First and foremost, you need to determine what portion of your income you can invest. Set your goals wisely and realistically assess your strengths and capabilities. Only after that should you start applying these three rules.
So:
- Calculate how much you owe and to whom.
This is necessary to have a clear understanding of your total debt. It will help you plan the timeframe for paying it off. Then, you should create a repayment plan.
To do this, calculate exactly how much time (a year, two years, or several months) it will take to repay all your debts, and define a period when you can increase your payment amounts.
This also applies to your partner. They should calculate their debts too, as their financial situation can directly affect yours.
- Determine the amount of your savings.
It’s important to understand your expenses and how much you are saving. With this information, you can properly plan your emergency fund. If you have enough savings to live comfortably for two or three months, you might need to reconsider the amount you invest — and don’t forget that inflation can erode savings.
Knowing exactly how much money you have is the first step toward financial freedom.
- Set your income goal.
Clearly defined goals will help you achieve them more effectively. When you know the amount you need to strive for, decision-making becomes easier.
Decide why you are working and what you are working for. If your aim is financial freedom and independence, then your job will help you accumulate a certain amount that can later generate passive income.
If your goal is to support your family, then your income needs to be sufficient to cover all family expenses.
Define the amount you need and work toward it, but don’t put yourself under extreme pressure. It’s okay if you don’t reach your target by a specific date. What matters is that you will clearly understand your financial situation and possibilities.