A Penny Saved is a Penny Earned
I will start by stating a fundamental financial truth, which is that, “if you cannot manage your money you cannot be financially free.”
Financial freedom is what everyone strives for, yet a good 90% of the population are ignorant about how to manage their money effectively.
If you want to experience financial freedom you must learn how to manage your money effectively. You can’t get around this fact.
Spiritually, your ability and proficiency in managing money determine the amount of money you can attract.
Some people in their ignorance, wrongly believe that being thrifty is the same thing as being an effective money manager. Thrifty people hardly ever achieve financial freedom.
This is because money is like a flowing river, if it flows to you, you must learn how to retain some of its water and keep the rest of it moving. If you try to hold on to all the water that flows to your direction, the financial river will simply change the direction of its flow.
In this article, you will learn how to manage your money effectively. When you manage your money effectively, you will transform yourself into a money magnet.
This is because, effective management of money will result in you always having money, and we all know, like attract like. Money attracts more money.
This article primarily focuses on your after-tax income. This is the money you will learn how to manage in this article. So, if your salary is £3,000 per month before tax but your after-tax monthly income is £2,250, then your financial management applies to only the £2,250.
Table of Contents
Your Personal Finance Departments
You must start right now to see yourself as a corporation. Every business or corporation has different departments and each of these departments are allocated a percentage of the company annual income.
In the same manner, large corporations create financial purses for each of their departments, you likewise, must also create/open different accounts for each financial department of your life.
According to T. Harv Eker, every human being must have six financial departments and accounts before he or she can experience financial freedom.
Effective management of these six personal financial departments is usually the difference between a life of financial freedom or poverty.
Since we are only interested in the effective management of the financial accounts of these six departments, I will be only be covering the financial aspect of these departments.
The six financial accounts which you must have are:
(1) Financial Freedom Account
(2) Long Term Saving Account
(3) Education Account
(4) Necessities Account
(5) Play Account
(6) Giving or Charitable Acts Account
To make things easier for you, you should open six different savings accounts and rename or label them with these six account names listed above.
(1) Financial Freedom Account – 10%
In this article, I will be using the imaginary amount of £2,250 as your after-tax income. This is just a random figure. It is not even the average after-tax salary in the UK. So, don’t feel like I am out of touch with the financial struggles the average person faces daily.
So, let’s assume that your monthly after-tax salary is £2,250, the first thing you must do is to pay yourself first. This is actually a spiritual law. I covered this subject in another article titled Foundation of Your Prosperity.
I am working with the presumption that you already have an account titled or labelled as Financial Freedom Account.
Now, once you receive your after-tax monthly salary, the first you need to do is to deposit 10% of that income into your Financial Freedom Account.
For our example, 10% of £2,250 is £225. This Financial Freedom Account can never be touched neither are you allowed to spend the money inside this account.
The only time you are allowed to access this account apart from depositing into it is when you need to invest the money in it into safe investments such as real estate, gold or silver. These three investments are safe which is why I recommend them.
(2) Long Term Saving Account – 10%
We all have things we would like to buy or do. These include car purchase, major vacation, house renovation, university tuition fee payment and e.t.c.
These sort of things needs to be budgeted for, which is why you must open an account for them and pay money into it regularly.
Since we are using an imaginary figure of £2,250 as our after-tax monthly income, we’ll pay 10% of £2,250 into the Long Term Savings Account. The exact amount, in this case, will also be £225.
After depositing 10% each into your Financial Freedom Account and Long Term Savings Account, you will have 80% of £2,250 left for your other four financial accounts.
(3) Education Account – 10%
Oscar Wilde once said: “You can never be overdressed or overeducated.”
In life, you are constantly learning because the world we live in is constantly changing.
Not long ago we only have VHS, then we had VCD, then DVD, soon after we had BluRay CD. Right now you don’t even need any of this cd or their players because TV’s have been transformed into smart TVs, which means you can easily stream and watch any new movies you want at any time of the day.
