Updated: May 9
If you want to build a house, your foundation needs to be strong. We do this because we want what we build to last and withstand the forces of nature. Managing your money is no different. Our financial success will be determined by how well we manage our money and our ability to withstand the unforeseen events that life throws at us. The only certainty in life is that there will be uncertainty. Covid is the perfect example of life on life's terms. None of us could have foreseen or anticipated a worldwide lockdown that will not only affect our daily lives, it would also put businesses in jeopardy & have a negative effect on the global economy. People lost their jobs; businesses have had to close down, and our own mental health has been affected because of a tiny virus. It will always be the stuff we can't think of or anticipate that will make the most impact.
We have no idea what the future will bring, but we can strengthen our financial foundations to help us brave the storms of life. And the storms will come. Accepting that something unforeseen will rise again in the future is guaranteed. The details however will never be made known until it happens. So let's do our best to be ready.
Pay off your debt
Besides your bond/mortgage, get all your debt paid off such as credit cards, student loans, car loans, personal loans, overdrafts etc. Make it your sole purpose to have it out of your life. If you have a credit card, pay it off as soon as you use it. If you need clothes, items, things for the house, pay for it in cash. If you don't have the money, save up for it and then buy it at a later stage. The freedom you achieve from paying off your debt will be worth more than gold.
After your debt is paid off, you need to have a fully funded emergency fund in place. As a general rule you would need 3 months' worth of expenses if you are employed. Up to 6 months' worth of expenses if you are self-employed. If you are expecting a child, start adding more to your emergency savings account each month before the baby arrives.
Invest for your future
Set aside at least 15% of your net income each month and invest this into your retirement accounts. 20% would be even better. Do this on top of any contributions your employer has set up for you. Automate this process and keep paying yourself first each month. Do this for as long as you can.
Consider setting up additional savings accounts for other future expenses. Maybe you want to buy a house or go on a holiday. Save for it. The best holidays are the ones that you pay for in cash! When buying a house, you want to ideally put down at least 20% as a downpayment. The more you put down, the less interest you pay.
Building your foundation and going through the steps requires focus and sacrifice. Our emotional states will impact our mindset and in turn how we manage our money each month. We are human and will succumb to temptation. For me, its food. I love food. I also love it when I don't need to cook it. I need to watch my grocery bill each month and limit myself to going out and ordering takeout. It's not always easy but it helps if we have a plan and a clear direction of what we need to achieve. Plus, the freedom and the self-esteem boost we get from building our financial foundation is priceless. Here are some of the benefits you can expect.