4 Steps Strategy to Manage Your Income Wisely

Almost everyone wants to progress and earn a lot of money. Also, would like to enjoy financial freedom. But many people do not know how to manage their income in the right direction. This article talks about a very valuable golden strategy to manage your income wisely.

Almost everyone wants to earn a lot of money but the problem they all have is lack of money. But most of them are well-paid people doing well-respected jobs. But they naturally suffer from financial hardships. Meanwhile, some low-income earners manage their money very well.

They have money with them in an emergency, but sometimes those who earn a large income do not have money left to pay in an emergency. They may even need to get a quick loan.

The method discussed in this article is very simple at first glance. But if you go to implement it, you will realize how complicated it is. But if you master this technique despite the difficulties, you will definitely achieve financial freedom.

Prerequisites

First of all you must have some definite income. It could be income from a job, profit from a business, or some other form of income. However, you should be able to specify a certain monthly amount for sure.

After that the second most important prerequisite that you need to have to implement this method is to have no debt to pay. Does that mean that if there is debt to pay, this system cannot be implemented?

No, you can use this method even if you have a loan to pay, but if you don’t have a loan, this is much easier and can be done smoothly.

Minimum Earning Required for This Strategy

There is no minimum income level for this. You can do this at any income level. That means whether you earn 100 dollars per month, 1,000, 10,000 or 100,000 or more, you can use this method.

But at low income levels, i.e., when your income is not enough to cover your basic expenses, this can be very problematic to implement. If you earn a relatively high or sufficient income, this can be done very easily and smoothly.

Here’s What to Expect

First of all, you should understand what the desired result is through this method. This is not another method like other methods on the internet that claim to make you a millionaire in a month. This can make you a millionaire over time. But for that you have to walk this path with patience.

What this method really does is make you financially stable and self-sufficient. That is, when you follow this method over time, many of your money problems will be solved without you even realizing it.

Also, you will have money on hand to buy and spend whenever you want. Even in case of emergency, you will not be helpless due to lack of money.

Also, you will accumulate enough money to buy things you like. Also over time this will greatly increase your income thresholds and you will be on your way to enormous fortune.

But as mentioned earlier, this is not an easy way. This is very difficult to execute in the long run, if you master this you will win.

4 Steps Strategy to Manage Your Income Wisely

In this method you have to divide your income into four parts. It doesn’t have to be four equal parts, you can divide your income as you see fit. Now let’s talk about how to use those four parts properly and wisely.

Let’s assume your income here is $1,000. After that, let’s see how to systematically divide the income into four parts and what to do with those parts.

In a high-income country like the United States, $1,000 is a very low salary. But in a middle-income country, $1,000 is a lot of money. And it can do a lot. However, this is just an example, depending on your income, divide it into four parts.

01. Part One: Expenses

You earn some income to survive. Therefore, the expenses you have to bear for living cannot be waived. But what you should understand here is that unnecessary expenses should be cut.

Make a list of what you need to live for a month and how much it costs. Don’t try to fulfill the needs that you can fulfill with less money by spending more money. Make the list as cost-effective as possible.

Here you should spend only on things that you really need. You can’t chase after preference and spend money on unimportant things. If you can fulfill your need with something cheap, don’t spend unnecessary amount of money on it.

It’s a great chance if you have free accommodation. However, in the $1,000 example above, if you go to great lengths and limit your monthly expenses to $600, you will have $400 left over.

Ignore the example here and make sure you include all of these things in your expenses.

Accommodation, food and drinks for a month, travel expenses, family expenses if married, education expenses if studying, loan installments, electricity bills, water bills, telephone bills, health insurance etc. should all belong to this expense section.

02. Part Two: Contingencies

In the above example, after all expenses, you still have $400 left in your hand. Keep some money aside for contingencies. Contingencies are the expenses you have to pay for things like fixing your car if it breaks down, filling it up if you get a flat tire, buying a new pair of shoes if your shoes break.

