The pursuit of happiness has one of its aspects popularly known as financial management. It involves planning, setting goals and outlines, as well as monitoring the path to the successful accomplishment of such goals. A number of articles suggest that a lack of financial knowledge plays a role in failing at managing your finances, leading to an increase in mental stress and an overall decrease in life satisfaction.
So, how to start managing your finances? One of the simple hacks the Arthur Isabella’s 50/30/20 rule, this rule talks about an ideal division of one’s finances in a way that 50 percent goes toward fixed expenses, such as your food, rent which cannot be avoided, 30 percent goes toward flexible spendings, like shopping or restaurants, and the remaining 20 percent goes toward your financial goals, like paying off your student loan, buying a new home or saving money to start your startup.
External environmental factors such as pandemics can also affect your financial goals, so it’s better to prepare three kinds of budget for yourself:
- Fat budget is for times when times are good and you can afford luxuries so you can increase your luxury budget a little, but remember to save 20% for retirement or emergencies.
- Regular budget involves thinking that you are earning 20% less than what you are making right now and budget your 50/30/20 in that.
- Apocalyptic budget assumes that you are only getting 50% of what you are earning right now and make a similar budget while giving priorities to necessities.
But, if managing finances is as simple as setting aside a portion of your monthly income to your investment account and saving accounts then why can’t everyone do it? Well, the challenging part is whether you can do this consistently, without breaking the set rules. There is no denying that most people do set aside some of their income for investment, but after a span of some months, they are found to break the rules and utilize the savings for other unplanned expenditures. To overcome this, it might be better to open multiple accounts for different purposes such as fixed spending, investments, and emergency funds
“Financial freedom can only be achieved by a conscious choice. It’s not an accident. It’s not just merely by thinking, it’s through grinding and doing what is necessary to get to that goal.”
― David Angway