I am getting straight to the point – you need to create a framework or a game plan to support your journey to financial control and independence. And from my experience, making small deliberate changes is the way to get it done. Slowly, but surely.
It is about creating good habits. And you do not need to have a huge amount of money to start – you just need to start making small changes.
Gaining financial control is a process – not a race.
Often the problem is that we just spend what we earn.
It is all about changing the way we approach managing the money we earn – we need a framework and a gameplan.
Sounds easy? It’s not – but it can be.
The mistakes we make..
For me life was simple. I was working and my income covered my way of life.
It was not that I was living a lavish lifestyle but I was happy. And I worked a lot, so I did not spend that much.
I had a checking account and credit cards and it served all purposes.
And I really did not worry about savings, investments, credit card debts or retirement. I mean why should I? Life was easy.
The truth was that I was working way too much and really, truly had very little time to do what I wanted.
I was working for the weekends to arrive.
And since I traveled a great deal in my job I was spending weekends away and sometimes leaving Sunday evening or arriving home — dead tired — late Friday evening.
I was ready for a change. I came to two realizations.
- Do not rely on money from one source only
- Be smarter with the money I have
Do not rely on money from one source only
For me, financial control and independence meant not being overly reliant on any one stream of income.
I knew I had skills for which employers were willing to pay me. But the reality was that this scenario meant spending 50 hours per week working on someone else’s dream.
I wanted to work on my own dream, so I decided to take a calculated risk. I was going to work for myself.
Using my background and experience in international business and ecommerce I set out to create multiple streams of income.
My goal was to create passive income. But from my experience so-called passive income requires quite a lot of ongoing work.
I have found that most business models need to be maintained to grow and develop.
My main sources of income are building and monetizing websites and offering professional services as a consultant. I also have investments in dividend paying companies and property – both residential and commercial.
Be smarter with the money I have
When we develop multiple streams of income we also have to be smart with the money we make.
And ironically, this is where I went wrong in the beginning.
I have always found ways to make money. But I used to be terrible at managing money. And no, I am not talking about stock picking or investing in emerging markets.
I simply mean spending money on stupid stuff and not investing for the future.
So yes, I have lived through the process of creating a framework to reach financial control and independence.
The process or journey started with taking inventory and making a few simple but very deliberate decisions:
- Do you have a good checking account
- Opening a good savings accounts
- Setting up an investment account
- Inventory of good and bad debts
- Looking at your credit cards
1. Do you have a good checking account?
A checking account is a deposit account with a bank or financial institution where you can deposit and withdraw money. This is typically the account used to pay bills and you access your funds with checks, ATMs and electronic debits.
There are checking accounts with no fees but most larger banks and institutions charge a monthly fee and often extra fees for things like out of network ATM usage and debit cards.
Other features to consider include
- minimum balance requirements
- limits on number of checks or debit transactions you can have daily
- limits on number of bills you can pay monthly
- overdraft fees
I settled for keeping my checking account as there were no monthly fees and I had never had any problems.
2. Opening a good savings accounts
A savings account traditionally pays you an interest rate on funds deposited. The actual interest rate varies from one bank to another but generally speaking online banks tend to offer higher rates than brick-and-mortar banks.
Banks may also offer a higher yield if you choose a fixed term savings account. Here you agree to keep your money with the bank for a fixed period of time and often no withdrawals are allowed.
Whether you choose an online bank or a traditional bank with branches you need to make sure that the bank is insured and your deposited funds are protected in the event of a bank failure.
I decided on a regular savings account with an insured online financial institution offering a fair yield and protection in case of bank failure. Over the years I have added and replaced financial institutions as terms tend to change over time.
With the savings account in place I set up a monthly fixed amount transfer from my checking account to my savings account.
The goal was to build up a buffer in the savings account equalling 3 months living expenses.
After reaching the goal, the surplus would instead be paid into my Investment account.
