I've been trying to figure out a way to structure the way breakdown where my income should go until I found a video online that suits my preferences. I think we should not simply follow the way people manage their finances but I also think that it wouldn't hurt to refer to their method until we figure out our strategy as we go through the process. Let me itemize what I learned from the video, it was said that our income is to be subdivided into items with varying portions that are represented in percentages.
- 10% Financial Freedom Account (Investment / Insurance / Assets)
- 10% Long-term Savings Spending (Debt / Emergency Fund)
- 10% Education
- 55% Necessities
- 10% Play Money
- 5% Community / Church / Charity
That breakdown sumps up to 100% which represents your total income. I think the breakdown was simplified to make it less complicated because there are certain people, especially young professionals, who don't have commitments yet. This applies to people who are just starting their careers. As one progresses in their career then they may start to break away from this format and each item may increase in share and or branch out to more items as the commitments start growing.
I think the short video intends to simplify and make it easier for the viewer to nail the basic and most important aspect of the financial structure that one should follow as they are starting in their career.
Start the breakdown of items by highlighting the 10% Financial Freedom Account even though it's not the biggest item on the list. It may not be the biggest item but it's the most crucial item in the list. The most important is the "Necessity" but the "Investments" / "Assets" is the most crucial for one's future. A healthy financial freedom account will ensure a good future in terms of one's financial capability.
The next one that I wanted to highlight is the 10% that is allocated for "Education".
Most of us would think that education stops after we graduate from school however, it was neglected that real education will only start after that. There are other things that we need to learn to progress in our careers and we could only acquire the knowledge from books, seminars, and mentorship. This is also a crucial part of our financial growth because it will be the only way for us to progress in our careers. It's also a way to bring more value for other people to be willing to pay us more beyond the minimum salary or fee that they could offer to a professional.
The other aspect that I wanted to highlight is the "Play Money"! I like the sound of it because I don't think that a person will have the sane mind to keep earning and saving without having to take care of their overall mental stability. The play money is the account that one could use to spend to keep going with their endeavor. It will fuel your drive to achieve more in life and your financial future.
Some use it for travel, for fancy things, or to collect stuff that will give them a sense of achievement.
Right after watching the video, I have re-structured my financial allocation and adjusted it to the way that I feel is right for me. It may take a while to see the long-term effects of it but I could already tell that if one follows a certain plan for improving their future then I could say that it's already a step closer to financial freedom!
Thank you 🙏
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I read this way of income diversification from one of Brian Tracy’s book: No Excuses. My pastor also emphasises on this when he teaches finances. I learned how to use numbers in allocating my income four years ago. It’s an efficient way of getting the most out of your income.
Spending my full play money budget on #Splinterlands assets!