(4) Four steps to improve your economic situation

June 17, 2017

By Eddy Montilla.


Told from the most unreal situation to the one most likely, people’s money come from three possible sources: They won the Powerball jackpot, their parents are millionaire or their money comes from the job they do for eight or more hours per day.

If you belong to the first or second group, do not spend your time reading this article. Instead, use your money and head for the sake of your family, friends and others who were not as fortunate as you (if you are intelligent) or do whatever you want with it and live up with the consequences of your wrong actions because of a riotous living at the end (if you are a fool). For those who belong to the third group, it might be important to know how to improve our economic situation by following these steps:

Step 1: Settle your debts, if you have any, to start from zero

Debts are like popcorn: You just put three popcorn kernels into a sauce pan with hot oil, and moments later, you will have more than you can imagine. Let your debts grow and you will quickly be strangled by the burden of them. There is no growth when you are overwhelmed with debts since interests will devour your salary. Sooner than later, you will get to a point where you can only pay interests while the amount of your debt remains intact or, worse still, keeps growing. Specially for those who do not have experience in money matters, I do not recommend to get into debt in order to start, for example, some business, particularly these days when more and more people are taking high risks and investing in almost every possible area. Your risks are high your chances are low.

Step 2: Reduce consumption and avoid unnecessary expenditure

Everybody knows people who have an excellent salary and, despite of that, have to juggle to make ends meet. In the opposite direction, there are a lot of people who live with a very modest salary, but without economic worries. Where is the magic wand? It does not exist. The difference between these two parts is the way money is administered. If you impose restrictions on your expenditure today by buying, for example, just a slice of cake, you will be able to buy a whole cake in the future. The point is not to take a vow of poverty, but not to try to live in a level of wealth where you are not at present, considering your current salary, a level that goes beyond your economic strength. Do not buy unnecessary things just for social pressure and live according to your real standard of living in concomitance with your salary. In short, don’t live beyond your income.

Step 3: Close your wallet and save as much as you can

There are dozens of excuses for not saving money: Low salary, high cost of living, etc., and most of them are … Inexcusable! Even in heart-rending poverty conditions it is possible to save money. The issue is if you have the firm determination to start first and keep doing it later. If you work hard on the step 2, you might find yourself at the end of the month in a very pleasant and until now unusual situation: With money on your hands. But in order to see that, your efforts must be directed toward the achievement of your goal, cleansed of all prejudices. Many people, when they make a purchase, take the decision on social pressure grounds, because of the whims of fashion or buy something on an impulse. I only have two pairs of shoes and do not have the least intention to buy more since, within my logic reasoning format, they are enough to satisfy my two feet. But do not worry, it is not necessary to live in the strange way I live. What you will really need is a saving plan. Make it, adhere to it and let it “roll”. Make the necessary adjustments to save 5% at first, 10% later until you can reach the desired goal: Between 20%-30% if you have a family with children and 35%-45% if you are single.

Step 4: Prepare yourself to make profitable investments

If your source of income comes exclusively from your salary, the only way you can lead a financially comfortable life is if you belong to the board of management at your company or if you have a traditionally well-paid career. But in practice, people who are bosses constitute a mere fist and not all of us have the capacity to be doctors, professors at some prestigious university, computer engineers, etc. This situation gives us only one option: To invest. Prior steps were smoothing the path to get here, which is, in the end, our main goal. Your salary should be some kind of parachute that will not let you drop abruptly in case of emergency, but investment is what will help you fly. But, what should I invest in? When and how should I invest my money? As you can see, the topic is as complex as important for our future and questions to answer might be many. So, let’s divide it into two sections and please wait for the next article: Steps to invest with better chances and low risk.

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