Knowing how to manage money is an important skill. Financially literate people know how to increase their income without harsh savings and loans. They achieve goals for which people with similar income “do not have the funds.” This can be done in several steps.
1. Turn dreams into goals
A carefully formulated goal is half the battle. Instead of the abstract “I want more money” — the concrete: “I want to receive $250,000 of passive income per month in 8 years.” This formulation is understandable, quantifiable, and financial instruments can be matched to it.
Your financial goals are likely to be multiple. For each, you need to evaluate:
● Time is when you plan to get things done. This can be a specific date (buy housing in Nigeria in 2 years) or a long period (20 years to receive an increase in pension).
● Money — determine how much is needed. If you are planning to buy something specific, check the chart of price increases in the market and include this amount in the cost of the target. If the goal is stretched over time (for instance, retirement period) — determine the target income per month.
Divide the stated big goal into small ones: calculate how much you need to save every month.
Remember that buying a car is buying a liability. Household appliances, a new iPhone, the flat you live in are also liabilities. They will not bring income, but on the contrary, they will become cheaper and require maintenance costs. Think: maybe instead of liabilities it is worth buying assets: securities, commodities as MT4 download recommends, housing for rent, investing money in a bank deposit — so that they work for you and make a profit.
2. Count your income
Total income is made up of three components:
● Labor income is wages. Try to discuss a promotion with your boss, change your permanent job, or find an additional one.
● Income from the state — benefits, allowances, tax deductions. You should study the legislation. You may not be using your benefits. For instance, if in the current year you were treated in a pain clinic, you can return up to 13% of its cost.
● Income from assets. This money does not appear as a result of direct labor, but a competent investment of capital. This includes income from securities, deposits, real estate, business, forex trading, etc. They can be increased and wisely invest your funds. The more lucrative assets, the more money will flow in addition to earned income. Of course, drawing up a portfolio, choosing a strategy, and analyzing the market will also require effort. You can minimize them by choosing a ready-made investment strategy.
Many believe that there is only one way to increase income — find a job with a higher salary. As you can see, this is not only not the only but also not the most attractive method.
3. Count your expenses
Expenses are also divided into several categories:
● Operating expenses — food, rent, transportation, treatment, rest. Everything you need to maintain your usual standard of living. It is crucial to see your needs behind unwanted spending and think about how else you can satisfy them. This can often be done completely free.
● Asset expenses — you pay them to make money. Bank account maintenance, brokerage services, business expenses, rented apartment renovation, and others. At some points, you can save money: according to Forextime, many brokers have free registration and maintenance of a brokerage account. These costs ultimately generate money, so you shouldn’t give them up entirely. But there is an exception — if the cost of maintaining an asset constantly exceeds the income it brings, it is better to sell it. An example is a property that has been idle for a long time without a tenant but requires constant expenses for repairs, utility bills, and taxes.
● Social spending is all we owe to the state: taxes and fines. Study the legislation again: maybe you will find a more profitable taxation scheme for yourself. For instance, a patent allows some individual entrepreneurs to pay fewer taxes compared to the STS.
● Loan payments. Refinance a loan at a lower rate, use unprofitable assets to pay off debt, or extend the lending period. This will lower your monthly payment, but your overall overpayment will increase.
Calculate the actual difference between the “plus” and “minus” of the budget. After that, compare with the monthly cost of all financial goals: is there enough for everything? If not, the plan needs further work.
Write down the goals by priority: can you temporarily drop the ones at the bottom of the list? You can always return to them. For instance, if income increases or when the first goal in the list is achieved.