10 Minutes to read
Last updated: December 12th, 2017
When you read advice online about how one should organise their finances, they all assume you fall under a certain income bracket or lifestyle. They assume all their readers are broke, have a family or work for someone. Now although that relates to many people, it’s assumed those with toilet paper made of 100’s have people to handle that, so this is a guide one step above the rest. We won’t tell you where to invest or how to handle your money. Our guide will be a little straighter to the point with steps you can take to protect yourself financially in the long run. So, no matter what your financial background is, this guide is to help the majority of our readers in their financial organisation.
The number one thing you should take away from this article is that no matter what tier you fall under, you should always be careful of how much money you spend and how you use it. People have gone from rags to riches and riches to rags overnight. Be smart with your money.
No matter what your financial position is, everybody should have the same financial layout if their end goal is to accumulate wealth over time. That being said, some prefer to have their money tied up in investments whilst others like it being more liquid (Asset that can be readily converted into cash).
Whether you’re unemployed, employed or the boss, you should always save a small amount every time you come you get a paycheck or cash. When you first begin to save it won’t seem like much, but over time the money will accumulate and eventually be big enough to be available when you need it for an emergency or to purchase something for yourself. Whether you pay yourself $5 a day or $5 a week, pay yourself first. Every amount counts.
Having an emergency fund readily available is something that can’t be stressed enough. You never know when you might lose your job, your source of income or be put into a situation where money is needed. Therefore, by keeping 4 to 6 months’ worth of savings in a high yielding savings account is suggested. Look around at your local banks to see what accounts they offer that provide a high percentage of interest and little monthly fees. But this amount is entirely up to you. Some people see having 3 months’ worth of expenses laying around is a waste of potential. Some people believe that you should put it in the stock market and not have so much liquid. This decision is ultimately up to you depending on how much risk you’re willing to take on, how often you make money, your lifestyle etc.
Setting yourself a budget will keep you living within your means. This means you don’t spend more than you earn so you don’t go into debt. Spending less than you earn is not seen as a bad thing but rather a smart move. When told to set yourself a budget people take it as a “yeah, yeah I will” kind of way. By spending some time working out how much money goes out (rent, phone bills, groceries) you can figure out how much money you have left until your next paycheck. Remember to always go back to paying yourself first. Looking at a coma in your bank account is a surreal feeling.
“I have 1,2,3,4,5,6,7,8, M’s in my bank account…in my bank account.”
Having multiple bank accounts is a smart move because it results in being able to clearly distinguish and separate your money. One bank account can purely be bills, emergency fund and where your paycheck goes to, whereas your other bank account is purely entertainment and personal use. By doing this not only do you limit yourself spending excess, when you set yourself a budget and pay yourself weekly, fortnightly, whatever, the money you don’t spend gets saved and rolls over to your next “pay yourself first” allowance resulting in more money to spend on entertainment. This can lead to better saving skills and not have to worry if spending a little more will affect your bill payments.
Do you know what’s better than a Ferrari? Knowledge.
In all seriousness, getting a foundation of knowledge is key when attempting to pick up anything in life. Educate yourself and it will pay off in the long run.
A book we suggest you read is Rich Dad, poor dad.
If you believe you are part of the lower tier, focus on creating the foundation above. When you’re barely making enough to pay your bills and constantly worry about the cost of entertainment, don’t worry about investing just yet.
Focus on creating a good solid platform first, a solid emergency fund, good savings and a budget. At this stage, you should be focusing on getting to the middle tier so you can start investing and taking financial risks that will hopefully pay off and get you into the upper tier.
Don’t let this deter you from making financial risks anyway, there have been many cases where people have moved from a lower tier to an upper tier through investing and smart money moves.
You are the average person. This is good. It means you have enough saved up to spend on entertainment and vacations but not enough to go buy popcorn at the cinema.
Now you can be a little risky with your money. Whether you have a source of income or not, if you are at this tier, its time to make some investments so your money can grow over time. Depending on how attached you are with your money you can decide to go into investing where there are low, medium and high-risk investments. Most of this advice rolls over to the upper tier and lower tiers can take this advice into account.
Fixed term deposits and high-interest savings accounts fall under low risk. Its so low that the only way you would lose the money is if the bank disappears overnight, your economy crashes or you literally take the money out of your account and throw it in the ocean.
Depending on where you live and what bank you’re with, fixed terms offer a higher percentage of returns. The only downside is you can’t touch the money until the term finishes or you may have to pay a fee. We suggest you choose fixed terms if you don’t need the money and it’s just sitting in your bank. Most banks have a minimum amount required to do a fixed term such as $5000.
High-interest savings also falls under low risk where you get interest on the amount you have. Depending on the bank it, they may have conditions where you must deposit a certain amount a month or can’t take any money out.
These two methods fall under low risk and frankly don’t expect to make a lot of money from it, hence low risk.
The Stock market is something that can be considered a medium risk investment. We highly suggest if you want to get into stocks to read up on it and gain some knowledge before you take the dive and cash in.
Some books we suggest are.
The intelligent investor
One up on wall street by peter lynch
Heard of cryptocoin?
Over the years cryptocoins such as bitcoin and ethereum have boomed in price and due to the nature of it is considered a high-risk investment.
Stocks are also considered high risk so medium risk and high risk have a lot of interconnecting aspects.
You’ve made it.
The dream. The lifestyle every materialistic individual wants to be in life.
When you reach the upper tier, investment doors open up to you and depending on how much you want to spend, you have a lot of options. You have access to financial guru’s, investment managers and other individuals who can make your net worth skyrocket in the next five years. If you really are an upper tier individual, we suggest you find someone who falls into the above category and get their professional advice. Someone who takes a fixed amount or percentage, the choice is up to you.
Upper tier individuals have multiple sources of income. In fact, there’s research that shows the average millionaire has 7 streams of income. The term “don’t put all your eggs in one basket” applies heavily to the upper tier.
Low risk, medium risk, high risk and super risk investments are made. By having a diversified portfolio, it ultimately minimises the risk of financial hardship if one investment were to fail.
Some things the upper tier make investments in are:
Not to say the middle tier doesn’t make investments in the above, upper tier’s just have expendable income to spend on the above investments.
What you need to ultimately keep in mind is everyone’s situation is different. Everyone gets different incomes, different job security and different lifestyles. Some people feel safer putting all their money in a savings account or in cash, deal with inflation because they find it riskier putting it in investments and would rather have the lump sum. Whereas other people would only put roughly a month work of expenses in a savings account and the rest in the market or making money some other way. Whatever you do with your money, know that it’s your money and you can do whatever you want with it. Whether you want to take risks or not is up to you. Whether you want to take what we’ve written into consideration is up to you and whether you want to invest all your money into a wall street type of portfolio, it is entirely up to you.