In this article you will know the technique of magic numberwith which you will learn How to avoid having debts.
We are always looking to have more money and it is absolutely normal behavior. We live in a consumer society and our daily bread is to see the best cars, the best accessories, the best bodies; all in order for us to spend money to get them.
Unfortunately, not everyone has control of their finances and by wanting to have more, they end up having less; due to bad debts, and as a result, our money simply “magically disappears”.
This is why it is important to know how to avoid debt.
How many can say that they are absolutely aware of their expenses? If you’re not one to raise your hand, don’t worry!
If you want to take care of your money without having to “go hungry”, you only need to learn one thing: The magic number technique.
How to avoid having debts with the “magic number”.
This is what Avraham Byers, a financial consultant with more than 10 years of experience, calls the amount you can spend per day without worrying. Byers gives a very simple example:
“Imagine that every morning before you leave for work, I knock on your door and give you $150. I will tell you that this is what you can spend in the day without feeling worries or guilt. You may spend them on groceries, an iced tea, watching a movie and save the rest; or maybe you buy a shirt. That sum is yours and you can use it however you want. And the best part is that I’m going to keep knocking on your door every day, without fail.”
This is how the magic number works. It is simply the daily amount that you can spend without having to worry about anything. But how do you know how much it is?
How to know how much is the magic number?
You just have to know your fixed income and expenses. Understanding fixed expenses as recurring and unavoidable: Taxes, payment of services, rent, etc. Knowing this information, apply the following formula:
Magic number = (Annual income (tax free) – Annual fixed expenses) / 365
Let’s say your annual income is $50,000 and your expenses are $30,000:
50,000 – 30,000 / 365 = 54 dollars (rounding the figure).
You can spend 54 dollars a day. But what happens if one day you don’t spend all you can?
Let’s say you only spent $20, your new magic number will be $88 (54 you have as a base + 34 you didn’t spend the day before)
Have you ever thought while buying something that the money you are spending was destined for something else? Having a magic number will allow you to be in control of your finances, so that you can spend consciously and without feeling guilty.
It is your decision if within the fixed expenses, you include an amount of savings. If you have difficulty saving, click here.
Procedure to take control.
Once you know the number you just have to do the following:
1. Collect the invoices of your purchases during the day.
2. At the end of the day, write down all your expenses.
3. Calculate the amount of your magic number that you did not spend.
4. Add what is left over from today to the magic number you have as a base. The result will be tomorrow’s magic number.
It doesn’t take you more than 10 minutes to do it and with this simple trick you take care of your finances, you don’t spend more than you earn, you save and you live calmer. Of course, you have to get into the habit, because if you stop doing it for a day, you will lose count of how much you can spend later.
You already know how to avoid having debts and control your money, just a few more skills are missing so you can achieve your financial independence.
And remember, if you are really interested in creating your own business, you can read our book “How to create a company while working: Discover how to manage your time, manage your money and motivate yourself while creating a company and working for another” , where you will find all the information you need to found your own company, without having to leave your job.
