Step 16: Start an Emergency Fund

November 19, 2016November 6, 2016 ~ Inge Natalie Hol ~ 3 Comments

Step 16 of the 100 steps mission to Financial Independence: Start an Emergency Fund — Step 16: Start an Emergency Fund

No matter how organized you are and how carefully you have planned and budgeted for the next month, there will always be surprises that come up and hit you financially at unexpected and often inconvenient moments: a car maintenance or fix that you hadn’t planned for, a plumbing issue that needs immediate attention, a sudden vet bill for one of your pets or your washing machine that suddenly breaks down. I am sure you can think of many occasions and examples that could suddenly happen and throw you off-track.

If you don’t expect an expense to come up, often times you won’t have the money available, and you will either be forced to borrow money, eat into your savings or cut out money elsewhere.

In this step you are going to set up and build an emergency fund, in which you have a certain amount of money put away that you can use in case of these unforseen but needed expenses that come up. In that way you don’t need to worry about scraping the money together, you can just pay the bill and get on with your life. A good amount to aim for is generally $1000 or the equivalent in your currency. Whenever you take money out of this account, you aim to get it back up to the $1000 as soon as possible afterwards. Continue reading “Step 16: Start an Emergency Fund” →

Step 15: Automate your Payments

November 17, 2016November 6, 2016 ~ Inge Natalie Hol ~ Leave a comment

Step 15 of our 100 steps mission to financial independe: automate your payments — Step 15: Automate your Payments

When looking at all of your expenses in the various categories, you have probably become aware of how many different payments you have and to how many companies. Bills don’t just come in for your utilities and groceries, but also for bank fees, taxes and insurance, and even if you only pay them once a year, there are a lot of bills that need attention.

Many people spend a good amount of time “paying bills” each month and whereas there is an excuse to say that this is a way to more or less know how much you are spending and what you are spending on, there are two major disadvantages:

Time investment: going through the various bills and writing checks or making payments online can be very time-consuming;
Extra costs: bills not paid on time often result in extra fees.

Continue reading “Step 15: Automate your Payments” →

Step 14: Limit one Expense

November 15, 2016November 6, 2016 ~ Inge Natalie Hol ~ 4 Comments

Step 14 of the 100 steps mission to financial independence: limit one expense — Step 14: Limit one Expense

In the last few steps we’ve laid all the groundwork to set ourselves up for success to achieve our mission. You should by now have a great overview of all your expenses, how much comes in, how much goes out and very soon you will be setting yourself some more detailed, time bound goals to work towards to. But to get you truly started, create momentum and feed the desire – that hopefully you are feeling by now – to see some positive results, now is the moment to take a very first step towards change. Therefore from today onwards you will by limiting one expense consistently for a whole month.

Does that mean cutting it out all together? Maybe, maybe not. You need to decide what works for you (I know! as always…). It might be that looking at your expenses you have suddenly become aware of how much you spend on your smoking habit, and since you’ve always wanted to give up smoking, now might be the moment. So yes, that would mean eliminating that expense altogether. Or maybe you’re surprised at how much you spend on nights out in the pub on Friday nights with friends. If you don’t want to give up those nights of fun, maybe you can make a commitment to staying in once a month, or going home just that one drink earlier and reducing the expense without cutting them out completely. Continue reading “Step 14: Limit one Expense” →

Step 13: Calculate your Cash Flow

November 12, 2016November 4, 2016 ~ Inge Natalie Hol ~ Leave a comment

Step 13 of the 100 steps mission to financial independence — Step 13: Calculate your Cash Flow

Simply put, in personal finance your cash flow indicates how much money you have coming in on a monthly basis, how much is going out and how much the difference is.

As you might expect, having a positive cash flow, where you earn more money than that you spend, is what you want to pursue, as if the reverse is true, you are either building up debt or you are eating away your savings. Having a positive cash flow means you are living within or below your means, and not beyond.

This might sound easier than it is: there might be some months when you have more money coming in than going out, but other months the opposite might be the case, and if your income fluctuates a lot, this might concept might be especially difficult to control. Continue reading “Step 13: Calculate your Cash Flow” →

Step 12: Identify your Savings Expenses

November 10, 2016November 2, 2016 ~ Inge Natalie Hol ~ 1 Comment

Step 12 of the 100 steps mission to financial independe: Identify your Savings Expenses — Step 12: Identify your Savings Expenses

So one last one to go: your savings expenses. Saving expenses are any expenses that you have that are related to improving your financial situation now or in the future. They are payments that you make towards your financial goals and include debt payments that you are making to pay off a loan, savings plans that you are paying into, investments that you are making and any emergency or rainy day funds that you have.

