Many people who work generally spend slightly more than they can actually afford or earn each month. This seems to be true of people on low and high incomes. The more people earn the more they seem to spend.
The luxury goods get more expensive and the holidays more exotic. This creates a black hole in the bank balance which is often only encountered when the economic downturn hits, people lose their jobs or the monthly repayments on the mortgage and credit cards becomes impossible to meet.
When times are good, people think they will always last and spend money without thinking of the future. This is not just a new thing but has happened throughout history. Many people who are of retirement age today find themselves having to work longer or scraping an existence.
However there is a ‘trick’ to avoiding this situation and increasing your chances of always being financially afloat and stress free. It involves a mindset change that you can learn to adopt quickly and will serve you well throughout your life.
The idea is this: ALWAYS ensure that your bank balance does not go below a certain amount, EVER!
This amount should ideally be as high as possible but if you’re new to this concept then start by keeping at least 6 months worth of salary in your account. Now, for many people this may seem impossible, especially if your bank balance is currently teetering or over your overdraft limit. But you must get that balance to a starting point of 6 months worth of salary. With 6 months equivalent salary in your bank you will find it much easier financially to keep paying your bills, paying your mortgage and doing all the normal everyday things if ever you should lose your job and be out of work. Most people should be able to get another job within 6 months if they really try hard.
Now, once you have achieved that 6 months stage, be sure to NEVER go below that amount in your bank. If that means foregoing a better holiday or a better car then so be it. Do not break this rule.
Initially you may find it hard to keep to this regime. But within a short amount of time you will find yourself living quite easily within your means. You will adopt a different attitude to money and always be conscious of what is in your bank account, knowing that if you dip below that 6 month threshold then you will start to feel very uncomfortable.
From here the next stage is to set a new goal. That new goal is to get to 12 months worth of salary using the exact same methods you have learnt to get your 6 month goal complete. Once that is achieved, set yourself another new goal, 18 months worth, 24 months worth and so on. Keep reviewing these goals once they have been done. If you do this then you will stand a much higher chance of always being financially afloat throughout your life. You will also feel happier and a lot more confident in the knowledge that you have a decent amount of money tucked away.
Finally, try and avoid debt. I know that sounds a little like stating the obvious but many people ignore this and take on debt like it’s something to be proud of. Being in debt to someone or some company is your worst financial enemy. Avoid hire purchase, pay off your credit card in full every month and ideally use cash or a debit card. By using a debit card your purchase amounts are immediately reflected in your bank account and will therefore keep you in reality.
Always keep a regular check; a daily check is ideal, on your bank balance. Get to know your bank balance to the penny, embrace it and never avoid it.
