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You’re probably well aware of the importance of having emergency savings to prevent unexpected expenses from ruining your finances, but there are other things you might want to set aside. there is. That is “personal funds”.
As the name suggests, “private funds” are money that you set aside for non-essential but nice-to-have purchases, such as concert tickets, clothing, and other splurges.
“This is not an emergency fund. It’s not a rainy day fund. It’s just for you,” says Rita Chen, certified financial planner and CEO of Blue Ocean Global Wealth. told CNBC Make It.
While it’s important to save for emergencies, a personal fund allows you to treat yourself once in a while without spending a fortune. Here’s why you should consider it and how to get started.
Whether you’re saving money for a holiday or preparing for a qualification course to land a new job, ‘private finance’ can be useful for you both personally and professionally.
“Who better to invest in yourself than you?” Chen says. “Investing in yourself could look like self-care and health, or it could be learning new skills for a new job.”
Let’s say you want to make a career change that requires additional training, such as a specific certification. Depending on the industry, it can cost hundreds or even thousands of dollars to complete the education, training, and exams required to obtain a professional certification.
This is where “own funds” come into play. By setting aside money in advance, you can use it to improve your professional skills without disrupting other household finances, Chen says.
Ms. Chen implemented this strategy in her own life as well. Before she became her Certified Financial Planner 20 years ago, she learned about her associated costs and how she could cover those expenses while caring for her two then-young children. I was evaluating it.
Her solution was to create a “private fund” that would allocate funds after other financial priorities were taken care of. She then used it to pay for her tuition and exam fees.
Another perk, Chen says, is that it can help you avoid taking on high credit card debt by relying too much on your card for discretionary purchases, regardless of what you use your “own funds” for.
Before you set aside money for your “own fund,” make sure you have your financial priorities like housing and food in place.
One common strategy is the 50-30-20 method. This method involves setting aside 50% of your income for necessities like rent or mortgage payments, utilities, and groceries, and 30% for discretionary expenses like “personal funds.” The remaining 20% goes towards savings and investments.
Even if you can’t stick to these allocations exactly, Chen says it’s okay to start small when you start building your “own fund.”
“Don’t focus on the amount,” Chen says. “Even if you take a little bit out of every paycheck, you can see how it adds up.”
And once you’ve saved up your “own money,” don’t be afraid to actually spend it.
“We don’t want people to feel stressed about working hard to save this money and then seeing it dwindle,” Chen said. “Your ‘private fund’ is a judgment-free zone.”
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