When you were looking at your fixed expenses you might have been wondering what to do with these savings payments already, or you might have even included them, as many of these can look like fixed expenses that you have monthly. The reason why we want to take these out and identify them as a different category however is that they are generally very different in nature to a fixed, variable or discretionary expense, as they are focussed on achieving a financial goal, as opposed to the other categories. Continue reading “Step 12: Identify your Savings Expenses” →

Step 11: Identify your Discretionary Expenses

November 8, 2016November 6, 2016 ~ Inge Natalie Hol ~ 1 Comment

Step 11 of the 100 steps mission to financial independence: Identify your Discretionary Expenses — Step 11: Identify your Discretionary Expenses

Discretionary expenses are expenses for thing that you don’t absolutely need in order to survive or run your household. They are often optional (some would even argue unnecessary) expenses that mainly enhance your day-to-day life and make it more fun. Think about dinners at the restaurant, holidays and a trip to the cinema. To give a definition of a discretionary expense, it:

is an expense of a variable amount that you have more or less complete control over;
might or might not have a regular time interval;
is not needed for day-to-day living;
you can cut out all together relatively easily.

Discretionary expenses are usually the type of expenses that people cut back on first during tough financial times, and also the first ones that increase again when their economic situation improves. That coffee you get every day at Starbucks on your way to work? That’s a discretionary expense: you have complete control over it, you don’t need it for day-to-day living, and you can cut it out all together and make your own coffee when you get to work or bring one in from home in a thermos flask. Continue reading “Step 11: Identify your Discretionary Expenses” →

Step 10: Identify your Variable Expenses

November 5, 2016November 1, 2016 ~ Inge Natalie Hol ~ 1 Comment

Step 10 of the 100 steps mission to financial independence: Identify your Variable Expenses — Step 10: Identify your Variable Expenses

In step 9 we looked at fixed expenses, but apart from these regular payments of a set amount, you most likely also have regular expenses which vary from one month to the next: your so called variable expenses. Indeed a variable expense generally:

is an expense of a variable amount that you have some control over
has a regular time interval
is needed for day-to-day living
you can cut down by making small lifestyle or behavioural changes.

An example of variable expenses include groceries: you need to eat for day-to-day living, they have a regular time interval, as you probably go to the supermarket several times a month but contrary to your fixed expenses, you have some control over the amount on your grocery bill. Continue reading “Step 10: Identify your Variable Expenses” →

Step 9: Identify your Fixed Expenses

November 3, 2016November 1, 2016 ~ Inge Natalie Hol ~ 1 Comment

Step 9 of our 100 steps mission to financial independence: Identify your Fixed Expenses — Step 9: Identify your Fixed Expenses

From the previous step you should now have your base expense categories identified. In the next few steps we are going to dissect these expenses and classify them into three different types, starting here in step 9 with having a closer look at your fixed expenses. Typically a fixed expense:

is a set amount that you have little to no control over
has a regular time interval (e.g. monthly or yearly for example)
is needed for day-to-day living
you cannot cut down without making a big life change or running substantial financial risk

(I classify insurance as a fixed expense, hence the addition of “without running a substantial financial risk”.) With fixed expenses you can tell at the start of each month they will be coming up and how much you will be charged no matter what you do. You know that every month you’ll be charged rent, or that you have to pay your mortgage.

Continue reading “Step 9: Identify your Fixed Expenses” →

Step 8: Categorize your expenses

November 1, 2016November 2, 2016 ~ Inge Natalie Hol ~ Leave a comment

Step 8 of our 100 steps mission to financial independence: Categorize your Expenses — Step 8: Categorize your Expenses

By now you have (hopefully!) been tracking your expenses for a while so you should have a reasonably good idea of your spending. Ideally you would have at least 1 month’s worth of data to look at, if you have more than a month that’s even better. In the next few steps we will be looking at your expenses in detail to get a better idea of where your money is going, how much you spend on various categories and most importantly, whether this spending pattern is aligned with the way you WANT your money to be spent.

The first action step will be identifying the different areas that you are spending your money on by categorizing various expenses into groups, which will allow us to analyze in which areas of your life there is a potential to save more (or less) money. Continue reading “Step 8: Categorize your expenses” →

Step 7: Set a Net Worth Goal

October 29, 2016October 24, 2016 ~ Inge Natalie Hol ~ 2 Comments

Step 7 of the 100 steps mission to Financial Independence — Step 7: Set a Net Worth Goal

Our next step of the 100 steps mission to financial independence is to set yourself a goal for what you would like your net worth to be in six months. This gives you an excellent target to work towards to during the mission. Although you’ll probably find that your net worth doesn’t change dramatically in this half a year, 6 months is a good time frame to start with as it is long enough to see substantial changes and the effects of goal setting, yet short enough not to forget about it or lose track.

You can set yourself a goal for your net worth by either stating a specific amount, or alternatively by setting a percentage by which to increase your income. If you set a specific amount as your target and keep that the same every six months, with time as your net worth increases and as it should become easier to achieve the same target, you might not be achieving as much as you could. Alternatively, if you set yourself a target of certain percentage increase it means that your net worth target increases more as your net worth itself increases.

Continue reading “Step 7: Set a Net Worth Goal” →