Who need to read this DIY personal finance overhaul article? People whose finance is in a mess.
Financial health of these people are so bad that even a financial doctor would not be able to help them. Why?
Because such people do not realise that they need help.
They think that they are leading a normal life, but in reality they must be in a financial ICU.
Who are these people? We all can be one of them. Take a small test.
- Do you know how many days your paycheck remain in your bank’s a/c without getting consumed?
- Do you remember, by which day of the month you generally consume 50% of your paycheck?
- You know, which expense source consumes maximum portion of your income?
- Do you know on which day of the week you spend the most?
If you are not able to answer the above questions, its Ok. It only signifies that you must become more aware of your spending habits.
But the problem becomes acute when erratic spendings leads to near zero savings.
The situation gets out of control when we start becoming slaves to our monthly paycheck.
Stop being a slave…
Slavery of any type is not good.
But the biggest drawback of it is, people who are chained, do not realise that they are behaving like slaves.
Take example of our job. Employees are the masters. They have put shackles on us which we love. How?
The shackle here is our paycheck. Surprised? But its true.
We have become so dependent on it that, we have stopped considering “dependency on paycheck” as a bad thing.
Everyone in the world does a job for a living.
This is what we say to console ourselves, right?
Who is to blame here? The culture, employee, or self?
I will opt for self. Why?
Because it is in our hands to allow or prevent our employee from behaving like our master.
Do you know why employee behave the way they do?
Because they know, we are dependent on the paycheck we get from them each month.
How to break the shackles?
Implement the DIY personal financial overhaul suggested here.
These suggestions are not just theories. People have implemented them and saw results.
So what is the first step? How to break the shackle?
There are two parts to it. First, break the shackles in your head. Second, do it financially in real world.
What I mean by breaking it in our head first?
Convincing self that, it is possible to survive without paycheck.
But isn’t it a lie?
In the beginning this may sound like a lie. But in reality it is not. How?
Everyone do not earn money only from job, right?
- People like me earn from blogs.
- There are Youtubers who earn from vlog’s.
- There are freelancers who do consulting etc.
- App developers earn from development of software programs.
- People also write & sell books to earn money.
- Business men has other ways of earning money.
These are only few examples. I am sure if you will brainstorm, newer ideas will emerge.
So what is the point? The point is, it is possible to survive without paycheck.
Try to research and read about people who broke the shackles of job/paycheck in their own lives.
Use it as your inspiration. Convince and motivate yourself to do the same.
How to convert motivation into reality?
This is where the DIY personal finance overhaul will help.
How it will help? By laying the right foundations.
It is possible to hold bridges even on oceans, if the foundation is right.
We are building foundation for what? Financial freedom.
The base of financial freedom must sit on something concrete. What is concrete here?
Ability to take full control of ones personal finance. Become the master and not the slave.
Till the reins remain in hands of the employers (via paycheck), it not possible to achieve financial freedom.
The only way to make the transformation from dependency to financial freedom is to take the first step.
What is the first step?
Start building ones financing health
It is a slow process.
The best way to do it is, make the right start by overhauling ones finances.
Why I am calling it a financial overhaul?
Because what is necessary here are the following:
- Thorough examination of present financial health.
- Implementation of necessary repair and changes to improve financial health.
It must be noted that financial health improvement happens only slowly.
It cannot be hurried up, as it has its own speed.
But yes, there is one thing that can work as an accelerator. What is it? Higher Savings.
The more one can save, there will be more spare cash available for further use.
Wise utilisation of ones spare cash is what DIY personal financial overhaul will suggest upon.
I will list them in order in which it must be implemented.
Tips on DIY Personal Financial Overhaul
I personally don’t’ like the use of word “tips”. Why?
Because in the name of tips, people tend to throw a lot of garbage on internet.
This is why whenever I see the word “tips”, I became weary.
If you are like me, it is all right to become sceptical about this article too.
It is also important to understand what makes “tips” less definite than “instructions”.
Tips has that “roundness” about them. While instruction is more certain.
In the subject of personal financial advice there can be no instruction. Bloggers like me can only suggest tips. Why?
