When the end of the year comes, the time for good intentions, regrets, great plans always comes.
If you too want to start on the right foot in 2021 and secure your finances, you are in the right place.
How many times have you complained because you can’t make it to the end of the month, you don’t save a euro, you have had an unexpected event and you don’t know how to deal with the emergency?
In 2021 you can’t keep complaining.
You have to change something.
If you’re interested in 2017 too, I was really in a bad way.
You know what? I had added the credit line to my current account, I used the credit card a lot and every month when my salary was credited to me I was able to see the plus sign on my account.
In short, my finances were out of control.
I don’t want to blame myself, nor would I take the liberty of criticizing you if you are in this situation.
I want to reassure you.
In a short time, I have settled my accounts and at the end of this 2020, I am happy with where I have arrived.
I want to share my method with you.
Because in life there are no strokes of luck, of genius, lotteries …
The Method, the Sacrifice, the Constancy, the Discipline work.
If in 2021 you want to gain control of your finances you have to import a method that is now proven.
Let’s go step by step and see where to start.
In this article
- # 1 – Analyze your situation
- # 2 – Maximize your cash flow by reducing expenses
- # 3 – Get safe
- # 4 – Invest
- # 5 – Increase your income
- # 6 – Review the process and constantly improve your Finances
# 1 – Analyze your situation
The first step is to start with your current situation.
How much money do you make?
How much money do you spend?
What are your assets?
The difference between income and expenses gives you the cash flow (positive or negative).
The sum of all your physical and financial assets gives you your Net Worth.
Ok, it is not difficult to analyze how much you earn, although even in this case I want to make some clarifications.
If you are an employee and you have 13 or 14 months plus bonuses and various bonuses, always remember that your income does not correspond to the monthly salary.
If you have income from rentals, investments, or the like, don’t forget to include this money as well.
Now we come to the sore point, how much do you spend?
I have never been a fanatic of expense tracking, but I am sure that if I asked you what you spend your money on in many cases you would be able to answer me in broad terms.
Try to keep track of your expenses for at least a few months.
In this way, you will discover that your expenses are largely connected to home and mobility (cars, vehicles, travel).
If you have children, the education of the children may have some impact.
Once you understand how much you spend and earn you will get your Cash Flow, but before moving on to step 2 also check how much your Equity is.
You have a pension fund, you have inherited houses, you have cash.
Don’t forget to include all your assets in your net worth.
Net Worth instantly measures the value of your wealth.
It is not essential, but if you want to become rich you have to maximize this measure, finding the tools that allow you to increase it automatically.
So let’s move on to the second step.
# 2 – Maximize your cash flow by reducing expenses
Once you have identified your cash flow you will find yourself in two situations:
- Situation A – you have a positive flow;
- Situation B – you have a negative flow.
Does not change much.
What you will have to do in both cases is to analyze the expenses and reduce them.
Take the individual expenses and list them.
Reorder them in order of importance, placing the highest-valued expenses first.
You should find that few expenses in terms of number, but high value make up the bulk of your purchases.
These expenses probably account for 70-80% of your monthly budget.
At the end of the list, you will probably find coffee at the bar or in any case expenses of a few euros that you make with a certain repetitiveness.
If you want to change the outcome of your cash flow, focus on the most important expenses.
Reducing car expenses, your mortgage, the expenses of the people who help you around the house certainly have a high impact on your accounts.
This is not to say that they are not worth all the dollars saved, but if you want to create a hassle-free cash flow focus on the results that can make a difference.
It is not true that you cannot reduce expenses for the home, the telephone, the subscriptions, the insurance…
Maybe you don’t want to, but if you want to change the fate of your finances, you can only start there.
# 3 – Get safe
Once our formula has a positive result, you will have to protect yourself from bad luck.
First of all, created a nice emergency fund of at least 5,000 euros, perhaps using a deposit account.
Then go to an insurer and based on your situation (employee or self-employed, age, single …) evaluate insurance that can protect you in case of problems.
I have a home insurance policy, a Life policy that in the event of death would give my family at least the money to repay the mute, an RC from the head of the family that protects me in case someone asks me for damages. Through the company I work for, I have an accident insurance policy and a medical expenses reimbursement policy. When I travel to faraway places, I take care to purchase travel insurance.
