Build a solid financial foundation to avoid future debt problems
To design, build, and live the life you want, you need financial security and stability as your foundation. In fact, developing a financial plan is like building a house. Meeting your needs throughout your life requires a solid foundation.
So let’s go back to the comparison between someone with a low income, but in good financial health, and someone who earns a six-figure income and wastes his money. You could build a structurally sound house designed to withstand the elements. Although it may not be the biggest or most luxurious house in the neighborhood, its foundations are much stronger and more durable than the mansion around the corner, made of cheap materials.
Overall, having a strong financial foundation provides a sense of financial freedom. Why? Because it can help you stop living hand to mouth and eliminate your debts. From then on, you begin to accumulate wealth in order to achieve your goals, such as quitting your dead-end job or retiring comfortably.
Although it may seem daunting, building a strong financial foundation can be broken down into smaller components, making it more manageable.
In addition, it takes time to establish a solid financial foundation. It is also important to build a financial base that allows you to support yourself while ensuring that you can achieve your future goals. To do this, you need to be thoughtful and disciplined about your daily spending habits.
That said, here’s how you can lay down your personal finance basics.
Know your current spending habits
To start, you need to understand your current financial situation. Review your bank and credit card statements to see purchases you’ve made in the last few months. Then, group them into the following three categories:
This includes bills, groceries, transportation, housing, minimal debt repayment, work clothes, and other necessities.
Entertainment, clothing, dining out and personal care expenses should not exceed 30% of your monthly income. Depending on your situation, you might decide to cut these expenses first if you are spending more than you are earning.