Most people think that growing money and becoming financially stable is related to the richness one starts with, which is false. Growing money has much more to do with the strategy and the mindset you use to manage your money than your starting situation.
To grow your money, value them first.
I come from a poor family, for example, so I always had to deal with personal finance. When I was 13, my father decided to give me 10$ a week to go out with friends. It seemed stupid to me, but later I understood it was the best money lesson he ever taught me. That little sum made me realize the importance of money and how I should value every single penny.
When I grew up, my parents became financially stable, and I knew I could ask for money anytime I needed it, but I rarely did. The first time it happened, I was ashamed because I spent all the budget, so I cried before asking for more to go out with my classmates. And even if they told me I could always ask for more if I needed them, I wanted to prove that I could manage to survive, and so I did.
With time, I got interested in the financial world and wanted to know how to grow my money. I couldn’t understand my parents’ mindset. They kept their money in the bank without investing in them, which made them lose value over time. So I decided that I would have used my money better.
Two months ago I started working, so I built a personal financial system. I wanted to have a landing pad and put my money in motion to stop losing value due to inflation.
So I read about personal finance, and I defined my first financial plan for the next 5 years. Here is how I did it (numbers included).
My Financial Goals and The Starting Situation
The first thing that anyone should do to grow their money is to analyze their situation and define short and long-term goals.
Let’s start with the basic income. Currently, I earn a stable income of around 1,6K $ a month from my working activity. Compared to the medium Italian salary and considering I am a junior profile, I can consider myself lucky. So I decided to take advantage of that luck and squeeze my money as much as possible.
My financial plans are composed of three main goals:
- A short-term goal is to achieve 5K each year.
- A medium-term goal is to achieve financial security before 30 years (5 years left).
- A long-term goal is to grow my money in the next 10/20 years.
To achieve those, I split my monthly income into 3 categories based on importance.
- The Necessary Evil, which contains the money I need for monthly survival and management expenses.
- The Safety Net, which includes the money that represents my financial wealth and my landing pad.
- The Pleasure Paradise, which contains the money I need for my social life and my guilty pleasures.
How to Grow Your Money
When I searched for a technique to efficiently make my money grow, I came across Senator Elizabeth Warren. She calls hers 50/30/20, which consists of dividing each income stream into three parts — 50% for your needs, 30% for your wants, and 20% for your investments. Still, I made some changes and inverted the last two percentages since I want to use the investments category differently.
1 — The Necessary Evil (800$)
The first category represents the same concept Warren used in her technique. Every month, I dedicate 800$ to my personal needs: mortgages, rentals, and transportation expenses. Takes part of this category also everything that deals with personal care, food and beverages, and home management.
However, this category does not include outside meals and pleasure shopping, like clothes, shoes, perfumes, or similar.
Also, I’m not using all the money in this budget at the moment. So at the end of the month, any leftover ends up in the safety net.
2 — The Safety Net (480$)
This is the most exciting part of my financial plan since it contains the dynamicity and the core of the idea itself. Here I deal with my future, the mindset around the years to come, and how I want to deal with them.
Even if I do not have much money inflow, I know that the future comes with taxes, mortgages, and debts, and I don’t want to strive to pay them. I can be mindful of my money now and prevent the problem. For this reason, every month, I save 30% of my income for future usage, splitting it into two sub-categories: immobile and mobile.
A- Immobile Income (380$)
This part of the safety net is what I called a landing pad since here I store all the money I can use whenever I need. They are in my bank account, and they are not blocked by investments, which means I have no disinterest in using them now or in 10 years.
This money is also my deposit for the short-term goal, the 5K in a year. I consider 5K to be the minimum amount of money one should have in their back pocket for necessity, and I want to build up that sum as soon as possible. Also, these 5K are crucial for my long-term goal, since by summing up 5K over 5 years, I will achieve most of it.
B — Mobile Income (100$)
This limited sum of money is the investment I dedicate to growing my wealth.
Since I just started working and have no investing experience, I started from a sum that I could afford to lose. Still, when I figure out the financial world better, I will reschedule my plan to match my ambitions.
Currently, I will continue investing 100$ per month, but everything could change. Tomorrow I could lose my job, or I could need my mobile income. But for now, this is the plan.
3 — The Pleasure Paradise (320$)
I use this budget monthly for any of my pleasures, from new clothes to parties, to electronic devices. Everything that is ambition, and is not strictly necessary, is part of this category.
Even here, I micromanage my finances to never exceed the monthly limit. If I want to buy something more expensive than 320$, I wait for two months instead of buying it with money from the other categories. This helps me in different ways:
- I gain perspective and understand if my desire is genuine.
- My resistance to compulsive shopping increases.
- I value money as much as I did when I was younger.
Why is it important to Grow Your Money
We all have to deal with money in our lives, and usually, the less we earn, the more we micromanage and give value to our earnings. As for everything, abundance causes disinterest, while scarcity generates respect.
Today, I see many people not appreciating their earnings and spending them on the most useless things I have ever seen. But this is the approach I would expect from a rich person, not from anybody. Instead, I see friends consuming their paycheck in a few days and surviving in pain until the end of the month. And even if I can understand the compulsive shopping problem, I could never live with my bank account empty. It would fill my head with fear and immobilize me.
For this reason, I chose to plan my financial life, to feel safe, even in the hardest of situations. I want to be financially free and follow my dreams if I have the possibility, without the fear of losing my job.
In a few years, I will be able to afford it, but my friends won’t. What about you? Will you?