How To Manage Your Money
Like The One Percent
Financial jargon and overly complicated explanations to explain simple financial concepts can be offputting for most people. Their mind just tunes out when they hear complex terminologies and calculations adding to their perceived bias that financial knowledge is hard.
Personal finance can be fun and interesting when you understand a few easy concepts that the 1% adopt to build wealth.
1. The wealth don’t become rich by chance
They don’t just sit on their laurels thinking it would be cool to be rich and laze around all day wishing that will happen.
They move to execute well.
Before they did that, they planned. The key is to work backward. They also focus their action and energy toward a purposeful goal with an end in mind.
If you wish to retire early this means figuring out how much you need to set aside monthly to reach your early retirement goal figure.
The important thing is to have a goal, this will give you something to work toward and strive for. After all, saving money just for the sake of it is boring. However, saving toward a purposeful goal, that’s exciting.
2. Understanding cash flow
Income- Expenses= Cash Flow
The rich understand cash flow very well. They have good control over the income coming in versus the income going out. They are on top of their cash flow management and tracking their net worth.
Most finance guru’s out there will tell you to stop buying $5 iced coffees and save the money to make your own coffee and you will be rich. While this is true, this doesn’t really make up the bulk of being rich.
Most finance gurus, focus on small spending expenses, like iced coffee or buying organic. While this is true, a typical rich person does not just focus on the small expenses solely all day every day. Instead, it would be better to focus on the bigger ticket spending items that you do not need like a brand new car, or concert tickets every month.
Personally, I sort the income I receive from my checking account into other subcategories. Money will be automatically withdrawn from my account for my pension and investments. I then transfer the money I spend daily into a separate card so that I know the limit I will be spending on living expenses (food, entertainment, travel, etc).
One of the best goals you can do for yourself is to simplify personal finance. Do what works best for you:
Write out my money goals and track them on a piece of paper, excel, or budgeting app.
Psychologically speaking the more obstacles you have in your way, the less likely you are going to want to manage your expenses and be rich.
Next, you also want to make sure to have at least 3–6 months in an emergency fund as most finance experts recommend this to give you peace of mind should a crisis happen.
3. The rich are smart in taking advantage of tax laws and incentives
The rich are wise in hiring tax professionals to:
Find tax loopholes to reduce tax liability
Take advantage of the incentive that is in place that most people are unaware of.
Businesses are taxed at a much lower rate than an individual person’s taxable income. Hence, most rich persons have businesses that they own and fully utilize for them to claim benefits such as capital allowances, any R&D tax incentives, and claimable business expenses.
4. The rich invest their money
First, be aware of the difference between trading and investing. Investing is for the long term with the potential for value and growth. Trading on the other hand is completely different, it is for the short term and takes advantage of the pricing mismatch in the market movements to get short-term profits. Trading is risky as 90% of traders lose money trading.
You can start off by investing in ETFs and index funds to start since they typically have a broad range of diversified portfolios at a much lower expense ratio.
5. They use good debt
If you are really bad at managing your debt, the key is to stop incurring any debt by cutting up your credit cards, not taking any more loans, and making those loan payments.
However, if you have some control of your finances assuming you are responsible with your money, it is important to manage your debt as the rich do. They use debt to their advantage.
Having a loan on a rental property that you own. Next, also makes sure that you owe less than the value of the asset that you own.
Utilizing credit cards to get points and build credit scores.
6. Do what the cool kids are doing start a side hustle
You can use all the conventional ways to get more money:
Getting a higher-paying job.
Asking for a raise.
Getting more qualifications/certifications.
It would be starting a side hustle as you see with most self-made millionaires. Basically, this involves setting a few hours a week to work on your side business.
For example, start selling products on your e-commerce store, Amazon or eBay, dropshipping, freelancing, making Youtube videos, making podcasts, starting your own clothing company, creating an app, house hacking, renting out your spare room, being a writer, flipping websites, etc. That’s the normal way most people use to build wealth.
Let’s look at another secret way the rich use as well that not a lot of people talk about.
What’s the secret the rich understand?
Always remember you are your biggest asset. It is not a particular stock, investment, real estate, or car.
You are the primary vessel that you will use to build wealth. Hence, no investment deserves more money into it compared to yourself.
No thing or investment deserves a chunk of your money more than you.
The rich educate themselves.
Self-learning, reading books, networking events, etc.
Conferences, seminars and online courses as well.
They realize the value they gain by educating themselves and how this will help the grow down the line. Thankfully you are the same since you are reading this article to educate yourself.
You need to give to yourself first before you can give to other and best serve others.
The key is to have the right mindset, to begin with, and utilize your knowledge to strategically align your goals and monitor your cash flow (inflow vs outflows). Even if you hire a professional financial advisor they will tell you the exact same thing. You just plan, budget, have an emergency fund, save, invest, etc.
Lastly, be sure to execute your plan because planning in itself without action doesn’t do anything. And as with anything the key to getting what you want is to get started.
CONTRIBUTED BY Marcus Tan
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