If you’re new to this series, part I is available here: A Roadmap to Financial Freedom I — Introduction
Finance is a strange topic. In the Caribbean (where I’m from), money is a taboo topic of conversation. So much so that few young adults even know how to deal with their own. The reason I chose to call this series a “roadmap” is because of how I intend to lay out the steps I advise you to take. We’re aiming to have a goal in mind. The goal will define where we’re going and how we’re getting there. As The Balance mentions, financial planning is never a sprint, it’s always a marathon.
Start by Setting Goals
Once upon a time, at the end of college, I believed in get-rich-quick schemes. You have to remember that, back then, even with the internet, the idea of a Ponzi Scheme wasn’t that well known. These schemes, as defined by the US Securities and Exchange Commission, are “business setups” that pay users already a part of the system with investment from newly joined individuals. They prey upon people like I was back then — young, naive, and convinced that they knew better than the rest of the world. There is no more damaging idea to your long-term financial success than thinking you know better than everyone else around you. Despite my two-year stint in a Mid-Level Marketing company (not “really” a Ponzi scheme, but close enough), I did take away from them a few solid financial tips that helped me later on in life.
How Much do You NEED to Earn?
How much money would you be comfortable with a month? Note — I said COMFORTABLE. Given a choice, I’m sure everyone would state some outrageous figure. But we’re not joking around here; we’re trying to be reasonable. Calculate, just off the top of your head what you need to survive every month. We’re talking about your immediate debts (we’ll get to long-term debt recovery in a later post). So, for a month, estimate what you’d need for rent, utilities, and other obligations. The term I use for this is “Bare Minimum Requirements” (BMR).
The BMR is going to form your baseline for earning. We’ll use this to figure out what you currently owe to other people and develop a method of ensuring you get those urgent debts met each month. Figuring out that first pit-stop on your financial journey, we can start looking at whether your current earning potential makes sense.
Does Your Salary Cover Your Needs?
When we start off working, we usually don’t get paid as much as we think we’re worth. PayScale mentions that as many as 46% of all Americans believe they are underemployed. What this means is that they think they could earn more, but they have to settle for whatever job they can find. Sound familiar? Not meeting your potential is a capital betrayal of your potential. But I digress. I’ll spend more detail on this in the future.
If your salary doesn’t match up to your BMR, then don’t start panicking just yet. It just means that we need to fine-tune your calculations a little bit. There are two ways that we can approach the balancing of your BMR and your current earnings. In the next post, I intend to cover both of them in detail. I’ll even give you some hints as to how to start with each.
As usual, if you find this information useful, subscribe or share it about. The aim is to offer information and guidance to anyone who needs it. I’m looking forward to sharing the next episode of this series! Until then, how much do you think your BMR should be?
Jason K. Dookeran