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This is the beginning of a richer life financially.
- Pension savings
- Salary account
- Emergency savings account
- Debt consolidation
- Saving for bad times
Take this first as many ignore the reality that one day you will retire or that is the goal of working life. Just because you’re young doesn’t mean you should ignore this important part because all of a sudden you’re there.
The earlier you start saving for pensions, the less you need to set aside. In Sweden, we have so far good pension agreements that the employer pays into for us. This can be changed, so having extra low-risk savings for retirement is really recommended.
If you calculate on that, you should work approximately 540 months until retirement, then you save 1% of your salary ($2500/after-tax) it becomes $25/month. If you plan that the $25 does not exist in your salary, it is quite a small amount of money to invest in your future. Then we already have pension savings in Sweden through the employer and the job. But with this small change in your financial thinking, you build a more secure future.
The salary account
Maybe this should have been put first because this is where the money usually comes, but then it runs out before you have time to do anything else with it. But we can’t go on and have it like that. Unfortunately, that’s how it looks for most people because they haven’t learned anything else. You don’t get to learn about this in school and your parents may have been in the same position and didn’t learn further about how to handle money.
From the salary account, the money must go to various things such as expenses and saving/investing. The biggest mistake you make is that you only have one or two accounts and that is the salary account and maybe then a checking account. You should have more accounts to be able to save and not see the salary account as a savings account because it is easier to use up the money sitting there.
- Rent/home loan
- Bills (electricity, water, telephone, etc.)
- Means of transport, car, public transport
These are the things you need to get by, not a new TV or other material things. Here you have to try to limit yourself to just the necessary things to get through the day. As food does not mean an expensive pizza every lunch but save on that money and make a lunchbox. (Would not be so good for health with pizza every day but just an example of things you don’t need).
Only when you have control over your expenses can you start treating yourself to something in between, but first and foremost pay. If you don’t pay or choose to ignore the payments, you will end up in a vicious circle and it will only get worse. But it’s easy to fall into a vicious circle if you’re overwhelmed by all the bills and loans. So discipline is very important here. If you have accumulated unnecessary expenses such as credit card debt, unnecessary loans, etc., it is so important not to get stuck in another vicious spiral. It is important to distinguish here between needs and wishes.
Needs are those that you pay to have a roof over your head and food on the table. Desires are things that can wait until you have control over your finances. So you don’t need a new TV, computer or console, but you do need a roof and food.
Emergency savings account
Do this at once save small pennies to begin with but build up a savings account for crises. There are a lot of people who don’t have this and when something happens like the fridge breaks or the car breaks down. When you don’t have an emergency account, you stand there and probably have to borrow a little extra or take it on the worst credit.
The goal should be to have $2000+ saved here, but starting with just a little money is a start to building up your emergency savings account.
- The snowball method
- The avalanche method
to get rid of their debts there are two methods and they are called snowball and avalanche. They differ in that in one you take the debt with the lowest amount left to pay and in the other you choose the debt with the highest interest.
Nothing says you have to strictly follow one or the other. For example, if you have 5 different loans where 3 of them are over $10000 and one is maybe $500 and one is $800. I would mix it up here by paying the ones with the lowest amount first to get rid of them a bit quickly. Then I would check which of the higher loans had the highest interest rate and try to get rid of it as quickly as possible to go on the next one.
The only loans that are good loans are housing loans where you have a low interest rate and you get tax deductions on this through loans. Home loans do not need to be debt restructured, since with amortizations you are actually investing in your own finances.
But all other loans/credits are bad and must be removed.
Saving for bad times
Save for the future and uncertain times. You never know if you will get sick or if you will lose your job. If you have no savings to secure these times, life becomes extremely difficult and depressing.
Before you have control over your finances, it is difficult to save for this, but you can always start small by saving $10 – $100 every month. The goal of this is to save as much as you can manage
themselves for at least six months without income. But first you have to get financial control before you can come up with those sums.
Bad times account = minimum 6 monthly salaries.
- Stock market
- ETCs, index funds
- Bonds / securities
When you come here, you are ready to invest in yourself by investing in different markets to be able to get more income every month. If you reach this goal, you have full control over your finances and can start investing to build on your own wealth and treat yourself to a new TV, computer or console 🙂 But don’t lose control to risk falling back into the financial quagmire.
You can start small here when you feel you have money left over for it, but the most important thing is to control the finances first before it eats you up.
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