Managing finances requires careful planning to achieve financial stability. Here are four priorities to consider in your financial plan to ensure a safe cash flow and a peaceful life.
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Have you ever had concerns about your personal finances? Does it feel like the money you work hard for disappears too quickly? Why does your salary seem to vanish just paying bills and covering expenses? If this resonates with you, it’s important to establish financial priorities to achieve a more organized financial life. According to an Instagram post from @mindsetduit, having clear spending priorities can help us feel calmer and more in control. Here are the four levels of spending priorities you should understand and practice for healthier cash flow.
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Main Priority
At this level, expenses fall into four categories: routine bills, basic needs, debts or installments, and protection.
1. **Routine Bills**: These include payments like electricity, water, telephone, and children's school fees.
2. **Basic Needs**: This covers grocery expenses and daily household necessities.
3. **Debts or Installments**: Dedicate funds for repaying debts or installments such as bank loans, credit card payments, and mortgages.
4. **Protection**: This involves insurance.
Every individual and family should have basic health insurance, critical illness coverage, life insurance, or BPJS. If you have extra funds, consider setting aside a budget for home and car insurance to safeguard against unexpected damages, as these can be costly. Meeting the requirements of this first priority is essential as it forms the foundation of your financial stability. Aim to allocate at least 50% of your income to fulfill these needs.
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Second Priority
This stage groups expenses into three categories: emergency funds, planned savings (like pension funds), and investments. According to www.cnbcindonesia.com, an ideal emergency fund should cover three to twelve months’ worth of expenses, based on the time it may take to find a new job after an unexpected situation like job loss.
For instance, if your monthly salary is 10 million and your regular expenses amount to 5 million, your emergency fund target should range from 15 million (3 months of expenses) to 60 million (12 months of expenses).
If saving for three to twelve months isn’t feasible yet, try to allocate at least 20% of your monthly income toward emergency funds, planned savings, and investments. Remember, it's crucial to gain knowledge about different types of investments before committing, ensuring you make informed decisions.
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Third Priority
At this stage, you can set aside a budget for entertainment and subscriptions. After a long workweek, it’s important to take breaks. Whether it’s going to the mall, watching a movie with loved ones, or enjoying shows on Netflix, these activities are vital for relaxation.
Forth Priority
In this final stage, consider budgeting for travel, hobbies, and socializing. These activities not only fulfill social needs but also contribute to your happiness and mental well-being. Enjoying the fruits of your labor is important, and spending on these experiences can enhance your quality of life. By understanding and practicing these priorities, you can work towards healthier financial habits. Happy budgeting!