Getting safe means knowing the risks you face and trying to bring the risks back to control.
Today, as the average age increases, it becomes increasingly important to protect oneself from the risk of non-self-sufficiency and serious illnesses.
I find point 3 too often underestimated.
The insurer is perceived as a jinx and in the worst cases even as a villain. It is not so!
Insurance is a somewhat hostile subject to deal with, but even in this case, turning to professionals and finding the right solutions is very important.
# 4 – Invest
Once you have secured your situation, you can start investing.
Remember that skipping step 3 could put you in the position of having to use your investments to buffer the first emergency.
Has it ever happened to you? To me, many times and I have lost a lot of money …
I sold shares in gains and renounced rich dividends to cope with sudden expenses… which were not so sudden.
Therefore, remember to start investing only when you can afford to lose or otherwise keep your money immobilized for even long periods.
Link your money to a goal.
If you want to set aside money for your child to study, do not choose super-risky tools and in any case, gradually reduce the risk as to the date approaches when you will need that money.
Rely on experts.
If you don’t have the skills to invest, your best bet is to get help from someone who takes care of your investments.
Today there is the professional figure of the independent financial consultant who does not work for a single bank and who can create a personalized financial plan for you.
create a personalized investment plan for you.
Finally, I advise you as much as possible to Automate your Investments.
I invest 300 Euros per month in Moneyfarm with a direct debit on my account.
It was the most useful thing I could do.
I will never fail to thank that day in 2017 when I opened my account and set up automatic transfers on the platform.
I had skipped step 2, but having to save 300 euros a month forced me to focus on my expenses and reduce them as much as possible.
Today, every month my invested capital increases easily and completely automatically.
In your investments, always follow the rule of investing in what you know, but don’t just trust your instincts.
The study, investigation, and experiment.
Remember that often what can make an investment more or less convenient is the cost of the intermediary or professional.
It therefore also deals with these costs and struggles to reduce them.
In the last period, if you follow me you know, I have also chosen to invest in high-risk alternative instruments.
This is because investment returns are important on the road to wealth and you cannot be satisfied with returns of 3/4%.
I refer to the investment in equity crowdfunding.
I dedicate a small portion of my capital (about 20%) to this type of investment, fueling them mainly with my additional income (other than income from work).
# 5 – Increase your income
And we come to the Additional Income.
Are you sure you can’t create some additional income in addition to your earned income?
Today you cannot think of depending on a single fixed income for your entire life.
The world changes, companies are born and die. Would you have ever imagined that General Electrics would come to live difficult times?
Dependence on just one customer, employer, business is not the best possible situation.
Or rather it would be better not to be in this situation.
I supplement my income with:
- some lessons at the University,
- the income of this blog,
- Matched betting,
- revenues from affiliate marketing on Amazon,
- bitcoin lending on Poloniex,
- real estate crowdfunding dividends.
If I add up the various incomes, I certainly don’t get to my monthly salary, but the goal is to make them grow constantly and maybe one day exceed it.
If you have no idea where to start you can read my guide on How to Create Extra Money.
You will find out what matched betting is, you will have privileged access to investment platforms that allow you double-digit returns and create constant monthly flows.
Never forget the traditional activities that in a world characterized by scarce time, people tend more and more to outsource and in any case to pay well.
The world is full of opportunities, you just need to know how to exploit them.
# 6 – Review the process and constantly improve your Finances
Like any process, even what concerns your Finances must necessarily be continually improved and refined.
There is no point in setting up a process if you don’t then measure the results and correct errors.
Therefore constantly monitor your assets, your income, and your expenses.
Set yourself quarterly, annual, and multi-year goals.
Build a real Personal Financial Plan.
The personal financial plan is the tool that will allow you to perfectly align your goals and your finances.
Nothing is perfect, but when you have automated the processes and you will limit the anxiety of money and you will see that more and more you will have the resources you need when you need them.
I am slowly reaching this goal.
If you need some advice, feel free to write me or leave your comments on this article.