Three Types of Financial Conditions!
Second Prelude Post of ETFinance.
Hello everyone,
Welcome back to my publication.
I hope you liked my previous prelude post. You can check it below as well.
In this post, I will discuss the types of financial conditions and their situations. I will also suggest ways to improve your finances, the steps you should pay attention to, and how I can help. I will also suggest the types of future posts you should focus on.
There are three types of financial conditions.
- Meagre.
- Balanced.
- Lavish.
Usually, every finance guru discusses the last two and forgets about the first.
Let me elaborate on these conditions.
- Meagre: This is the condition where money is a necessity for you. You live paycheck to paycheck, and whatever you earn helps you barely survive the month.
- Balanced: This is the condition where money is a comfort for you. You already have an established income and earn more than your expenses (at least on paper). People in this category are searching for methods to grow their money and the comfort that it brings.
- Lavish: This is the condition where money is a tool for you. You are in a state where you are using money to make more money. You are not working for the money; the money is working for you.
As I said, advices you will see or receive from anyone who has even a bit of financial knowledge will mostly be for the 2nd and 3rd conditions.
Reason?
It is not because these advisors are ignorant, but most of the advices you will see apply to these two conditions.
With this post, I want to address the people in the first condition. I want to suggest how to move forward from here, what steps you should take next, and how to move to the next condition.
Let me be honest; it will not be fun or easy and will take a lot of effort, dedication, and time. But if you are determined to change, it is possible. I believe in you.
Read on to know what you should do next.
The Path:
The path you should take to get a hold of your finances can be divided into below four steps.
First Step:
The first step is:
To know your Expenses.
You need to track down all your expenses for the month and make a note of it. Usually, expenses fall into below categories:
- Essentials: These are the expenses that can’t be compromised. These might include (but are not limited to) House Rent, Food, Groceries, Mandatory Transportation (like traveling to work), Medical Bills, Credit Card Payments, etc.
- Insurance Premiums: Premiums or payments you pay for insurance (if any).
- Non-Negotiable EMIs: These are the mandatory EMIs that one needs to pay or the ones that can’t be adjusted. That might include (not limited to) student loans, home loans (mortgage) etc.
- Negotiable EMIs: These include the EMIs that can either be held for some time or have the possibility of reduction by checking other available options.
Please note that it is not a very strict categorization. It depends on the person and might differ for every individual. But whatever your expenses are, they will fall broadly into two categories.
- Non-negotiables.
- Negotiables.
We will not touch the “Non-negotiables” category and will focus on the “Negotiables” category in the second step.
Second Step:
The second step will be:
To reduce the Debts.
It’s not guaranteed, that this step will be a success for everyone as sometimes, the EMIs you are paying for your debts are already the best deal you can get.
But you still need to reevaluate it and check the available options. It should be something that will not harm your Credit Score, but will give you some relaxation with your monthly EMIs. Different types of options can be considered here, like:
- Transferring your loans to a different type of interest rate (like floating to fixed or vice versa).
- Transferring to a bank with lower interest rates.
- Talk with your bank to check for offers that could reduce your EMIs (without changing the duration).
- Borrow money from Friends or Family to pay off your loan (either partial or full).
- Pay an extra EMI per year to reduce the principal amount, and as a result, close the loans faster (only applicable if you can afford it).
This step needs to be extensive. Although it’s not sure that you will find something helpful, you need to be very thorough in your research. If you succeed, it will be a great achievement, and I hope you do.
Third Step:
This step is a necessity, not only for you but for everyone, irrespective of the category they are in. However, for you, it becomes a mandate as it is required to move to the next step (and to the next category). This step is:
To learn Personal Finance.
There is a saying in my family, “The more you Learn, the more you Earn”. It should be the basic goal of everyone to keep on learning new things. And in this age and time, learning personal finance or increasing your financial literacy is a must.
Learning finance will help you understand how money works and how to manage your expenses. It will also help you to understand how you can use it as a tool to increase your earnings. In short, learning finance will help you manage the first two steps in a better way and will show you the way to start the next (fourth) step.
What is the Fourth step though?
Read below to find out.
Fourth Step:
Let me get straight to the point. The Fourth step is:
To Focus on increasing your “Means”.
As I said, it’s not guaranteed that you will find any relaxation with the second step. And there might not be an option to save anything at the end of the month, so you can’t do anything except fight for survival (in monetary terms).
Hence, the only option to provide you with some relaxation is to find ways to increase your income.
Once you have done your due diligence with step three (learning finance), you will understand that no one should be dependent on a single income stream. And you too, should work on generating additional income streams. It will not only help reduce the load but will also provide you with a monetary cushion.
There are multiple ways you can try to increase your income. The options at the top of my head are:
- Have a connect with your supervisor in your current job to increase your salary (get ready for additional work as well).
- Look for better opportunities either in or outside your current organization.
- Generate more income streams that requires less or no upfront cost.
With the first two, you will get an additional income from your job. It will help a lot with your finances. If that’s possible, go for it, but don’t stop there. You must stop relying on a single income stream, so try to have additional ones. These might include anything from starting a part-time job to freelancing. Even in business, there are options that require less or no upfront cost. Focus on those! And with time, when you get settled, you can scale them or add even more income streams.
Conclusion:
Facing financial issues is hard! I have faced it in my life too, and I understand how it feels. These struggles make a person exhausted and stressed. Hence, it makes no sense, to ask them to be a finance enthusiast and start behaving like one.
But I am saying from my personal experience that if you follow these steps, it will get better. It’s not a quick fix and will take time and sheer dedication, but don’t lose hope and keep on trying. It will get better.
With this, I also want to add that I will also try my best to help you. In my plan, to make financial knowledge easy and understandable, I will post multiple blogs explaining the topics that will be relatable to you.
Look for the posts that explain Personal Finance, Financial Literacy, Budgeting, Debts, Managing Expenses etc., to learn and understand the topics that will help you.
With my blogs, we are going on a journey to learn finance together, and I am sure that we will be successful in making money work for us.
It might look far-fetched, but with time, you will achieve this mammoth target. It will take a lot of effort, but I am sure that it is achievable.
Cheers!
I hope I will succeed in teaching everything I have learned, and I hope this post helps generate the same feeling.
If not, read it like any other story, and we will meet on my next post.
Till then,
Shreesh, Signing off!
