For someone tying to build his of her financial life from scratch, the first step isn’t savings, especially for a person who earn average or below average income, because 60-85%, if not 90% of that income would be taken by necessary expenses like feeding, rent, taxes etc.
The first step for an average or below average earner to gain financial stability is:
1. Increase his/her cashflow: with the increase of cashflow, you can then be more flexible with segmenting you finance into savings, emergency funds etc.
2. Let your expenses not grow with your income: This is one is a very important but difficult rule to obey. But if you can obey this rule for a substantial amount of time, then you’re one step closer to financial stability.
3. Learn how to grow money (Invest, Invest, Invest): This last one is also very important, because my definition of financial stability is knowing how to grow and multiply the one at hand to earn you more, and not spend it.
You can be very careful with your finances and you still don't make anything due to emergencies or unforeseen circumstances. Life can be crazy when real life happens. I have seen people lose their entire life earnings just in a minute of natural disaster. You may plan all these, save money in cash or in Bank or buy investments or so. One sick family member can exhaust every amount you have saved because you will not keep money and watch your person to die off while you save your money.
I won’t entirely agree with you Decimetre. Firstly I won’t dispute the fact that majority of the things you mentioned are true, unforeseen circumstances can happen, this is the game of life and things we don’t plan for happens sometimes.
But the question now is, “Would you now make poor financial decisions or don’t strive for financial stability because life do happen? “ No.
Health is the first wealth. This is why you may be earning the same amount with somebody and remain poor while your colleague is rich and doing well. You can be making investments, when emergency conditions happen, they will still have to go and sell their investment to use and sort the situation on ground.
Learning how to grow money is a good advice also but if a real life situation happens, you may withdraw down to your capital to use and save your self from the moment.
Yes you can be earning same with your friend and he/she would be doing more better than you financially, everybody experience life differently and in their own unique way.
But that doesn’t still zero away the chance or becoming financial stable. Intentional moves to grow in finance could still work regardless of where you stand in life.
