You can follow the steps here for financial security. But you are a human and you live beyond rules and a spreadsheet. Here are the steps again. Following are philosophies about personal finances.
Steps to Financial Security
- Step #1: The Budget
- Step #2: The System
- Step #3: The Emergency Fund
- Step #4: Dealing Debt
- Step #5: KiwiSaver King
- Step #6: Simple Investing
- Step #7: Navigate Insurance
- Step #8: Putting it Together
The first step is knowing where your money is going. After establishing the budget, you what you are spending on your bills and what can be put away for saving, and long-term investing.
Without a budget, it is easy to overspend or even underspend, making life difficult.
Creating a system of automatic payments puts your budget to action.
Money is automatically put away for savings, investing and paying debt and bills. Without much further thinking required, you are free to focus on your life, as well as finding ways to make or save more money.
Once your cash is flowing in the right places, you need to have some buffer in case things go wrong.
Instead of taking on debt or ruining the system you have created, your emergency fund can give you a bit more confidence to tackle tough times.
Debt costs you financially and psychologically.
Reducing debt becomes your next target once you have a large enough emergency fund.
Your salary, your employer, and the Government contribute to your KiwiSaver. Your KiwiSaver can be kept away for retirement or to purchase your first home.
Simple steps can maximise KiwiSaver, saving you money in the long run.
Investing is where money makes more money.
Cash in the bank works well for the short-term and emergencies but not for the long-term, where you lose out due to inflation.
Sometimes your emergency fund won’t be able to cover big life events such as a written-off vehicle, a disaster to your home, or health problem.
Additionally, insurance can provide you with a comfort barrier, giving confidence in your life.
Step #8: Putting it Together
If you have followed the above steps, then congratulations! Pat yourself on the back.
I want to now focus on the philosophy, moving beyond the spreadsheet to focus on you as a human being.
I admit. I don’t have the best relationship with money. But I’m a work in progress. And I hope to alleviate it with my writing.
The Definition of Money
Money is an important part of our lives. But what is it really?
Physical notes and coins or electronics digits in an online bank account have no intrinsic value. On their own, these items do not feed you, shelter you from the rain, or fix your things.
Money is a social construct. Thanks to our human imagination: we recognise the value in money.
- can measure the value of a service of a good
- can be stored conveniently and safely for later use
- is regulated by the Government
Money, what we fixate on so strongly, is abstract.
Going beyond it’s definition, money can have personal value to you:
- Status in the luxuries we buy
- Security in life
- Freedom in what we can do
Money then becomes a proxy in what we truly value. My question to you is: can we get these values without having money involved?
More and More Money
You just want to be rich. I get it. But why? Does it come back to freedom? Security? Status and luxury?
Is a higher salary worth it? Sure, you will get more money. But is it worth the extra hours, stress, or potentially doing something you do not enjoy?
More money can mean more luxury, but at the cost of your freedom.
Financial freedom, on the other hand, may be the end goal. Great lengths are taken to get there. But in the life of Courtney Carver’s Mexican fisherman, can these great lengths be avoided in the first place? Because freedom, if you address the wrong problem, has its own price.
Watch out for Lifestyle Creep
Lifestyle creep can keep us from realising our financial dreams.
As you slowly climb up the pay scale, so does your wants and needs. Big earners become big spenders too.
What was then a luxury, now becomes the norm and your wishes become greater. The desire for more continues.
Having awareness and intelligence in finances trumps a bigger pay check.
Watch out for Over-restriction
Restricting is the opposite of luxury. Over-restricting is tightening up costs even on things you enjoy. The goal being financial freedom or just more cash in the bank.
There is a problem with this.
You are here for a reason. It’s a short stay, and you are here to enjoy it. We don’t work to retirement; we work to have a good life as well.
Life is a balance. A balance between enjoyment and suffocation.
Exercising a little restriction is healthy but a lot isn’t.
The Goal of Generosity
The evolution of financial goals:
- being rich
- having lots of things
- financial freedom
But what about being charitable?
Generosity is the ultimate goal. You might have enough to buy that home, to get that vacation and to stop working. But when is it enough?
Being in the position to give back is the sign of enough. You are helping someone else in the process.
Staying on Track
Your finances is a ultramarathon. There will be plenty of walls you will hit along your journey.
Impulse buying. If there are things you truly desire but you know are luxuries you do not need, write them down. Your brain has difficulty saying ‘no’ to a thought. The act of writing takes whatever is in your mind into something tangible. Then, you can deal with it later. This will help you with impulse buying.
Savings. Looking at your savings every day will leave you disappointed. In the short-term, small changes are disappointing. Zooming out, these small changes accumulate to big changes and we are astonished by our progress. Instead of looking at our finances day-to-day, head over to futureme.org and send future emails to yourself one month, 3 months, 6 months and a year from now. State your current bank balance or saving or how much you have invested. You will be amazing by how much you have achieved.
The saying goes: comparison is the thief of joy. So don’t do it.
It doesn’t matter about the size of your neighbour’s home, how much money your friend is earning, or what holiday your colleague went on. All that matter is your own finances. Personal finance is personal. We all have different journeys.
If you see someone walking around with a gold plate of armour, can you think of a better use of that money? You probably would.
By following the steps here, you have set yourself up for financial security and this is more than enough.
Some Final Points
- Money is your servant not your master
- Focus on the bigger victories not every small detail
- Win the majority of the votes; you don’t have to follow the rules perfectly all the time
There are seven steps to financial security, but as a person, you live beyond the rules.
Money is an abstract concept. Life is a balance. Generosity is the goal.
Thank you for reading! I hope you found this interesting. Please share this with friends and family if you found this useful. Good luck on your journey. What are your money philosophies?
As a disclaimer, I am not a financial expert. I suggest seeking advice from an expert for any major financial decisions. All of this is up to you.