Hello and welcome to my financial freedom blog. Just like many other people out there, I want to be financially free and have committed a good portion of my nearly 38 years of life towards attaining financial freedom. I have read hundreds of books on business, personal development and peak performance and this blog is a hub where I share my lessons and experiences.
Income Freedom Influencer is a financial freedom blog which guides you through what you need to understand in order to be able to start from where you are to where you want to go as far as financial freedom is concerned. The greatest take away I have gotten from all the research and experience is that financial freedom is not necessarily about how much money you earn but about how you manage the money you have. In this post, I will share a few money management systems that I have learned along the way.
Personal Development Action Plan – Unleash Your Greatness
How to Get Financial Freedom Fast at Any Salary – 3 Plans to Freedom
Self Development Strategies – The Wheel of Life Explained
How to Get Financial Freedom Fast From your Perfect Business
Personal Development Benefits – Why You Need to Work on Yourself
Money Management Systems
Human beings are creatures of habit. The habits we learn at an early age tend to follow us throughout our lives. Once learned, it is very difficult to let go of a habit. It becomes part of our brain structure and a path is literally etched in our brain neurology. This is known as a neural pathway.
Neural pathways are formed through repetition or practice. When we do a task over and over again, “connections” are created in our brains to automate that particular task so that conscious brain function is reserved for other, more urgent needs.
This is how we learn and internalise new skills as human beings. It usually takes about 21 continuous days of repetition to form a new habit.
Habits serve to make life easier but the wrong habits lead to the numerous problems we find ourselves in. To bring things into context, our money habits have led to the money challenges we face. As stated earlier, the people who make it financially are those manage their money well.
In this article, I will be sharing some of the strategies that I have learned and adapted to my life to better manage my money.
Looks Can Be Deceiving
When they were researching for their book, The Millionaire Next Door, the authors set out to find the qualities of the affluent in American society. As part of this process, they conducted a survey where they invited a test group of millionaires to come and answer a few questions in return for $200.
They organised a venue for the event and hired the best caterers and ordered the finest food. This was, after all, an event for the wealthy. Well, they had a few surprises in store. Firstly, the people who showed up didn’t “look like millionaires”.
On the contrary, they looked like regular people who wore regular clothes and mostly drove regular cars. The second surprise was that none of them touched the fancy food that was on offer but opted for crackers and sandwiches. What they went on to discover during their research was that the people who “looked” rich were nothing more than high spending, low net worth individuals.
Even though they earned a lot of money, they also had a very high appetite for spending money on lavish living. Before you read any further, decide whether you want to be rich or are content with the appearance of being rich. If you want to actually be rich, then I invite you to read on.
I did not originate the methods I will be sharing with you but learned from those who have made it ahead of me. Here we go!
1. The 10% Method
I learned this method from the book The Richest Man in Babylon. The book follows the stories of individuals who managed to move from places of financial disadvantage and build great fortunes by applying specific principles.
One of these was a simple saving and investment plan that applies regardless of the amount of money that you are starting with. The method involves saving 10% of all the income that you earn. The principle states “A part of all I earn is mine to keep”. The idea is to take 10% for yourself first and save it then take care of all other expenses after.
This is one of the methods that I tried out early on as a lot of the financial mentors that I encountered either made direct mention of the book or taught the exact same principle without necessarily referencing it. The idea is to accumulate a substantial amount which can then be invested usually within the space of a year or so.
Here is an example. Let’s say you earn $1,000 per month. Before you even pay your bills or anything else, you take out 10% off the top. Robert Kiyosaki talks about this in his book Rich Dad Poor Dad and calls it paying yourself first.
If you do this for a year, you will have $1,200 in savings. Once you have this amount, look at ways for you to invest and grow your money. This can be through an investment which will offer steady returns over time or in a business venture that you have a good understanding of.
