and how you will distribute your money depends on your preference and need.
Here at Mind of the Financier, we follow the 7 Money Pot Principle. In this principle, there are seven money pots to fill or seven items to allocate money for. The said items are quite general which means you can categorize your expenses under these. These are actually main items that you should consider as these are more of necessities rather than luxuries.
Remember that this just serves as a guide for you to achieve financial abundance. How you budget your money depends entirely on you.
1st Money Pot: Education – 10% of Income
As mentioned earlier, investing in yourself must come first. The greatest investment you will ever have is yourself. They say your greatest asset, after all, is yourself. This is why the first three money pots are dedicated to yourself and for your benefit.
The first money pot is education. You must allocate at least 10% of your income to educating yourself. The most important thing you can do to get financial abundance is to equip yourself with a particular set of skills that you can use in your career or business.
Learning is one of the keys to gaining professional and financial success. In fact, the more you learn, the more you will be able to master your profession and passion, and ultimately, master the art of managing your finances for financial abundance.
The education that we are talking about is not limited to formal education. There are actually a lot of ways in which you can educate yourself.
Formal Education
The most basic way of learning is through formal education which you get in a college or university. Though there are highly successful individuals that are living proof that you do not necessarily need a degree to be a billionaire, such as Bill Gates of Microsoft and Steve Jobs of Apple, it still pays to have a degree. Your degree will serve as your stepping stone in getting your dream profession.
There are also companies that base their salary brackets on educational attainment. As a matter of fact, employment data gathered in 2017 by the United States Department of Labor showed that employees with bachelor’s degrees had better and bigger salaries than those with associate degrees and high school diplomas. Moreover, those with post-graduate titles such as master’s degrees and doctoral degrees were paid better than the others. Even though this does not apply to all industries and may differ from one company to the other, it shows that holding a degree can be an edge.
Reference Materials
It is so much easier and more convenient to look for reference materials in this day and age. Gone are the days where you have to go to the local library and looks for read on a certain topic. With technology, you can look for reading materials, watch reference videos, and listen to helpful podcasts with one tap of a finger or one click of a button.
Educating yourself also entails learning more about your profession, business, or industry through various multimedia channels. Spending on education may mean purchasing a useful book that can help you learn a certain skill or expand your knowledge on a topic. Say, if you are a doctor, spending in education may mean buying the newest books on your specialization.
Learning is a constant process and it helps to constantly learn more about what you are passionate about.
Seminars and Fora
Attending seminars and fora is also one way of educating yourself. Not only will you learn from the greatest and the most successful in your field, you also get to to interact with people from the same group and build connections. These connections that you get by interacting and networking may come in handy as you move forward in your career or respective business.
Know more on how education helps in attaining financial success by reading our article on this topic.
We all need to retire at some point.
This may be a bitter pill to swallow for some, but the truth is, eventually, everyone has to stop what they are doing to rest and enjoy life. The main reason for retirement would most probably be old age, but that is not the only one.
You can retire whenever you feel the need to–perhaps when you feel that you have already reached your goal in your career, or when you already want to settle down because you already have financial abundance. There may be a standard retirement age but ideally, there is really no age for you to consider retirement. You can retire as early as in your thirties. What matters most is that you are prepared for it.
There are numerous reads that can help you in planning your early retirement such as those by Robert Charlton, Jacob Lund Fisker, and Cody and Georgie Boorman. These are good reference materials that will greatly be of use.
Most retirees end up living a lifestyle less than when they were working because they have either failed to plan or save enough money. The usual recommendation of most financial advisers would be saving 10% of an individual’s income for retirement which probably explains why retirees end up with a lesser lifestyle. We at Mind of the Financier recommend 20%.
One rule that generally applies to finances is that you should not put all of your eggs in one basket. During the financial crash in 2009, people near the retirement age lost over half of their retirement savings. This unfortunate incident forced people to return to work or continue working. A number of the affected individuals could not get their old jobs back with some even settling for a lower paying job.
This explains our recommendation of saving 20% for retirement and splitting this number to two money pots–your retirement fund and your investments.
2nd Money Pot: Retirement Fund – 10% of Income
The first money pot under retirement would be your retirement fund. Of the 20% allocated for your retirement, half of it or 10% of your income should be for your retirement fund. That would mean putting it under your retirement account.
You will appreciate your retirement account when there is the need for you to retire and you do not have to worry about your finances and expenses. When you do not have assurance that you will have someone to pay for your bills and expenses when you retire, it is best to prepare your retirement yourself. That is, in fact, the most ideal.
When we say a life of financial abundance, it does not only cover the part of your life where you are working and earning. It goes beyond and even covers your retired life.
3rd Money Pot: Investments – 10% of Income
The other half of your retirement fund or 10% of your income should be dedicated to your investments. By investments, we are referring to means of earning passive income. When you are retired and living off on your retirement fund, it is good to still earn through passive income. You can use this passive income to buy your wants or luxuries. It can also help you with your bills and expenses.
