Financial Segments
Most of us think of our personal finances as money in and money out. However, if you hope to have any control over your money, you need to consider as many segments as possible. Obviously, some people will have more segments than others.
As I hope to help you build a better mindset for money, I would encourage you to consider the segments of your finances as they stand now and consider what segments you will add later.
Operating Income Segment
Generating income is your main source of survival. Even the homeless depend on soliciting donations to survive.
Many put their survival in jeopardy by adding questionable items to their list of needs. They force themselves to make more than most with how they decide to live.
But I want you to think more basic and long-term than that. While you might say that you must make a certain amount to make a living, I must question why you have chosen your list of needs. Do you really need all that is on your list now? Can some of those items wait until you are better off?
Now, I want you to think about your plan to grow your income potential and add to your self-confidence for income options.
People or businesses pay for skills. How skilled are you? Are you trying to add more skills? Although some consider experience in a job translating to evidence of skills, with technological changes, job experience may not transfer as well as it used to.
I am sensitive to this issue since I had to make dramatic changes to my skill set after losing a job that I worked for 12 years and found that I could no longer compete for that level of pay, due to technological changes.
Will you allow yourself to be forced to go back to school? Or will you keep yourself aware of new software, AI, or any other changes going on where new skills would make you more valuable to potential employers?
This segment needs regular attention and consistent skill improvement. You have competition with new technologies, creating new opportunities! Are you ready?
Survival Spending
There are so many shiny things available in stores and online! And advertisements letting you know where they are available can be seen on your phone apps, on websites, on billboards, on TV, and heard on radio.
But do those shiny things fit into your budget for survival needs?
Do you manage your spending like you manage your diet? Most do. They spend too much and eat too much!
If you used a survival mindset, you would become a better spender. How many sets of clothes do you need? How much food do you need to eat? Do you need to spend that much on a house or a car? Do you quantify your needs when you shop?
Your spending segment requires you to take control. The ability to add beneficial segments grows from attention to details and qualifying what is important to your survival.
Strategic Saving
The segment of saving can lead to other segments of value to your future.
Savings are more consistent if you can pull them from your income before you start to spend. That old saying that you should live on less than your means alludes to having an amount not spent to put into your pool of savings.
Your savings account is your pool of savings. And, like a swimming pool some of your savings will evaporate over time if you do not add more consistently.
Savings become your lifeline in any emergency. In the absence of savings, you will need funds pumped in from other sources that require a drain on your resources on their return (a debt to pay back).
But savings have more value when passed on to other financial segments. They give you the opportunity to enter the segments of investing in your retirement, investing in income-producing assets, and being generous to those in need.
Financial Investing Segment
Savings make investing possible, after you have set up a reserve to cover unplanned expenses and any job loss or major setback.
Investing offers the opportunity to multiply your reserves. There are many options for investing but at its core is the percentage of return. That is, how much will you profit by investing? There are no guarantees but smart investors, with knowledge about the market, will find a way to get a return on their investment.
For the sake of argument, most investors want to know how long it will take to double their money. And there is a formula for that, called The Rule of 72:
The Rule of 72 = 72/Rate of Return = Years to Double the Investment
Example with 6% Return = 72/6% = 12 Years to Double the Investment
Money making money! Profits are re-invested, which adds to the momentum! The concept is called compounded earnings or just compounding.
Insurance Segment
Protection from the storms in life and accidents that threaten your income, your savings, your home, your vehicle, and any of your assets can come from insurance.
Insurance reduces your risk of loss. So don’t be ignorant about the coverage you need for good protection.
Read the policy fine print!
Segment for Shelter
Rent or buy? How much room do you need? What can you afford?
You need utilities. Water, heat, and power. Cable is a luxury. Streaming is not a necessity. You can read more. Get what you can afford but know the difference is between a need and want.
Segment for Transportation
Transportation allows you to get to work, visit family and friends, get the things you need, and may give you a way to add income.
However, transportation costs. You have control over the cost of the vehicle, which comes with an associated cost of operating. Define your needs before you buy and know that a used vehicle will most always be the better value. Especially if you can pay cash.
Insurance will vary depending on the age of the vehicle and the size.
Short Concerns
Your life will have much less stress financially if you frame your segments with survival in mind. That will allow you to save.
Savings will give you options. The most important thing is to be able to avoid debt. Savings can also help you add to your skills for earning income.
Then, with enough money on hand, your savings will lead to other segments of financial opportunity.
Long-Term Growth
If you can avoid pride in your spending and greed in your investing, your consistent savings habit can lead to compounded earnings that will provide for a bright future, a satisfying retirement, and generational wealth potential. If you give your children a good example to follow, they can build on what you have started and are willing to share advice and resources.