Start with a Small Emergency Fund
It is okay if you cannot save three to six months of living expenses right away. Begin by setting aside enough in a separate savings account to handle common small surprises, such as unexpected transportation or medical costs, then increase your goal as your situation improves.
Look at Actual Essential Expenses, Not Just Percentages
The 50/30/20 rule is only a guideline. The same percentages cannot be imposed on people living in high-cost areas or earning irregular incomes. Start by listing housing, food, transportation, insurance, and minimum debt payments from your after-tax income.
3. Create a Debt Management Strategy
Pay off high-interest debt, such as credit cards and loans, first. Pay your credit card balance in full each month to avoid interest. If you have multiple debts, choose either the snowball method, which pays off the smallest debt first, or the avalanche method, which prioritizes the highest-interest debt. Set up a repayment plan for student loans and make extra payments when you have room in your budget. Paying down debt is just as important as investing: paying 20% annual interest is like losing a 20% annual return.
Consider the Possibility of Investment Losses
Long-term investing can benefit from compound growth, but no rate of return is guaranteed. Keep your emergency fund and near-term expenses separate from volatile assets, and review each product’s fees and level of diversification.
5. Set and Track Financial Goals
Set specific, measurable financial goals. Instead of saying “save more,” write down an amount and a deadline, such as “build a 5 million won emergency fund within one year.” Separate your goals into short term (one year), medium term (three to five years), and long term (10 years or more), and review your progress every quarter. If the target does not fit your reality, adjust the timeline or monthly savings amount.