There are a lot of means to get passive income. These include rental properties and businesses that you can still draw money from even when you step out of it. When you invest in things that can bring you passive income, you are doing your future self a favor.
Both mentioned means have advantages and disadvantages. Stock and bonds offer steady growth. Businesses or rentals provide you with passive income. However, you have to bear in mind that you have the responsibility to properly manage and take care of your businesses. When not managed properly, properties may end up in a poor condition resulting to no tenants and no passive income. Businesses may also not prosper and worse, go bankrupt.
The threat would be the possibility of being affected negatively by the conditions of the economy at hand. Though economic situations may be foreseen by experts, tables may turn in a matter of seconds. The market is prone to recessions and crashes, and business will surely be affected when these occur.
To fully understand the dynamics of passive income, you can read further and learn from reference materials such as books by Joseph Hogue, Chase Andrews, and Richard Gadson.
4th Money Pot: Living Expenses – 40% of Income
It is a given that we need basic necessities to survive like water, food, shelter, and clothing. These are living expenses that should always be considered. Nowadays, however, living expenses are not limited to these items anymore. Our needs have evolved and grown to include items such as utilities, transportation costs, and insurance, among others.
That being said, it is best to allot 40% of your income for your living expenses. More than the basic needs, living expenses also cover things like going out, movies, and night outs around town.
You may think that 40% is not enough to cover your housing, car, food, utilities, and entertainment, but it is when you live within your means. There are people who live in debt because they spend more than what they can afford. The key to making the allocation work is to fit your lifestyle to your budget. This is important if you want a life of financial abundance.
If the 40% is not enough for you to keep your car and you realize that you do not really need one, then feel free to let go of your car and take public transportation instead. It is as simple as that.
Minimizing your living cost will allow you to spend more on other things such as reinvesting in yourself, which should be your top priority. Sometimes, less is more. When you have less, you get more peace of mind and less to keep up with.
5th Money Pot: Play – 10% of Income
They say that all work and no play makes Jack a dull boy. It is important to take a break from all the hustle and bustle and have play every once in awhile. This is why play must comprise at least 10% of your income.
Play can mean a lot of things. How one perceives play differs from one person to another. Play can include vacations, luxuries such as sports cars and expensive watches, or hobbies that provide enjoyment and great satisfaction like golf or fishing.
You should remind yourself that aside from working hard to earn, you are also working for yourself. It does not hurt to spend part of your finances for yourself and the things that make you happy.
Bear in mind, though, that you should not spend more than what you have. Financial abundance does not necessarily translate to a life of luxury. That means if you do not have enough money to afford a sports car, you should not spend your 10% on a sports car that will bring you in debt.
Your kind of play must also coincide and match with the kind of lifestyle that you have and you can afford. There are things that cost less but can provide you with as much or even more happiness. You just have to manage your expectations.
6th Money Pot: Long Term Savings – 10% of Income
Everyone should know how to save because savings can go a long way. Savings can help you achieve a life of financial abundance. It is proper to set aside 10% of your income for long term savings. Even though what you are allocating may not seem much of an amount to you, after quite some time, you will realize that you have already set aside a good sum of money.
Your long term savings can be used to purchase items of large amounts such as a car or a house. These are purchases that will consume a huge chunk of your bank account. When you allocate money for future purchase of items such as these, you are thinking and planning ahead.
Purchases that cost a lot like these usually entail a payment scheme when not paid in one go. These payment schemes usually carry high interest rates. If you cannot afford to pay for these items in full, you can use your long term savings to settle the down payment. When you have already gathered a significant amount for your long term savings and use it for down payment, you will be spending less on interest.
7th Money Pot: Giving Back – 10% of Income
Giving back to others can give you great satisfaction that you will not get in any purchase. Helping others gives off a heartwarming feeling that you cannot find elsewhere. Giving back, as described by Dr. Steven P. Ketchpe,l is “using your time and money to make the world a better place.”
When you have a life of financial abundance, you should know how to share part of it to others. It is in sharing that you will find selfless satisfaction and content.
Set aside 10% of your income for giving back to others. There are different ways in which you can give back. You can sponsor charity events or even simply help out in disaster donation drives. There may be people who need your help. If you have something to offer, why not lend a hand?
Wrap Up
Managing your finances is crucial if you aim for a life of financial abundance. A lot of items depend on your finances. When you budget well, you can allocate enough money for the right things and distribute your finances evenly. There is no standard formula when it comes to managing funds. It all depends on the person and his/her need.
At Mind of the Financier, we follow the 7 Money Pot Principle–that is, to distribute your money to seven money pots. These seven money pots to fill include education, retirement funds, investments, living expenses, play, long term savings, and giving back. These are main categories which you can put your specific expenses under.
By doing this, you will have enough money for different items that you may use in different times. This will effectively help you as you achieve financial abundance.