Financial Freedom 101

Continuing our saving posts, I’d like to explain what to do when you’ve acquired your paycheck. So I will walk you through a 5 step strategy that we use. This will be structured for a monthly paycheck and how we would divide it up, but this strategy can be applied to any paycheck you receive.

Step 1 is to understand your cash flow, or where you are getting “spending” money from. So total all your earnings and have that number written down. Say it’s $1000.

Step 2 is to calculate what you need for your expenses. Yes, expenses first. Most people don’t look at expenses till the end, this is a terrible idea. So say your monthly expenses are $200 or %20.

Step 3 is to decide how much of that money you want to invest, say $500 or 50%. We follow a heavy investment strategy especially since we are 20 years old and understand the importance of investing early. We want to get as much money in the market as possible. This number can fluctuate with your needs.

Step 4 is to save a portion of what you’ve earned. Put a little on the side for emergencies. A broken sink or flat tire is common and not having money set aside means you will need to borrow money, which is another terrible idea. So say you put $100 or 10% for emergencies only.

Step 5 is for leftover money. This will become your spending money, the $200 or 20%.

You can apply this strategy to your cash flow and even make slight adjustments to your needs. But it is important to consider your expenses first then savings (or for us investments) before deciding what you want to spend. You can’t invest money on the pair of $100 shoes you bought that’s losing value anyway.