Those who don’t want to continue to learn are preparing themselves for a world that will certainly cease to exist.
You are reading this article because you are a smart human being who wants the best out of life, so, it’s right for me to assume that you will continue to learn and improve for the rest of your life.
Each month after you have deposited 10% of your after-tax income into your Financial Freedom Account and another 10% into your Long Term Savings Account, your next move is to deposit another 10% into your Education Account.
The fund in this account is what you will use to pay for seminars, webinars, part-time courses, Ecommerce training and learning new skills such as photography, video editing, pottery, graphic design and e.t.c.
For this article, the imaginary after-tax income I’m using is £2,250. So, 10% of £2,250 is £225. If £2,250 was your monthly after-tax income, every month you must pay £225 into your Education Account.
(4) Necessities Account – 55%
This is the big one. This account is for all your necessities. These include but not limited to food, utilities, rent, mortgage, insurance, ‘necessary clothing’, car payments, credit card payments and e.t.c.
As you can see, this account takes care of the bulk load of your monthly expenses. So you really need to take a careful look at what is included in your “monthly necessities list.”
Not everything you currently regard as a necessity is really that. Some of the things you categorise as “necessity” are actually pleasure or leisure.
Every month you must pay 55% of your monthly after-tax income into this account.
Since we are using the imaginary amount of £2,250 as our after-tax income in this article, the amount you will have to deposit every month into your Necessities Account every month will be £1,237.50.
(5) Play Account – 10%
The Play Account is my favourite account of all the six accounts because it’s all about fun. As the name says, Play, it’s all about playing and having fun.
Having fun is extremely essential to your physical and mental wellbeing. If you have always indulged in work, work, work habit, now will be a good time to start mixing fun with work.
Because of the importance of fun for the overall wellbeing of the individual, it requires the same amount of attention as financial freedom and education, which is why I have allocated 10% to it.
So, every month you must deposit 10% of your after-tax income into your Play Account. Since we are using £2,250 as an example in this article, the monthly amount you must pay into your Play Account will be £225.
This money must be spent by the end of the month. This means, for example, if you deposited £225 into this account on the 1st or 2nd of March, by the 30th of March, you must have spent it all.
But if for some reason, the amount in this account is not enough for your “fun plan” or “fun idea”, then you can let the funds pile up for a maximum of 90 days and no more. You can’t leave if for more than 90 days.
I understand that a weekend trip to London cost more than clubbing or partying at your local bar at the weekend.
(6) Giving Or Charity Acts Account – 5%
This is the account for all your charitable acts and giving. Whenever a friend or family member asks you to help him out financially, the funds in this account is what you will use to help him financially.
To put it simply, the funds in this account is what you will use for all your charity acts. These include church offerings, charity donations, helping friends and family financially and other charitable acts.
The amount you need to put into this account is 5% of your after-tax income and since we are using the imaginary amount of £2,250 as our after-tax income, the amount you have to deposit into this account every month will be £112.5.
Conclusion
As you can see, when you add up the percentage amount for all the six accounts, you will get 100%. This means all every penny is accounted for and by following this system, you are laying the foundation for a great financial future for yourself and your family.
Being financially free is not really about how much you earn, it has always been about the level of your financial literacy. The better you become at making the money you are earning right now, the more money that will flow towards you.
Some people who are on £25,000 per annum are in a better financial situation than those who earn £50,000 per year. The reason for this is usually because the person who’s on £25,000 per year has learned to manage his or her money better.
A fool and his money are soon parted. If you can’t manage your money, you will definitely lose it all. So, it falls upon you to apply what you’ve learned from reading this article to your financial life.
I hope you’ve found this article useful in one way or the other. If you know anyone who might find it useful, please be kind enough to share it with them using the share buttons at the top of this article.
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Have a wonderful day.
Mr Benjamin.