I hope you've been pondering some important decisions since my last post and taking steps towards a future that you'll thank yourself for.
Today, I want to start off by sharing a quote from Benjamin Franklin that we're all familiar with: "If you fail to plan, you plan to fail." You've probably come across this quote before, maybe even applied it to other aspects of your life, but perhaps not to your finances.
To be honest, it wasn't until this year that I started implementing this after realising that tracking my spending and seeing where my money was going provided no real benefits. What I've discovered to be more effective than simply tracking my spending is being intentional about how I allocate my money. Tracking feels reactive, while intentional allocation is proactive and more rewarding.
Here’s how I currently split my income:
#GetOnboard the train to Financial Freedom!
Enjoyment (10%): Yes, I actually plan how much I spend on enjoyable activities each month. I'm one of those people who quickly says I have no money for fun if you invite me out. If you're feeling generous, you can cover my expenses; otherwise, come over or let’s plan for next month.
Savings (17.5%): I separate my savings, investment and emergency funds. I then divide my savings into different categories, such as saving for specific purchases or life events and then just saving for savings sake because I tend to feel anxious without some money tucked away.
Investments (15%): This is the money I understand will help build my wealth, and I divide it into different levels of risk.
Pension (10%): I care about my future, so I take this seriously and make personal contributions.
Emergency Fund (5%): Life is full of surprises, and it's crucial to have a financial cushion to fall back on when unforeseen circumstances occur.
Giving (5%): When I have money in my account, I become Santa Claus, so I set a monthly cap for my giving which includes donations to charity, the church, or assisting people in my immediate circle.
Everything else (37.5%): This includes daily expenses and everything necessary for my current lifestyle, like bills, groceries, and other responsibilities.
*I’ve shared my percentage breakdown, but it is not intended as professional advice. These percentages are tailored to my personal savings goals. Also, these figures apply specifically to my monthly income, and I do have some flexibility when it comes to earnings from projects.*
This approach has helped me plan my expenses while also keeping track of them. I allow myself leeway for certain things but set a monthly limit to clearly understand where my money is going. I also plan to optimise and adjust the percentages as needed. It's all about finding that sweet spot where I can live comfortably while still making progress towards my financial goals.
Now, with this context in place, I can focus on my main point for this piece: why you should pay yourself first. If you notice, the first four items on my list involve paying myself first. This method is valuable for long-term financial well-being and ensuring that you prioritize savings and investments before other bills and debts. While bills are important, the key here is adjusting your lifestyle to fit what remains after paying yourself. Initially, this can be challenging, especially if you realise that your current lifestyle doesn't align with this principle. I'm personally struggling with this, but I've decided to take it slow and make gradual adjustments over time. I started by cutting back on less important expenses first, focusing on areas that wouldn't greatly impact my overall well-being. Then, step by step, I'm working my way towards more significant changes. It's not always easy, but I'm learning to be patient with myself and celebrate progress, no matter how small.
Aside from building wealth, one major benefit of paying yourself first is reduced stress and increased financial security, knowing that you've made your future security a priority. I often think about my future self and the steps I need to take to ensure she can live the life I envision for her.
Because I never want to feel like I’m depriving myself of living only for tomorrow, I take it a step further and pay myself for enjoyment because I believe I work hard and deserve to enjoy life, both now (in moderation) and in the future. While the mindset of “I work hard and deserve to enjoy” can sometimes lead to financial ruin, I’ve decided to approach it more productively. I work really hard and I deserve to enjoy, but within limits that also allow me to enjoy tomorrow.
In conclusion, by implementing a thoughtful approach to your finances and paying yourself first, you can take significant strides towards achieving your financial goals and securing your future. By being intentional about where your money goes, you can prioritise your savings, investments, and personal well-being, while still meeting your financial obligations. Remember, the goal is making deliberate choices that align with your long-term vision.
While these concepts are easy to understand, putting them into practice is challenging. That's why we created Onboard, it’s more than just a financial app, we are building a membership community of modern Africans who are on their wealth-building journey and want to share, learn, and support one another. Becoming a member is easy, Get onboard to take the first step in your journey.
DISCLAIMER: This newsletter is for educational purposes only and is not investment advice or a solicitation to buy or sell any assets. Please do your own research before making any investment decisions.
Thanks for reading Compass by Onboard! #GetOnboard the train to Financial Freedom.
#GetOnboard the train to Financial Freedom.
Really enjoyed reading this.