Because these tips are such advices, which shall be converted into instructions by the reader themselves.
The effectiveness of this conversion will differ from person to person, depending on their circumstances.
So allow me to shoot my first DIY personal financial tip…
#1. Check if you are overspending.
Overspending and financial freedom cannot go hand in hand.
Like a car overhaul needs a thorough inspection first, overspending check is necessary before any personal finance overhaul.
But do not worry, checking wont we difficult. Just follow the 50 30 20 Rule.
As per this rule build your expense budget.
Use this budgeted expenses to compare your present expenses.
Establish, on which fronts you are overspending.
#2. Start tracking your expenses.
Before one starts to do bigger things, it is essential to first curb the overspending’s.
How to do it? By beginning to track ones expenses.
This is one of the biggest steps in the process of financial overhaul.
Generally how we spend money? Based on urge and requirements.
Saving money is not a priority here.
Now when you will start to track all expenses, spendings on urges and requirements will continue. But it will have a cap (budget).
The advantage of spending as budgeted is that, it ensures planned savings each month.
Thankfully these days we have good mobile apps that can help us to track expenses seamlessly.
P.N: It is necessary to keep tracking ones expenses for 2-3 months before jumping to step #3.
#3. Protect life after 60 year of age.
Divert at least 20% income for retirement savings.
Yes, when it comes to financial freedom looking far is more important.
How further we can see in our lives? Leading a retired life after 60 years of age.
It is necessary to ensure protection for ones retired life.
A person who is more assured of his/her retired life, can take faster strides towards financial freedom.
One sure way of doing it is to divert 20% income to build retirement corpus.
In India, most people already contribute 12% of their salary to “Employees Provident Fund (EPF)”.
So what additionally needs to be done is, invest the balance 8% in a suitable investment option.
Two investment options that I feel will be better for this cause will be:
- SIP in multi cap mutual fund.
- Systematic purchase of index based ETFs.
#4. Provide protection to your present life.
This is the real challenge.
It is here that the requirement of spare cash (more savings) is maximum.
Idea here is to use the spare cash to ensure protection to present life.
There are several key fronts that must be strengthen to provide stability here:
- Buy a home for self.
- Become debt free.
- Generate an alternative source of income.
#4.1 Buying home for self.
This is one of the important precondition in achieving financial freedom.
But buying a home is not enough. It must also be “owned”.
What do I mean by “owned”?
When we buy home using loan, that property is not actually owned by us.
Who owns it? The bank who lent us the money.
How to take full ownership of the home? It can happen only gradually. How?
By making regular EMI payments and “prepayments” of loan.
This brings us to our next point #4.2…
#4.2 Before debt free.
It is only imperative to become debt free as fast as possible to achieve financial freedom in life.
There can be several type of debt that one can carry:
- Education loan.
- Home loan.
- Personal loan.
- Credit card debt etc.
To reach the summit of financial freedom, one must not carry any debt.
Use your spare cash to prepay all debts.
#4.3 Generating alternative source of income.
By far this is the toughest DIY tip to implement in ones life.
The difficulty is more due to our restricted psychology than anything else.
In our society, everywhere there are more examples of “people doing job” to earn money.
There are less examples of people generating income by self.
Hence generating alternative source of income is tougher. There are less visible examples.
So how one can go about it?
Though there are no set rules, but a quick tip will be to focus of generating streams of passive income.
What should be the target? Passive income must equal your paycheck.
Conclusion
People who wants to transform their “paycheck dependency” into “financial freedom” can read the tips provided in this article.
The idea is, one must keep full control of ones personal finance.
How to do it? By implementing these simple do it yourself (DIY) tips.
The tips provided here are easy. But to implement them over time, it will require great deal of self discipline.
Remember, anything worthwhile in life can be achieved only by practising self discipline and sacrifice.
Its a golden rule.
Just to summarise what needs to be done:
- Stop overspending.
- Track expenses.
- Protect life after retirement.
- Protect present life
- Buy a home.
- Become debt free.
- Generate passive income.
