How to be good with Money
For most of us, the dream is to have a good life, whatever that means for you.
For some, it may mean getting a good job and being able to afford all that we've so far
only dreamt about.
Others might be more into falling in love and having a massive wedding attended by the
stars.
For some, ultimate political power is the dream.
Chances are, whatever your dream is, it involves having money in your pocket.
To create long-lasting wealth, it is important that you are good with money.
Being good with money has nothing to do with the amount of money you are making; you could
earn peanuts and still be great with money.
Rather, it is about combining some essential skills to ensure that you are getting the
most value from your earnings and that you are able to take care of your needs; in this
case, the bare minimum you need to have a convenient life.
I’ve partnered with an amazing financial blog – Money Under 30 – which is a leading
authority providing financial advice to young Americans.
They teach you how to save, how to spend, and most importantly how to lead a healthy
financial life.
I’ve personally been reading their site for years – it’s been a great help for
me in going over the fundamentals for financially healthy living – and I think it would be
a great resource for you all as well.
Here are some excellent pointers on ways you can be good with money;
1.
Change your mindset about Money You may be at a point in your life where you
are engulfed in the bad money decisions that you have made all your life.
Debt has piled up, your bills are unpaid and all that is in the bank is enough to get you
that box of pizza you have been craving all day.
You can't imagine a life where your money problems are all gone; and yet, you've run
into this video telling you it is possible to be good with money, no matter the point
of life you are in right now.
The first step to being good with money is recognizing that you have the ability to do
it.
This means changing your mindset about how you believe money works for you and around
you.
It means understanding that you can take control of your financial present and future, and
make your dreams come true.
If you are having difficulty believing that it is possible, look up people who have been
in your position before, and managed to get to where you want to go to in terms of financial
independence.
Then, with consistency, work towards getting that future for yourself.
2.
Save Save Save Having a savings account – or several of
them – is a very important step when looking to be good with money.
In fact, experts recommend that you should have more than one savings account as it creates
specific plans for your money.
Savings accounts serve several purposes.
First, they give you a cushion in case of an emergency.
This means that when something comes up, you don’t have to use money that was supposed
to be used to pay your monthly student debt and car insurance to pay for an emergency.
Secondly, they're useful in making big purchases.
It is recommended that one should save for big purchases, rather than using credit cards.
Buying a new machine in cash that you have saved over a period of time means that you
can actually afford it; buying one on credit means it is technically not yours until you
have paid off the credit and interest accrued.
Nowadays, it is possible to have your bank automatically take out a percentage of money
from your checking account, and deposit it to your savings as soon as your income rolls
in.
So, if you don’t have one, set up a savings account and see your goals to turn it into
a reality.
3.
Budget for your Spending Budgeting involves identifying your needs
for a period, putting a price tag on them, identifying how much you have and whether
it will be sufficient to fulfill the needs, adjusting where necessary, and then fulfilling
the needs.
The first step is identifying what you need.
Utility is the rule that applies here, and this means that if anything is not necessarily
useful, don’t write it down.
Alternatively, you can identify all your wants, right down to your dreams of funding the next
mission to Mars and then arrange them in order of what is
needed most to what is needed least.
So, for instance, an expensive pair of Louboutin boots in your list would appear way after
groceries and bills.
Second, put a price tag to the things you need (or want) for the period of time you
are budgeting and do the total.
Then, look at how much you have to spend and make a determination of whether it will be
sufficient.
If not, remove the least-needed items from your list.
If it is more than sufficient, you can invest the difference, save it or buy that pair of
red-bottom Louboutins.
Budgeting ensures that you live within your means, as you get to indulge in things you
want, as long as you can afford them.
It is advisable to make monthly budgets and stick to them throughout the period.
This means that when there are unwarranted purchases or unexpected income, the budget
is referred to before any money that wasn’t meant to be spent gets drained.
Most importantly, don’t forget to budget for ‘fun’ money.
Otherwise, you'll end up tearing into your budget on a whim.
After all, you are only human.
4.
Use the Cash Envelope System The cash envelope system works because of
one major reason; you get perspective on how you are spending your money.
When you budget, there are several key areas of your spending.
For instance, in one month, you could be expected to pay the bills, buy groceries and settle
a debt.
In that same month, you might set aside some money for fun and entertainment.
In this system, you will have four envelopes; one for bills, one for groceries, one for
debt and another for fun and entertainment.
In each of these envelopes, the exact amount to complete each of the tasks is put inside.
Therefore, when you are going grocery shopping, armed with a list and the assorted prices,
you carry only the envelope for groceries.
Putting your credit and debit cards aside and dealing with cash only ensures that you
don’t spend any more than you planned to, which is a weakness associated with using
cards.