Reinvest whatever you get from your investment and take advantage of compound interest. These days there are many ways that you can get a steady return on your investment while keeping your money relatively safe. When you spend time doing your research and getting advice from qualified people, you will grow your money.
There’s always an outside possibility that you may lose your money and start over again but if you do this consistently for a year, you would have formed the habit and find that you can start over again as a much wiser person. Emphasis has to be placed on making sure that you study and research good ways of making your money grow.
2. The 30% Method
The next method is the 30% method. I learned this particular method from Jim Rohn. I recommend that you get The Ultimate Jim Rohn Library which is an audio-2book collection of some of his greatest works. There are a few teachers who parallel him in my humble view. I have benefitted immensely from listening to his recordings.
He provides practical, straight to the point personal development teachings that have been tried and tested by his many students over the years.
Here’s is Jim Rohn’s system that took him from a young struggling husband and father to being a millionaire. He credits this system to his own mentor who showed him the way out of the darkness into the light.
Jim recommends that, for every $10 that you earn, save $3 and spend $7. Of the $3 that you save, $1 goes towards savings. This is money that is strictly meant for investments like stocks or mutual funds that earn you a steady interest over time. This is the nest egg that you never touch but steadily grow for your future.
The next $1 is for what he calls active investments. You must use this money for ventures that grow your money through your own efforts. This can be an online business like starting your own financial freedom blog like this one or joining and growing a multi-level company.
If you do your research, you will find many income opportunities that you can take advantage of. Just make sure that whatever you do put your money in has a high chance of providing returns. I would recommend that you start off with safer investments then as your money grows, take part of it and invest in higher risk, high return opportunities.
The last $1 goes towards giving. This can be to your church, favourite charity or noble cause. This is a principle that the mega-wealthy people practice and it seems to have the effect of making them richer the more they give. It’s an interesting concept but the more you give, the that comes to you.
3. The 6 Jar Method
We’ve saved, what in my opinion is the best financial management system, for last. I feel that this is the most holistic approach to financial management that I’ve come across. Introducing the 6 Jar System for financial freedom by none other than T. Harv Eker.
He shares this method, among other places, in his book Secrets of the Millionaire Mind I can’t recommend this book more. It is among the best and most practical of the hundreds of books and audio programs that I have read or listened to.
T. Harv Ekers system involves 6 different jars, pots or accounts. The beauty of this system is that it works well both for children and adults.
For every $10 you earn, this is how you distribute it:
1. 10% goes into the Financial Freedom Jar or Account also known as the FFA
The FFA or financial freedom account is your nest egg which you never spend. This is the lump sum that you invest towards giving you a steady income in your later years. This money is invested in safe investments or real estate that will work for you and provide passive income. Eker calls it the Golden Goose. You never kill or eat it.
2. 10% goes into giving Jar or Account
Just as in Jim Rohn’s model, T. Harve Eker recognised the importance of giving and encourages it in his money management model.
3. 10% goes towards the Long Term Savings For Spending Jar or Account
This is a savings account reserved for long term savings like buying a car or other costly item. 10% of all your income goes here.
4. 10% goes towards the Education Jar or Account
The education jar is used to buy books, seminars or classes that help you grow towards your goals in life.
5. 10% goes towards the Play Jar or Account
The Play Jar is your fun jar and must not be allowed to accumulate for more than 3 months without spending it. He calls this the fund for your spirit. He states that oftentimes we self sabotage and lose everything when we fail to feed that side of us. He points out incidences where people build for years then lose it all because they neglected themselves.
The play fund is blown on yourself. This is money that you use to do whatever you want with.
6. Necessities Fund
This fund goes towards your necessities like shelter, food clothing and your other day to day expenses.
As stated before in this article, we are habitual beings and the idea is to start building these habits as soon as possible. Choose a model from the 3 above that resonates with you and start at it right away. The sooner you start the better.
Let me hear your thoughts and comments on this article in the comments section below. I hope this financial freedom blog post has started you on the journey towards your own financial freedom.