My Starting Guide to Financial Freedom
When I was growing up, finance was not discussed or taught in my family. The only thing I knew about finance was that I needed a bank account when I started working for the first time. The usage of the bank account was a different story. Right before college I started working for a fortune 500 company as an intern and I open my first savings account. During this period, I just used the saving account to transfer money to my checking whenever I wanted to buy something. I didn’t have any other plan for this account. This all quickly changed when I graduated college and was thrown to the wolves, to be an adult. Right away I realized if I continue to spend money the same way, I will be in big trouble. I slowly started reading online about how to write and balance check. This was the beginning of my financial education.
With the help of one of my co-workers, I was well underway in my financial education. Instead of telling me what to do, he empowered me to read more on the topic through certain books that he recommended; I started reading vigorously. Below are the books I read when I started out with my fiance and lessons I got out of it. Hopefully, these will help you too.
The first book that I read was the “the richest man in Babylon” by Samuel Clason. This book helped me sharpen up my understanding of what a bank account is. After reading this book, I started following a process that was referred to as “80,10,10” method. This method as I now call it BSL (bills, saving, leisure) helped me start saving for my future. The book suggested that any payment you receive should be split into 3 parts. You must first pay yourself before you pay others. So, what that means is that you put 10% of your pay into your savings, another 10% into your leisure accounts and the rest will be to take care of bills. I started using BSL method and molded it into my own. I quickly opened 3 bank accounts with different banks, to avoid temptations of taking money out of one to support the other. This helped me build discipline. Below is the setup I used that worked for me, pick this up and molded it to support your financial situation
1. Bank 1- Savings account (10%) – I used this to save for rainy day fund and every month, I pull 10% of my check to this bank account. I made sure that I didn’t have any cards for this and the only way I can get money from here to transfer it to my bill account. Which will take a long period. This will deter me from spending out of my future saving. I also suggest opening this account with a high interest paying bank. Check bankrate.com for some suggestions.
2. Bank 2 - Leisure (10%) - this is strictly used for all the things I wanted, which can include going out to dinner with family and friends, entertaining guests or even buying that new shiny toy I want.
3. Bank 3 – Bills (80%)– This is used to pay my monthly bills and monthly needs. The reason this is so large is that, personally, I have built in this account some safety nets. Life throws random events at you that you might not be able to control, but if you have your finance set, you can control most situations that involve money. I budget once every 6 months to factor out bills I don’t have any more or I have picked up. This allows me to stay in control of my finances.
a. Once you set up your budget, make sure you add additional money on top of it for the safety net. You decide the amount. Whatever you don’t spend that month will roll-over and continue to grow.
The second book I read was called “I will teach you how to be rich” by Ramit Sethi. I highly recommend people to pick up this book if they have not read it. Through reading this book, I learned how to vert my credit card vendors, how to properly negotiate loans, the approach you should take when buying your first car and how to attack any student loans/loans you owe. After reading this book I was well on my way to financial freedom. I used his methods to get my first credit card.
Vetting for a credit card:
1. Review multiple vendors
2. Check their interest rate
3. Check to see if there are yearly fees (go for one without yearly fees)
4. Look for one with a good reward program that you would use
These two books allowed me to my control my basic finance. If you want to take control of your finance and don’t know how I will suggest starting from these books, that in my opinion has shaped my financial experiences. I also started using mint, which is a free financial tool by intuit that allows you to set a monthly budget and to add your bank accounts to it. It will notify you if you go over budget and let you know your weekly spending. If you are freaked out about adding your information, I personally also created some spreadsheets I used when I started out. You can email me at firstname.lastname@example.org, and I will be sure to send you a template for your own personal use.
Disclaimer – I not a financial expert or adviser, I am just sharing what helped me gain control of my finances and everything on this blog is my opinion on what I have learned.