The next step after Spending below your income is Savings and Debt Elimination
If you spend everything you earn, whatever it is you earn, you are still at ground zero.
It sounds like “sayings of the wise” from some historical figure or big shot. Actually, I said that.
After taxes, the next thing that should come out of your income is savings. Depending on your lifestyle, this amount can be further subdivided into many streams viz:
(a) Reserve/emergency
(b) Investment
(c) School fees/children’s trust fund
(d) Planned purchases
(e) Debt servicing
This is just a guide. The categories and percentage that goes into each depend on individual circumstances. Some experts suggest 40% of your net income should go into your savings portfolio. As usual, as good as it sounds, I believe individuals should work out their “salvation” based on their circumstances. Desperate situations demand desperate measures.
Keeping at this, month after month, year after year takes a big dose of ongoing discipline. Saving is a wide subject and there are books, experts, and sites on this subject. Some will be featured on this site.
Eliminate Your Debts
Terminate it (enlist Terminator I & II), assassinate it, torpedo it, blow it away! Seriously speaking, this is one encumbrance you can do comfortably without. How you got into it in the first place, I believe is a story for another day. It is time to get out, as fast as possible without a backward glance.
It is an unnecessary distraction, both mental and financial. Based on your individual circumstance, work out a plan that is acceptable to your creditors. Debt servicing should not jeopardize your savings plan. As among nation-states, you don’t wipe out your external reserves to service debts.
The most prudent way to go about it is to tackle high-interest loans line credit cards first and go down the ladder.
Photo: rylands-associates.co.uk
