Money… oh, beautiful money. I want you. I really do. But apparently, it isn’t mutual… you run away from my hands as soon as I touch you.
Am I the only one who has this relationship with money? No? I’m not alone? Woohoo! Well…
…it’s time for a change! What can we do to improve our personal finances? How can we take care of our money to ensure smart financial behavior? I talked to Jonathan Zepeda, Finance Associate at PartnerHero, and he shared some really great tips!
Let’s start with what we considered rules of thumb.
#1 — Save 10% of your GROSS Income
Did you see we highlighted GROSS? No? Okay… Here it is again: GROSS INCOME. That means, that if your total income is $1000 (easier to do math with this number), you must save $100. It’s 10% of the money before you pay any of your debts: Internet, phone, public services, university, loan, food and all of these things that require a chunk of your income. Easy right?
Cool, so just to be clear:
Don’t save 10% of what’s left after paying debts! For example:
Instead, save 10% of gross income, which means, BEFORE paying debts! Example:
Cool! Now you’ve started saving. By the end of the year, you’ll have money to pay for the trip you wanted, or even better, to make that investment you were thinking about! Can you save more than 10%? Go ahead and do it!
#2 — Live below your means (in case of a rainy day)
This goes beyond not buying stuff you can’t afford. It’s more of a mindset, a lifestyle. If you earn $1000, live like if your income is $600! Still save the 10% of your gross income though. We know you can afford the newest pair of Nike or Adidas shoes, but ask yourself, do you really need it? Or can you save it and put the money to better use in the future? Yeah, that’s exactly what we thought!
#3 — Invest in your Development
Yes, development is one of the best investments you can make! It could be anything! Well, try to think of something you like, that can also add value to you and eventually generate profit. Great examples would be coding, digital marketing, photography, design, AI, project management, and customer experience (there are way more options! Whatever suits you). Analyze if it has the potential to make you money in the future. “If you invest in mastering the art of creating perfect telegrams, probably won’t be super easy to get profitable,” says Jonathan Zepeda, “unless you have a well-thought business plan.”
If it’s your passion, go ahead and do it! But in this article, we are focusing on benefits from financial decisions. Which brings us to a couple of best practices now that we’ve discussed the essentials!
You’ll hear many people, like Dave Ramsey, tell you to avoid them. However, we are conscious that many of you reading this article might already have one! So here are some tips for you:
Have it be no more than 50% of your income. That means that if your salary is $1000, your credit card’s limit should be $500 or less.
Why? You don’t want to spend more than what you can afford, or live up paying debt each month to try to catch up. We know there might be emergencies, so it’s also good to keep the limit 50% or less than your income, so you can easily pay the debt flat with the money left of a month, and 10% saving of a second month, if it comes to that.
Let’s do the math:
Since you are following tip #1 and #2 from the essentials, you are saving 10% of your income ($100), and living below your means (60%). This means that in January, you have $100 from the savings and $300 from extra saving because you decided to live below your means. Now you only need the $100 from February’s 10% savings to pay your credit card debt!
Live on your debit card:
According to Jonathan Zepeda, cash is liquid. It’s easier to ignore how much you are spending when you have cash, especially those SMALL transactions you think are fine, can really mess up your finance. (Yeah, we’ve seen you).
So limit your debit card consumption to have better control, and use it instead of cash. Ohh, for those living in Berlin… we know that most of the places DON’T accept cards, so you’ll have to be more mindful of how much cash you take out of the ATM. Only withdraw what you really need! It’s better to go multiple times when necessary, then taking a bunch of cash to save you from those walks. (don’t be lazy, your wallet/purse will appreciate it, as will future you!).
Think long term
This is simple. Instant gratification vs long term gratification. Only buying what you need. Think of depreciating assets; buying high-quality products that will last long is always the best option. It could be a pair of shoes, a computer, earphones, etc. Think long term! We are expecting you live a long and healthy life, so plan for it!
Visualize your expenses
Where is your money going? Be aware of your cash flow. You can use the tools that best suit you. Bank statement. Google Sheets, bank website, an app, etc. Analyze what behavior you can change. Are you spending too much on sweets? Booze?
We hope these tips are helpful! If you have any questions, please feel free to leave them on the comments! If you’d like us to give more tips, let us know!
Here are some additional resources recommended by Jonathan:
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