Now, you may have noticed that I do not say which banks I chose. The reason for this is simple. Part of this journey to financial control and independence is for you to make your own choices and decisions based on your needs and wants. Feel free to get inspired and start your own journey -- you may even copy our journey step by step -- but it will have to be your journey. As it should be. Be your own boss and own your journey.
3. Setting up an investment account
There are different types of investment accounts. You have the standard brokerage accounts and the traditional retirement accounts as well as the employer funded investment accounts.
As an entrepreneur I need to look after my personal finances and plan for good times as well as not so good times. I decided on a traditional brokerage account.
If you are employed you may want to check if your employer will match contributions you make to a retirement account.
With a savings and investment account in place I followed the rule below.
When the balance of the savings account reached the buffer of 3 months living expenses I would direct the monthly transfer from the checking account to my investment account.
I chose to invest in a low fee global index fund. I felt that the stock market was the place for me to invest but I did not want to pick individual companies or even sectors.
But please note that you may be better served investing in a traditional retirement account if your employer matches any portion of the money you save.
Most importantly, set up the framework and get the money working for you, today.
4. Inventory of good and bad debts
Good and bad debt typically refers to how you use the money you borrow.
Bad debts and what to do
All consumer debts are viewed as bad debt.
Do you have a loan for clothing, cars, travel, mobile phones and/or consumer electronics? These are all goods or services that depreciate in value or are consumed. These are bad debts.
Furthermore these types of higher interest debts tend to cost a lot more than you are led to believe as they often run for many years with smaller monthly payments and fixed monthly fees.
They feel affordable as the monthly cost seems reasonable but the total cost of the loan tells a different story.
The good news is that there are ways to save money even if you already have this type of bad debt.
- save money when you consolidate your smaller bad debts into one more favorably priced loan.
- look into paying off the loan(s) faster to save on interest costs.
Good debts – a necessary investment?
Good debts on the other hand are typically investments that buy assets that will appreciate in value or create the foundation for personal and professional development. Examples include mortgages and student loans.
I know that some people feel that student loans should be avoided and point to successful entrepreneurs who never needed a university degree.
Still, I firmly believe that investing in an education for yourself has to be one of the best investments you can make.
But of course, even so-called good debts can have bad terms. Here we may be able to save money if you refinance and get better terms.
At the time, my only bad debt was credit card debts which I managed to pay off in full every month.
My student loans and mortgage were substantial but the terms were reasonable. But I made a mental note of dates for renewal with refinancing in mind.
5. Looking at your credit cards
Credit cards can be a great tool to manage your personal finances.
But credit cards also need to be used with great care as they can lead you into a vicious debt cycle if not handled responsibly.
If you are having problems paying your credit card bills you may find balance transfer credit card deals helpful. This is however outside the scope of this overview.
There are several types of credit cards and they all have different pros and cons.
I used credit cards to get free credit for a 30 – 60 day period as I always paid the credit card bill in full and on time.
Free credit? Yes, free credit as I would use credit cards to buy groceries, clothes, gas, etc. for an entire month. At the end of the following month the credit card bill was due and I would only need to pay the actual amount we spent as long as I paid the bill on time. This meant free credit and my money could earn me interest in the meantime.
But please note that if you do not pay your credit card bill in full and on time you will start incurring fees and charges that are quite steep. Credit cards are an expensive way to finance consumption and should be avoided when possible.
I chose a reward credit card that gave me bonus points redeemable for travel and gift certificates but needless to say your wants and wishes may differ.
Summary and conclusion
The journey to financial control and independence is a process.
Getting started is the hardest part for most people.
I am not talking about wanting to do it. You will need to sit down and make a plan.
And there is no reason to get overwhelmed. Start with one small task per week. Just make sure you always complete the task.
Soon, you will be hungry for more.
It really does come down to making one smart, deliberate decision after the other.
But you have to start. Not sure where to start? Let me help you.
Call your insurance company and question the rate you are paying. It does not matter if it is home, content, renters, car or any other insurance. Just call them up and ask for a better rate.
You have nothing to lose and there is often a saving to be gained.