Some countries do not have a health insurance system, and if you live in such a country, taking medicine in case of an emergency can be an uncertain situation. It is also an example of these contingencies.

Set aside about $50 or $100 a month for that. If you set aside $50 a month, you can set aside $600 over the course of a year. If you want that money at the end of the year, you can even use it for things like renovation work in your home.

If the wheels of the vehicle are worn, you can replace them with new ones. This money can also be used in case of not being able to cover the expenses for the servicing of the vehicle.

Apart from this, this money can be used in any contingencies such as a funeral, in case of having to pay a fine, in case of a broken home appliance, to buy a new one.

But this money should never be spent on anything else. Let this accumulate. Over time, a lot of money will accumulate here. For this you can maintain a bank account. Definitely get a debit card for that. Then it will be easy to get the money as soon as you need it.

03. Part Three: Savings

Contingencies and savings are two things, don’t confuse the two. Savings are money that is allowed to accumulate over a long period of time without being withdrawn. If money is taken for any reason, it should be for investment purpose only.

This means that if you have an average middle income, you may not have enough money left over to invest after setting aside expenses and contingencies.

In such a case, the remaining $350 or a part of it, i.e. about $150, can be saved for the purpose of investing in the future. This can also be used as a retirement plan one day if there is no investment objective.

If you save $150 each month, that adds up to $1,800 a year. If you save $350 each, $4,200 will add up at the end of 12 months.

When you save in a bank, you get an interest rate of around 2% to around 20%. (This varies from country to country and bank to bank so be aware of the interest rates of banks in your country)

After a year or two, you can convert the accumulated money into a fixed deposit or term deposit for a longer period. Term deposits usually pay a higher rate of interest than savings accounts.

Do not get a debit card for this savings account even though we get a debit card for the contingency money account. Let it accumulate in the account itself and do not make any withdrawals from it.

04. Part Four: Investments

If you put $150 into your savings account a month, you’ll have another $200 left in your hands. You can invest that amount. Saving and investing are two different things.

The risk of saving is very minimal. Most of the time there is no risk. But there is a risk you have to face in an investment. Investing involves the risk of losing all or part of the amount you invest.

Most people cannot afford this risk. Many people are afraid to take this risk. That is why most of the world’s people are poor, or stuck at average income levels. Only the person who can take this risk can thrive. If you are afraid to invest, save all you can.

Investments include starting a business, financing an existing business, buying stocks, buying real estate, investing in bonds, etc.

How is buying a property an investment? Buying a car is not an investment but an expense. But if you use that car as a taxi or use it for weddings and earn some money, it is an investment.

Buying a house to live in can be interpreted in two ways. Some see it as an expense while others see it as an investment. But buying a home is truly an investment. Because if you don’t own a house you have to pay rent for accommodation like an apartment or a separate house or a single room.

But if you buy a house in one lump sum, you will be freed from the monthly rent payment obligation. And you no longer need to fear eviction notices.

You can live freely in your own home. And since it is one of the basic needs of a human being, if that need can be fulfilled, it is really a great achievement.

To put it another way, you can rent out this house and earn some monthly income. It will increase your income and you can get a return on your investment. But renting a house can be quite troublesome.

Or you can buy a plot of land suitable for cultivation and cultivate it. Or you can take a plot of land in a crowded place and start a parking lot. These are good investment methods. Because even if the business activities you start fail, you will be left with that land at the end.

But if you do something like investing in company stocks, you risk a lot of losses. So, if you do such a thing, do it only after proper study.

Bottom Line

If you follow this method for a year, you will see amazing results. It’s not as easy as it sounds, but what you need to keep in mind here is to keep your expenses as low as possible.

And don’t take loans. When you take loans, you have to repay them over a long period of time. Also a huge additional amount has to be paid as interest. Sometimes even late fees have to be paid.

If this method can be practiced for a long time, you will surely inherit financial freedom. Achieving financial freedom and stability is one of the greatest achievements a person can achieve in life.