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We don’t all have the time to read a 300-page book. We might not even have a few minutes to read a 2,000-word article! If you want a short and simple guide on the basics of how to manage your money, then this article is for you!
“A big part of financial freedom is having your heart and mind free from worry about the what-ifs of life.” – Suze Orman
Before we begin, don’t forget the GOAL of managing your money:
Financial Stability and Financial Freedom
It’s difficult to enjoy life when you’re buried in debt, worrying about where to find money to pay the bills, and when your entire family is suffering from poverty and lack. On the other hand, it’s much easier to enjoy life when you have more than enough money and resources to pay the bills, buy good food, buy entertainment, travel, help the needy, and more. It gets even easier when you no longer need to work at a nine-to-five job because your investments earn money FOR you and you have the time and resources to do the things you want WHEN you want.
That’s the goal of good financial management, and that’s what you’ll learn here.
“No one can feel easy or safe who is living from hand to mouth.” – Orison Swett Marden
How to Manage Your Money 101
Learn to Save First / “Pay Yourself First”
Before you can use money to earn more money, you need to learn to save it first. While we think we can simply spend less and hopefully have some cash left over, what usually happens is that we keep spending until we have nothing left. The best way to save money is to put some into your savings BEFORE you spend it.
You may think you can’t live on less, but if you think about it you learn that you already do. Have you checked your income tax lately? The reason why you don’t feel its impact is because it’s taken out BEFORE you get your hands on your money. Thanks to that, you simply learned to live on the amount you have left. Why don’t you use that technique for saving money as well? Save at least 10% of your income in a separate bank account (or anywhere you won’t be tempted to spend it) and use it to invest in your future. You’ll automatically learn to live on less building wealth.
To learn more, read:
“A part of all you earn is yours to keep, and if you cannot save money, the seeds of greatness are not in you.” – W. Clement Stone
Pay Debts ASAP
Nothing crushes opportunities more than getting buried in debt. You’re forced to stay at a dead-end job because you need the money to pay your debts. You can’t risk changing careers or starting your own business because the credit card companies are already at your throat and they’re threatening to take your house. You also lose the love and support of your friends and family because you kept borrowing their money and you kept forgetting to pay them back.
You’re suffering like that for what? An expensive new cellphone or gadget? An entertainment system? An overpriced vacation trip? Weekly nights out with friends?
It’s not worth it.
The best way to avoid getting buried in debt is to never borrow money in the first place. If you already owe a substantial amount of money, remember that you can still pay it all back. Like saving money first, set aside a large part of your income every month to pay your debts and learn to avoid borrowing any more money.
To learn more, read:
“No one can be happy, no matter how optimistic, who is forever in the clutches of poverty, of harassing debt.” – Orison Swett Marden
Start Investing: Make Your Money Go to Work FOR You
You can stuff your savings under your mattress or you can cram it into a bank but neither would do you much good. Similar to how $100 was a lot of money 50 years ago but isn’t worth much now, inflation eats away at your money’s value if you don’t make it grow. There are several ways to invest money in order to earn more:
First, invest in yourself (your skills for your career or business). Study the things that add value to your life: learn how to start and manage businesses, learn to lead and manage people, learn how to invest, learn to be more productive, learn how to take care of your health, and more. Markets can crash and businesses can fail, but your ability to create value will remain. Invest in yourself and your earning potential as, in the end, you are your own greatest asset.
Next, diversify and invest in other assets such as stocks, bonds, mutual funds, properties, businesses, and so on. My friend told me that most of her successful friends don’t usually talk about “personal finance” or investing, and I agree. I don’t talk about it either unless somebody asks me about it directly. Even then, I’d only tell them about the books and resources I studied so they can learn to make their own decisions and invest by themselves.
For safety’s sake, you have to diversify and own a lot of different assets or investments. While you can indeed build a successful business or career and earn millions, let me ask you this: what do you do with your surplus cash? Will you spend it all on “the good life” and “cool stuff” you don’t need? Will you stuff it away in a savings account where it will just get eaten up by inflation?
What will you do when your business fails or you get injured and lose your ability to work? Will your income, business, and lifestyle go down with you, or have you invested in assets that give you enough cash to survive and thrive? Never forget that possibility and always remember that you can invest to earn financial freedom and stability.
“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” – Robert G. Allen
Investing is simple especially if you’ve studied how to do it well. Although there’s a lot of things you’ll need to learn, just take it slowly and study it one financial lesson at a time.
By the way, if you want a hassle-free first investment, invest in a low-cost stock index fund. Based on my research, stock index funds are some of the best investment vehicles out there. Then again, I prefer stress-free long-term investing. If you prefer big risks and deals and daily trading, you might want to try making money through other assets.
To learn more, read:
“Risk comes from not knowing what you’re doing.” – Warren Buffett