People managing their finances every month might have to consider sending their funds to the following 5 places so that they can continue working towards financial freedom. The percentage of the money people send to these channels decides how fast they can reach financial freedom.
Basic needs
Basic needs cover the basic expenses someone is doing every month. A budget has to be created to determine how much money would be required to cover the basic needs. The funds can be sent to basic needs every month from the income we generate.
I would also like to cover paying debt off in the basic needs because ideally we shouldn't have any debts but even if we have them, it becomes an important and basic thing to pay off as soon as possible.
Emergency fund
This is the most important thing. We have to create a channel to save some emergency funds. Some people might confuse this with investments or Savings. This emergency fund is usually not savings or investments. This is the fund that should be kept as flexible as possible and we should be able to make use of these funds when there is a need. Let's say we lost our job, there should be money in the emergency fund that can take care of our expenses for a few months. The more money we have here, the more months we can go without a job.
Investments
Investment is the next important thing. We can also call it savings. It is good to keep the funds diversified and all the more it is important to invest and generate some passive income in the future. During the initial days it may not generate any passive income but gradually, it should start creating passive income.
Health care fund
Covering health care is very important and allocating funds for the same is also essential. We can plan for insurance but we cannot be sure that insurance would cover all the medical needs. There can be a few instances where things may not be covered by insurance. It is good to have a fund similar to an emergency fund saved in the Health care fund. If there is no use for this, it is well and good but we will not know until an emergency happens.
Sophistications
This is the fund that can be kept a bit flexible. I would recommend doing a family trip at least once a year and after we grow financially, it is good to do a family trip once a month. For planning this we will need funds and it is good to allocate funds every month for this and wait for it to accumulate to a decent value and spend that wisely.
Sophistication funds are not only about travel. It can even be anything else. If we would like to buy something for us or the family members, it can be done with these funds. Some people might even save these funds and never spend them and gradually increase it to a bigger value to do a bigger expense.
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