Experiences – Life – Inspiration 🇨🇭🇯🇵

One of the most important things I had to learn in order to achieve financial independence is simple and accessible to anyone with an income, without the need for a financial advisor or a money coach.

For the past 7 years, following this money habit has not only resulted in significant savings and investments, but more importantly, it has brought me peace of mind during challenging times.

Up until my mid-30s, I was living paycheck to paycheck without a solid financial plan for the future. On payday, I’d allocate money to cover my expenses and hope that there would be something left for discretionary spending. This lack of clarity about my financial situation caused significant stress for many years.

Before embarking on my journey toward financial independence, I didn’t have any emergency funds set aside for unexpected expenses like replacing a broken appliance or major car repairs. Adopting the money habit I’m about to share was truly life-changing for me. It’s a simple practice that anyone with an income can implement, and it’s even possible to automate.

Interestingly, I never understood why this money habit, which I’ll share soon, isn’t a part of school curriculums. After learning and applying this fundamental principle for managing money, I found it perplexing that financial independence or at least financial stability isn’t emphasized in education systems. However, this is a topic for another time, as it may stir up differing opinions.

So, how does this money habit work?

Upon receiving your income, whether on payday or at any other time, immediately allocate a predetermined percentage, say 10%, to a separate savings account. This serves as a buffer for unforeseen expenses. Additionally, allocate another fixed percentage of your income to a different savings account designated for a specific purpose. This could be a savings account for your child if you’re a parent, or for a big-ticket item you’re saving up for. However, saving alone can only take you so far. Simply saving for the sake of it is not a winning strategy.

With inflation in recent years, savings’ interest rates never outpace inflation. In essence, while savings may increase, the money isn’t working hard enough to beat inflation. This brings me to another crucial money habit: start investing.

Following the same principle on your payday, allocate a fixed percentage of your income immediately to a brokerage account where you can purchase stocks and own dividend stocks. Personally, I use DeGiro, one of Europe’s leading online stock brokers. Of course, you can use any other online stock brokerage account available in your region. I won’t delve into the details of online stock brokerage accounts here, as that’s a completely different topic requiring thorough explanation. However, if you like to know what my take is on that topic, please leave a comment. For now, it’s important to grasp that when your income hits your bank account, prioritize saving and investing your money before covering your expenses.

That’s essentially all there is to it! By making it a habit to immediately save a fixed percentage of your income first, then invest another fixed percentage, and lastly cover your fixed expenses, you’ll discover what’s left to spend guilt-free on leisure or treats for yourself, your spouse, or your kids.

I simplified the money habit for brevity, but there are other factors to consider, like managing credit card debt or addressing other financial obligations. If you’re interested in this topic, feel free to comment. I’m happy to share more habits and strategies that have helped me improve my finances.

So I hope this money-making habit has offered valuable insights. I encourage you to try it for yourself if you haven’t already. From my personal experience, this was the turning point in my journey toward financial independence. I know it sounds simple, but you might be surprised how many people have no savings for a rainy day or haven’t even thought about creating additional income through dividend payments. Once you see that money coming into your bank account from a source other than your full-time job, you might consider adding other sources of income, like from a side business you feel passionate about for example. Stepping towards financial independence isn’t about retiring early, it’s about freedom to do more of what you love while also growing financially even when bad times hit. And as we all know, economic down turns happen and they will happen again, people will get laid off from their jobs and still have to pay their bills. Keeping these facts in mind, should push you towards taking charge of your financial situation. This money habit I just described, is a small yet important step forward that you can control. What happens in the economy is never in our control, but what happens with the money in your wallet absolutely is in your control.

Oh and the reason why I call this a money habit and not a money management system is because it involves us to take these actions immediately without planning and overthinking it. I have written a small article about the power of habits inspired by the book I read called Atomic Habits by James Clear. If this intrigues you, click here to read it.

Or you can also read one of my earlier blog posts about the difference between Financial Freedom and FIRE (Financial Independence, Retire Early).

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