Cutting Your Coat According to Your Cloth.
The Second Law of Wealth Creation.
In the world of tailors and dress makers, this is the reality they work with. There is no way that you can create a coat or a dress from a piece of cloth that is too small for the pattern.
Your net income is the cloth. The trouble for most people is that the life that they want, the coat or dress they want to wear, cannot be cut from their income. The most fundamental MONEY RULE is this: You can’t have stuff if you don’t have the money to pay for it, and “YOUR MONEY” does not include the money that you can get via Credit Cards, Overdraft, Loans, Bonds, Hire Purchase, or Accounts with various stores. These are the money traps I deal with in the next Chapter. The money you can, and must, use, has to be the Notes and Coins in your wallet or bank account, the money you have earned.
One of the biggest problems regarding MONEY is the lack of PLANNING. People are never taught the importance of listing NEEDS and WANTS in order of importance, priorities, or considering how they will pay for the listed expenditure.
I appreciate that most people reading this information already have a financial situation that includes all the items I am now going to deal with. Having missed the planning opportunity they can only use the tools that will enable them to deal with their financial condition.
BUDGETING: For the needs first.
You have to budget, on paper, every month.
Write your net income, at the top of the page.
Now list the essential components that must be paid for.
- Pay yourself first.
- Accommodation. Initially rented, furnished. No need to purchase furniture.
- Food. Not what you like but what you need to stay healthy and well.
- Utilities. Water and electricity. If not included in your accommodation cost.
- Clothing. Quality and durability. The fashion stuff comes later.
- Transport. If you simply cannot walk to work.
The most critical component is this. You must be able to pay for all the above expenditure out of your net after tax income. This is Grade One Money Intelligence. You cannot, must not, live beyond your income.
The next expenditures that need to become part of the plan are:
Life and disability assurance.
No one, listen to me. No one, is going to look after you if you become a liability as the result of an accident and you have no income. You do not want to be dependent on your parents for the rest of your life. That is not a life for you, or for them. You must have Assurance to guarantee your income in the event of disability.
Medical Aid.
If you do not have free access to the best health care. A medical Plan for private hospital care is as essential as Disability Assurance.
Pension provision.
If you think it is tough not having money while you are strong and engaged in a full-time career, go, and talk to some old people who are being cared for by some charity at an old age, or frail care, facility. If their condition does not motivate you to start providing enough money for your life as a senior citizen, then perhaps the smell of urine and other body excrement will convince you of the need to make the necessary provision for retirement.
Once these essentials are taken care of and you are saving enough money you can consider:
Marriage: With all the associated, ongoing costs.
Children: If you cannot fund your own expenditure, how can you consider taking on the costs related to children?
A Bond: For the purchase of a home with a bond repayment equal to the rent that you are paying. This is fundamental long-term planning.
A Car: With all the associated costs of petrol, Insurance, and maintenance. I deal with car purchases in Chapter 6
A Cell Phone: See the chapter on Traps.
URGENT WARNING If you do a budget sheet on which you list all your income and all your expenditure, and your expenditure is consistently more than your income, PLEASE get Professional financial advice before the legal system repossesses your assets, leaves you with crippling debt, and destroys your credit record.
| BUDGET (MONTH) AND (YEAR) | ||
| INCOME | EXPENDITURE | |
| MAIN PROVIDER | ||
| SECOND PROVIDER | ||
| OTHER INCOME | ||
| ESSENTIAL EXPENDITURE | ||
| SAVINGS / YOU / WIFE | ||
| RENT / BOND | ||
| FOOD / GROCERIES | ||
| CLOTHES | ||
| MUNICIPALITY WATER / ELEC | ||
| CHILDREN EDUCATION | ||
| TRAVEL CAR OR OTHER | ||
| ASSURANCE | ||
| INSURANCE | ||
| TOTALS | ||
| NON-ESSENTIAL EXPENSES | ||
| CELL PHONES | ||
| TV | ||
| ENTERTAINMENT | ||
Copy, paste, and print this form. Use it every month. You will be amazed at the information you become aware of and the value of the saved information.