How to reinvent your relationship with money

How to reinvent your relationship with money
How to reinvent your relationship with money

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Prisoners of a cyclothymic and dangerous economy such as the local economy, many people today feel that Your relationship with money is “broken” and that needs to reinvent itself. This feeling of constant instability not only generates anxiety, but also It also forces us to rethink how we manage our income and savings.. These fundamental pillars of personal finance are continually challenged by an abruptly changing economic environment, often leaving us disoriented and without a clear strategy. Economic volatility in our country is not a new phenomenon, but it seems that each crisis hits us with renewed intensity. Fluctuations in the labor market, uncontrolled inflation and political uncertainty contribute to this feeling that economic stability is a moving carrot that is never achieved. However, amid this discouraging outlook, it is crucial to remember that there is always room for adaptation and improvement. In today’s column, we will discuss how can we increase our income and develop more effective savings habits. For it, we will share some tips practical practices that can help foster the reinvention so necessary to successfully navigate such a challenging economic environment.. Reinvention is not only a response to the crisis, but also an opportunity to build a healthier and more sustainable relationship with money, that prepares us to face inevitable future fluctuations.

If you work as an employee, it is most likely that you have only one source of income: your salary. That is the first thing you must modify if you want to start the path towards financial independence. The benefit of diversification is clear: when one source of income suffers a setback, the others can compensate. What if none of them are affected? Then the path to your goal accelerates and you can reach it sooner than planned.. It is important to clarify that it is not about changing your full-time job for several part-time jobs. The generation of multiple sources of income must occur in two different axes: investments (passive financial income) and new ventures (monitored passive income). i) Source of passive financial income. With inflation and interest rates falling, investing in pesos is not going through a good time, but you can always find potable opportunities. This can create an additional source of income, reducing the risk of relying on a single source and increasing your total income. What to invest in? Some interesting options include fixed-income mutual funds, stock bonds or fixed terms that adjust by UVA. If you do not know these instruments, I recommend you investigate their characteristics and risks. You will find a lot of useful information on the web. Also, last week we analyzed instruments for generating passive income in “hard currency” that may be useful to you. ii) Source of monitored passive income The Internet has made it easier to access new opportunities, removing many barriers to entry and allowing for a more accessible trial and error strategy. If you work as an employee, the first step to achieving this type of income is to identify a product or service related to your knowledge and activities.. What are your hobbies? What are you most passionate about? What is your favorite time of the day? What is your most outstanding skill? Are there specific tasks in your current job that you enjoy? What did you dream of being when you were a child? Once the product or service is defined, you can follow the nine steps that Jeff Haden proposes in his article Start a Business: 9 Steps to Validate a Business Idea While Keeping Your Full-Time Job. His ideas are really excellent. If you work for yourself, instead of immediately diversifying into different businesses, you can “scale” your current source of income by incorporating ideas that allow you to get paid more than once for the same work.

First step: apply the “Pay yourself first” rule

The common financial path is quite simple: you collect your salary, you pay expenses and, if there is anything left over, you save. However, this approach usually leads to income quickly “melting” between fixed and variable expenses and the occasional indulgence. The “pay yourself first” concept proposes a different approach: set aside at least 10% of your monthly income as soon as you receive it, and then take care of expenses with the rest. With that 10% you can buy strong currencies such as the dollar or the euro, or automatically place it in a fixed monthly term to resist spending temptations. How to face monthly expenses after setting aside that 10%? Your first objective will be to reduce expenses to adapt to living with 90% of the income you used to have. In this note I will propose some mechanisms to save money. Once you get into the habit of paying yourself first for a few months, you will see how your reality adapts to this new financial methodology and not the other way around.

Second step: work on your savings stimulus

The right stimulus is crucial to sustain the savings effort. Define a clear objective for your monthly savings; Without a specific purpose, it is easy to break the habit. If you are starting out in this field, I recommend that your first goal is to build an emergency fund. This fund should be equal to six months of your monthly income and be easily accessible (called “liquid” in finance). In this note I will explain in detail how to achieve it. Once you meet this first goalyour next task will be to save to increase your total income through investment. How are savings and total income related? By saving to invest, you will be creating a new source of passive financial income. Use investment vehicles like those seen in the previous point to achieve this. The slow but steady growth of your income will motivate you to continue saving and even increase your savings habit.

Third step: know and apply the supremacy of the savings rate over the investment rate

You might think: “Why should I invest if I have little money and real returns today are low?” However, this is a common mistake. Various studies show that the savings rate is more important than the rate of return on investments. In her article Here is why your savings rate is more important than your investments’ returns, Anora Mahmudova explains that if you save 5 .5% of your monthly income and invest it at 1% annually for 30 years, you will have greater wealth than saving only 1% and investing it at 10% annually. The conclusion is clear: If you acquire the habit of saving and investing regularly, even if the rates of return are not very high, in the long term your effort will be rewarded. Therefore, focusing on increasing your savings rate is essential to ensure a solid and prosperous financial future.

Reinventing our relationship with income and savings is a critical step toward strong, lasting financial stability. The importance of these concepts cannot be underestimated. By applying these strategies, we are not only protecting our present, but also building a safer and more promising financial future.. The key is consistency and staying motivated by our goals, knowing that every small effort counts and that, over time, we will be rewarded. We will follow it next week with more personal finance and investment material.

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