Second Step to Financial Freedom

Have your clear your debt?

If the answer is yes, then great, you can proceed to the second step to financial freedom.

What do I need to do next? Once you have clear your debt, you now have the extra money for saving.

Save at least 6 months of expenses into a saving account. How to save? That will need lots of discipline. But I am sure you can do it because you have gone thru the pain of repaying your debt.

How do I calculate the amount I need to save? Take out all the past month bills and statement, calculate all the necessary payment eg, electrical bill, telephone bill, grocery purchase, daily product purchase etc.

Add all up this will to a monthly expenses. There will sure to have some extra expenses that you have overspend. Think about it, do you really need to spend that kind of money? eg starbuck coffee (S$6), neighbourhood coffee (S$0.80). So do you really need to drink starbuck coffee everyday? or can you do with the 80cents coffee?

So now you know how to calculate the amount of 6 months expenses. Remember don't restrict yourself to just 6 months expenses, the more the merrier. But 1 year will be more than enough.

So some people will say but I tend to spend all the monthly paycheck within the month because its all in the same account. How can I save?

Go and open up another account for saving, one for investment, one for spending, one for bill payment. With so many account, how can I know how much to put into each account. Ask yourself which one is more important. Below is the example:

Saving: 20% of paycheck (Stop the saving once you have reach 6 - 12 months of expenses)
Investment: 20% of paycheck
Spending: 30% of paycheck (based on the amount you spend on the necessity monthly)
Bill: 30% of paycheck (based on the amount you spend on the necessary services monthly)

You can organise it in a way that suit you best but you got to think what is your financial goal.