Working hard for your money needs careful consideration over how to use your income effectively. If you allocate carefully you will ensure that you are living within your means and not above them.
Does a car salesman ever question whether the car you purchase is too costly and you should consider buying a smaller cheaper option and save more for yourself?
The same applies to the bank when applying for a mortgage. The bank works out the maximum you can afford to buy for and does not encourage you to buy smaller and save more.
Well, you should take charge of your own story and choose use your money according to your plan and not be enticed by the money lenders. After all, they make money out of lending to you and the more the merrier.
Before you spend you need to make provisions for life changing events and unforeseen expenses. This includes, life assurance, pension, medical aid, short term insurance and savings. A broad allocation should be 30% or more of your income to these provisions.
The cost of your debt which includes credit cards, home and car loans and any personal loans should not exceed 30% of your income. This ratio keeps your debt healthy and affordable allowing for sharp increases in interest rates.
The balance of 40% of your income should be used to live on during the month. You have already provided for savings and so you can spend the rest.
Following this formula will ensure that you have investments which provide towards your financial independence into the future. Your debt will be your target to payoff as soon as possible which will result in you having more to live off or more to save into the future. Hopefully you will choose the latter….