How to break the time and money link?
I want my money to work hard for me, not the other way around. I'm sure you can resonate with my previous statement.
Most of us are exchanging time for money. Unfortunately, that is how society works. The good news is that we don’t have to accept this situation; we can break the time and money link once and for all. (I’m sure you are familiar with the concept: when you are stuck in a position, working all day, earning just enough to pay your expenses, leaving you with no extra cash to invest.) In order to become financially free, firstly we need to have an excellent money management system in place and secondly we always need to keep our eyes open for the amazing opportunities that are everywhere around us.
There are many courses and articles that teach us excellent techniques on money management. The best I found so far is the jar system. It is very simple and is available to anyone. It doesn’t matter how old you are or how much money you receive on a monthly basis. As long as you are consistent with the execution and follow the rules, you will be surprised how dramatically your life will change within a few months. Nowadays, many people have financial issues, not because of the lack of money, but because they are missing the knowledge to manage their income. It is crucial to track where our money goes, and to know how much we have spent each month. Let me jump right in the middle of it, then.
You need to separate your net income into six different accounts for the following purposes: necessity, financial freedom, long-term savings and spending, play, education and contribution. Let me start by explaining what each of these accounts means, and the % breakdown of how your total net salary should be allocated.
Necessity account - 55% of your net income.
First of all, we all have essential bills to settle, insurance to pay, food to buy and clothes to wear, etc. These everyday expenses need to be managed from your necessity account that contains 55% of your net salary. If, for some reason, you think the 55% could not possibly cover your expenditure, then it only means that you either need to simplify your lifestyle, for example, use public transportation instead of driving your car, or earn more.
Financial freedom account - 10% of your net income.
10% of your net income should be allocated to your financial freedom account, which is your golden goose. This money should be used for investments, building you a nice passive income. Please remember, sometimes, very little or no money is needed to create passive income streams. Be creative!
Long-term savings for spending account - 10% of your net income.
Another 10% should be put into the long-term savings for spending account. You would use this money if you went on holiday, to educate your kids, etc.
Education account - 10% of your net income.
Education is one of my favourite accounts. Unfortunately, many people ignore this great way of investing in themselves. 10% of your net salary should be spent on courses, books and educational DVDs and CDs. After all, we are our most valuable asset.
Play account - 10% of your net income.
The next account will probably be your favourite one. 10% of your income must be used for pampering yourself. It is there for you to blow it on things that your heart desires. Whether it is an exotic holiday, a massage, or a bottle of champagne in a nice restaurant, it doesn’t matter. The main idea of this account is to teach you how great it feels to have money and spend it too. I have to tell you that for me, this account was the most challenging one to get used to. Being a saver all my life, at first I felt guilty to spend that money on myself. Now I learnt to treat myself better and enjoy life more and I love the new me for that.
Charity and contribution account - 5% of your net income.
Last but not least, please allocate 5% of your total net salary for charitable contribution. There are so many people who need help. It is an amazing feeling to give a small percentage of your money to others. You will be so proud of yourself, as by doing so, you would make the world a better place. Remember, you can also give away your time as opposed to contributing your money.
Well, I know what you might be thinking right now. This money management method sounds so simple and profound that you might not believe it would work. Give it a go. Please do this for a month and I can't wait to hear about your results. Are you up for the challenge?
About the author
As I have always been passionate about coaching, helping people realise that even their worst fear can be overcome, in July 2015 I decided to finally follow my heart. I left my corporate career behind and started coaching people on a full time basis.
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