If you think that your salary vanishes before it even shows up, you’re not alone. Most people face this problem, and there seems to be no way out of it. What most of us do is, we tend to spend the major portion of our salaries in the first 12 days of the month. And then we wait for the next paycheck to arrive. It’s a never ending process, and it seems to be on the autopilot too. So, today, we’ll discuss how to avoid that, and how to actually take control of your financial situation.
We came up with the perfect financial plan which tells you exactly how to manage your salary. It’s a formula for conserving your hard earned money while also expanding the margins. The blueprint of this financial plan would be,
- 5% Savings
- 50% Investment (assets)
- 40% Expenses (liabilities)
- Up to 5% donations (if you feel like it)
So, let’s dive into it.
What does it mean?
What it means is quite simple. You will be devoting 5% of whatever you earn to savings. These will be your hard savings and you won’t spend them at all. This money is for extreme adversity and it will act as your emergency fund. 50% of the amount you earn would be your investments. It basically means that you would be replenishing your assets. Assets can be anything. It can be a business, it can be real estate, it can be anything. This 50% will generate more money, on your behalf. So, don’t try to cut it short by any means possible.
40% of your earnings would be spent on your daily expenses. This will include everything that you spend. Your bills, rent, food, leisure, everything. This is the amount that you’re allowed to spend any way you feel like, no questions asked. But if you feel that 40% is not enough, find a way to earn more. Find an alternative source to meet all your demands in that 40% window. Now, up to 5% of the remaining money can be donated if you feel like it. You don’t have to donate if you don’t want to. It’s genuinely a good thing to do. But it’s completely fine if you don’t want to. You can add this money to any of the sections above.
How to manage your salary?
The first thing that you need to do is, track your finances. There’s no way you can control your money if you don’t know where it’s going. Think about how a purchase can affect you in the long term. Don’t limit your reasoning to the short term gains. Money management is an essential skill that everyone must cultivate. Think about how small things can affect your budget. If you’re buying something from the credit card, only put money on it that you can afford to pay off every month. If you don’t, you’re steps away from entering a vicious credit card debt. Stop trying to impress other people. Don’t buy stuff for the sake of showing off. People don’t care. You need to understand that purchases such as this only bring out your sense of insecurity.
A lot of people spend money they don’t have, to buy things they don’t need, to impress people they don’t like. Don’t be a lot of people. Figure out which individual habits drain your budget. If you want to manage your salary, you have to make sure that you’re no longer the one who wrecks it. For instance, if you’re a fan of eating out. Set up a budget at the start of every month solely dedicated to that. And under no circumstances are you allowed to cross that. If you can’t control yourself, take out the exact amount of cash you need and put it in an envelope or use a separate credit card for this purpose. So, once that money runs out, you’re done going out for the month.
How to invest right?
Where you invest your money is also a major part of how you can manage your salary. The first rule is to always invest in assets, and not liabilities. Liabilities will slow you down and can prove to be harmful in the long run. Always remember that if you can’t buy something twice, you can afford it. As Warren Buffett quotes “Never put all your eggs in one basket.” If you do that, you’ll be left with nothing when that basket breaks.
Always consider having multiple sources of income, so, even if one or two of them tank, you still have the means to sustain yourself. Managing the resources that you already have is also a huge part of managing your salary. The only thing you need to understand here is, the difference between liabilities and assets and how to expand your reach over time. If you wish to wish to know more about investing in assets or stocks, write back to us. We’re always happy to help.
Money mistakes to avoid!!
When you’re earning a better income, don’t let social obligations take it all away. First thing, do not buy a car that’s out of your price range. Moreover, never buy anything that’s out of your price range (I’m strictly talking about liabilities here). Don’t go for the fancy stuff. Don’t buy a house that doesn’t fit your budget. If you do, a major part of your income would be spent on EMI (which would be super expensive) and there won’t be room for doing anything else, like investing. Moreover, you would be stuck with a loan for a few decades. More expensive the house, more toilsome the return payment, not to mention the heavy burden of interest rates.
If you want to buy a house, go for the one that suits your budget, you can always shift to a luxurious one later. Know what the current situation demands. Don’t spend too much on going out; you’d be shocked to know how much you spend eating out. Of course, we all need a little entertainment in our lives, but control those expenses which might be the reasons for having a crappy financial plan. Be smart when it comes down to money.
Warren Buffett’s top 5 Money Rules
- On Earning – Never depend on a single income. Make investments to create a second source.
- On Spending – If you buy things you do not need, soon you will have to sell things you need.
- On Saving – Do not save what’s left after spending, but spend what’s left after saving.
- On Investment – Do not put all your eggs in one basket.
- On Taking Risks – never test the depth of the river with both feet.
Managing your salary comes down to main two things, how you spend your money, and how you invest it. If you invest your money right, you can always make more to spend. But if you spend without thinking, all the money in the world can last so long. Make a budget that is easy to follow. We often bite more than we can chew, and it’s hard to stick with it in the long run. Start slow, there’s nothing wrong in choosing the easy path. You can always switch your options later. Also, it’ll be next to impossible to follow this model if you’re under debt. So, make sure that you’re not under any debt that deflects your monthly income. If you want guidance on how to get out of that debt first, let us know, we’d love to be of assistance.
Hope this helps, if you have any questions, be sure to write to us. If you want us to write about something specific, let us know. Also, tell us about how you budget your salaries in the comments section. If you know any tips that may help the other visitors, don’t forget to mention them below. Helping people out is still a thing.