This is especially important if you are at a point where you are using money badly and
need to get back control of your finances.
Until you feel that you are back into control, use cash only.
5.
Cut your Spending and Increase your Income This takes us back to the issue of budgeting.
At the core of budgeting is the need to spend less or an equivalent of what you earn.
When budgeting, one begins by listing down a list of the things that they need for the
period of time that they are budgeting for.
Using this list of needs, and comparing it to previous lists, you can identify the areas
where you need to cut down on your spending.
When you reduce the amount of money you spend buying things or paying bills or in entertainment,
you get to keep more of your money.
You can cut down by increasing the duration over which you budget and taking advantage
of the economies of scale.
So, if you are doing weekly budgets, adjust it to every fortnight and then every month.
Also, avoid take-out and instead start cooking at home.
Cooking allows you to make several meals at once using minimal ingredients and is generally
cheaper than takeout.
Better yet, budget for when you want take-out and when you want to eat out, and when you
have fully spent this amount, eat only food you have made.
Unless, of course, you aren’t paying for it.
While cutting down your spending, find ways to generate more income.
If you have a hobby that can make you a little money, work on it.
If you know someone whose business you can invest in for dividends, do it.
By doing these two things, you get more disposable income.
6.
Invest for Your Old Age At some point, you will be too old to generate
any new income.
Therefore, you need to start earning money now that you can spend later for your
everyday needs.
The easiest way of doing this is investing in your employer’s retirement plan, if it
is available where you work.
This involves having some money cut off from your paycheck each month and then accruing
interest until the day you retire or until an agreed-upon time.
Other ways of taking care of your income in your old age include investing in real estate,
a personal pension that invests monthly, quarterly or
yearly income, or investing in the development or marketing of
creative works and intellectual property like patents.
All these methods will ensure that you don’t have to
work until you die.
7.
Devise a Plan for Paying off Debt You can still be good with money even if you
have debt; all debts are not necessarily bad.
For instance, you may be required to take a car loan if
there is a problem with public transportation where you live.
Or, your student loans from back in college may
still be haunting you.
While debt itself is not bad, paying it off aimlessly may take you into an even worse
financial muddle.
For example, it is inadvisable for you to use
all your income to pay off your debt, even if doing so will leave
you debt-free.
Do you know why?
Because chances are that you will get into more debt to be able to
provide for yourself since you used all your disposable income to get out of it in the
first place.
It is therefore paramount that you make a financial plan to pay off all your debts.
You can start by listing down everything you own and identifying the
accruing interest rates if there are any.
You can then make a plan over several years on how you intend
to pay off the debt, taking into account your expenses and your
income.
In a situation where the debt is accruing both interest and default payments, talk to
your financial provider and come up with a plan that will
not debilitate you financially.
8.
Ensure that you get Value There are two ways to get value; by ensuring
that you don’t just go cheap and by ensuring that your
investments will result in acceptable returns.
“Cheap is expensive.”
When something is cheap, it means that the cost of production was low, which
probably means that there was a compromise on the quality.
Such a product is, therefore, likely to lose value over a short period of time.
However, when you make a point to get value for your purchases, you
look for a product that will serve you well for an acceptable period of time.
You are better off buying a pair of shoes at $100 which will serve you over a year than
one which you buy at $40 only for it to serve you only two months.
Getting values for your investment involves making a determination that the money you
are giving up will have an acceptable amount of returns.
This means avoiding putting your money into investments that look too good to be true
or are not worth the value they claim to have.
When you get the best prices for your purchases and investments, you are on your way to becoming
good with money.
9.
Deal with the Money Issue that bugs you Most At any point in time, you may have a small
issue related to money that bugs you.
For example, a small service charge from the bank could be bothering you.
Such a small issue could be a weight that you carry around and might seem more challenging
than it really is.
So, what do you do?
Deal with it.
You would be surprised at how much money you can save, or how much more you can earn, by
simply dealing with a small issue that bugs you.
For instance, dealing with an unnecessary service charge means that you will be able
to keep more of your money.
If you are doing at least 50% of the things we just mentioned, you are well on your way
to being good with money; maybe even funding the next mission to Mars.
I want to take a second now to tell you about Money Under 30 – the people that sponsored
this wonderful video for you.
They’re basically a blog dedicated to helping you millennials learn how to be financially
healthy adults.
The financial world can be a scary place – but you don’t need a PHD to navigate it.
You just need the basics.
And Money Under 30 is a great place to master these basics.
Read up on saving, budgeting, investing, and everything else you need to know to live a
financially healthy and secure life.
Check it out - moneyunder30.com.
Thank you guys so much for watching.
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