Life is short and time goes fast.
These 5 changes I made in my spending and saving habits helps to improve my finances & build wealth sustainably to leave the rat race for good.
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Chapters:
00:00 life is short
01:02 choose a sustainable lifestyle
02:38 create & stick to a budget
03:58 cash over credit
05:23 create an emergency fund
06:09 compound interest
How I Build Wealth Sustainably
I've realized that while it matters to have a high income or revenue to be wealthy, the lifestyle and mindset factors are just as important.
When our income increases, it can get tempting to inflate our lifestyle because why not.
But I find that living in excess is difficult to maintain. It's a cycle of spending more money and working more and stressing more to make more money to spend. Over time, this can take a toll on our health, happiness and relationships. This is why choosing a lifestyle that focuses on balance, moderation and sustainability are important for me.
Improving My Finances
There's a saying that goes, "A budget is telling your money where to go instead of wondering where it went."
I've been applying my variation of the kakeibo method which is a Japanese mindful money management technique
At the beginning of each month, I write down my expected income, my fixed expenses and then my target savings at the end of the month
Then I create another spreadsheet with 3 categories: needs (utilities, food), wants (cafe, hobbies, eating out), unexpected (medical expenses or home repairs).
Each time I spend my money, I write it down on my spreadsheet under the appropriate category. I like that this method helps me to be mindful of every single dollar I spend and where I put it towards.
I review my data at the end of each month to see if I met my target savings. And if not, I look back and see where most of my money went which may have prevented me from meeting my savings goal. Then I make tweaks the following month.
Cash over credit
The thing about paying in credit is it doesn't have that much impact as seeing my cash disappear from my wallet each time I buy something.
Credit is exactly what it is - debt. I don't worry about it the day I swipe my card but I have to face it when the bill arrives.
It was difficult to transition from credit to cash because oftentimes my credit card bill was higher than my monthly income.
So to eliminate credit dependency, I had to build my cash savings first by cutting back on non-essential expenses
I do this by practicing mindful consumerism. It's not about choosing the cheapest option. But it's determining what, when, and why I buy. Because oftentimes, I would buy unnecessary things out of boredom or discontent.
By gradually changing my spending habits, I was able to eliminate impulse buys, treat every purchase as a long term investment instead of a pastime activity, minimize clutter and waste, and reduce my credit card usage.
Create an emergency fund
A budget is for expenses that you will have and an emergency fund is for expenses you might have.
Life is what happens while we're busy making other plans. So it's not a bad idea to be prepared for the unexpected.
Whether it's a sudden job loss, home or car repairs, medical expenses and the like, it helps to have emergency funds to cover for these unexpected things in life.
Experts recommend saving for 3 to 6 months worth of expenses for the emergency fund.
So the 60% I save each month, I allocate a portion to my investment, savings then emergency fund.
Compound interest
I used to think that it's how much we earn or how much we inherit that makes us wealthy. But that's just one part of the equation. There's compound interest, which we can all tap into. It's great how that extra money no matter how small can be worth so much more in years, thanks to the power of compound interest.
There's this calculator that shows how much you can expect from your investment after a certain period based on the interest rate, and if you haven't seen this yet, it's quite interesting. www.investor.gov/financial-to...
Our Income may influence how much we can save or invest, but our lifestyle and mindset determine whether we can actually make investing and saving happen or not.
It may seem simplistic or even strange to think that a lifestyle can build wealth. But looking at it closely, it makes complete sense. When we live in moderation, sustainability and balance, and as we invest our time and money well instead of wasting them, we can generate and extract value from our limited resources - both tangible and intangible.