Why manage finances? This question is the same as asking women why skincare. Many people are very vague to answer this question. Skincare is to make the skin better, and financial management is to make money more. Most people are vague about this. What are the specific financial and skincare goals? Very few people know. So let‘s talk and give you a clear and reliable financial goal.
First financial goal: financial protection
Your current personal savings total is as much as your current salary for 6-12 months. For example, if you earn 10,000 per month now, and your bank deposit has 60,000, it can be said that you have basically entered the financial protection stage. it could be 12-18 months, of course, that is even better. In this case, if you are suddenly unemployed, or some bad thing else happens suddenly, such as depression, physical discomfort, or something, with this money in your account, you will not have financial pressure to continue to work. Even if you don’t work, you can live for 6 months with this money. If you don’t have enough money, once you don’t work, you may soon be distressed. In addition, it is not just for an emergency, it may also bring you many opportunities. This small goal, depending on everyone’s situation, can normally be achieved in about 2-3 years if you work continuously and have healthy financial management. Achieving this goal depends mainly on saving money.
Second financial goal: financial security
If you have achieved your first goal. And the money in the first stage has not been used up, so now you can consider achieving the second goal. The second goal is to make interest on the money you have already enough to keep you safe and healthy without work.
Compared with the first goal, this goal can bring you “no work” longer. That is to say, unless there is a major accident happen, it will be no problem even if you stay at home for a lifetime. Furthermore, If your consumption level is low, and have no habit of buying luxury goods, traveling, and the cost is relatively small, in fact, you have financial freedom. To reach this stage, in addition to “saving money”, you must also consider using principal to start “making money.” Generally, people who work hard and have excellent career development and are good at financial management can basically achieve this goal after working for more than 10 years. People who can manage their own finances well can basically reach this goal. It’s not particularly difficult.
Third financial goal: financial freedom
Under this goal: the interest generated by the money you have earned far exceeds your daily expenses. At this time you can buy whatever you want, without having to consider the price at all. This is called financial freedom. But if you don’t have a huge source of income, saving money on your part-time job is almost impossible to achieve.