First thing first, plan before you spend.
Remember, allocation is the key.
I know how exciting it can be when the paycheck hit your bank account and you can’t wait to reward yourself for the hard work you have been putting on your job. But before you decided to go ahead and splurge on that bright orange designer bag or purchase that overpriced macarons, you gotta do some homework with your hard-earned money so that you won’t be left with nothing but some regretful purchases by the end of the month.
Here is a simple formula of money allocation that you can follow through based on T. Harv Eker’s book “Secrets of the Millionaire Mind”:
55% necessities means your rent, mortgage, utilities, grocery – those you absolutely need to spend and to pay off
10% savings means the money that you save in a separate account that couldn’t be seen and reached easily – for rainy days!
10% fun means eating out, concert, staycation, movie – those that give you pleasure and keep you sane (yes, please!)
10% investments means your retirement fund, real estate, stocks, business – those that contribute towards financial freedom
10% education means book, seminar, online course, coach – those you spend to grow and develop yourself
5% giving means charity, gift, helping others in need – those you do to give back to your loved ones and the community
If you are like me, your ultimate goal is to be financially free, this allocation guide is probably the more suitable one for you.
You may question, is it doable? The answer is yes! Look at the allocation and see where you can cut back on and try to simplify your spending. If you absolutely need to, you can adjust the percentages a little based on your lifestyle. You may want to put 65% of your income on necessities and 5% on investments and education each; or you may plan on allocating 20% of your money into savings when you only need to fork out 45% for necessities. Go experiment and find out the best allocation that suits you, but I do not suggest adjusting more than 10% if you really want to be good with your money.You want to make sure you spend within your means. Cut back on the Starbucks that you have every. single. day.
Make sure you stick to your allocation formula once you’ve found the perfect one for yourself. You want to get into the habit of managing your money effectively starting as early as possible. By managing it properly, you are way ahead of your peers financially. So, I say, why not just start now!