How To Manage Money
10 Insights From The Wealthy You Can Apply To Manage Your Money.
I’m sure most of you have heard of Robert Kiyosaki, the author of the famous book ‘Rich Dad Poor Dad’. One of his points that resonated with me is this: “The poor and middle class work hard for their money. The Rich have their money work hard for them.” This statement is really profound.
As a Certified Financial Planner® my purpose is to help Entrepreneurs, Founders, Business Owners, Startup Companies, and their families realize their hopes, dreams and goals through the powerful leverage of our financial planning process. In this post I would like to share what I have learned by helping wealthy people manage their money.
The wealthy manage their money unlike everyone else does. Their mindset about money is different and they make different decisions about their money. But, even if you’re not wealthy, you can still manage your money like the wealthy do, and reap the benefits of doing so.
10 insights on how the wealthy manage their money
As a species, humans are wired for instant gratification. We love it and evolution shaped us that way long before our modern monetary system came about. In becoming wealthy, learn to forego instant gratification – it only ends up hurting you, nothing else. Stop making decisions that will make you happy now but hinder your future wealth.
Understand the difference between wants and needs
Don’t confuse wants with needs. For example, “We need a bigger house” is a common mistake people make to disguise wants as needs as a means of justifying them. This allows us to feel better about making poor financial choices. Wealthy people understand the difference between wants and needs. They also don’t lie to themselves.
The wealthy invest automatically
The mentality of investing is important and automatic or not, wealthy people believe so strongly in investing that they do so habitually. A bit like brushing their teeth actually. There’s no question about how much they invest, they know how much they must invest because they set goals and know how much money they need to reach those goals. According to Roy Sheppard, a millionaire and finance expert, he recommends saving 15% of everything you ever earn for the rest of your life.
Wealthy people understand the cost of debt
Let’s use the example of purchasing a new vehicle. A poor person’s approach is usually about what the monthly payments are. Whereas a wealthy person will question what the car is really going to cost them. You see, when you multiply the monthly payment by the number of months of the loan, you will see a shocking number that is way more than the cost of the car and that’s before depreciation, taxes and other expenses. This is the number you must be comfortable with. Or better yet, be uncomfortable with it and keep your old car.
Start with a goal and work backward
Basically, this means know what you want and what it will take to achieve it. If you don’t know what you want, you’ll get something that’s the result of decisions made for instant gratification. Decide what you want your life to be like, research about how much that will cost and then do what you need to do to get there.
Live within your means
Remember point number 3 about investing automatically? If you do this, it takes care of this point. If you start by investing as much as you must to reach your goal, then you can take what is left over and do whatever you want with it. Doesn’t that sound so liberating? By making saving a priority, you won’t spend more than you can afford to. The important thing is that you spend way less than you make.
Make short-term sacrifices
Start thinking bigger than right now. Think about the decisions you’re making now and what the impact will be on your future. To get wealthy and to be wealthy, is to have more of what you want. At times you have to trade off what you want now for more of that or something better later.
Ask for help
So, we all have different skills and we’re all good at something. If money and financial management is not your strong suit, let a professional help you. Focus on the unique value you bring to the world to make money to invest. Don’t render yourself completely clueless about managing money either. Learn and understand the basics at least well enough to know what your financial advisor is telling you.
The wealthy do math
I’m not talking about complex issues such as trigonometry and advanced polynomials here. What I’m referring to is simple addition, subtraction, multiplication and division. When deciding, wealthy people run the numbers. For example, poor people believe that when a car begins to present problems, it’s better to get a new car so they don’t have to spend as much for maintenance and repairs. This is not necessarily true as you could spend thousands of dollars a year repairing a car and be financially way ahead when compared to buying a car. Think about all the expenses of a car purchase and do your math.
Take advantage of opportunities
Wealthy people know that things like IRA's and 401k's have tax advantages and they take full advantage of these. When an opportunity like that arises, take advantage of it. Remember, do the math (number 9) and you’ll see exactly how beneficial this is.
Managing money like the wealthy is something you can learn and what’s great is, it’s not that difficult. If you want to be rich, manage your money using the principles above. Learn to make some sacrifices in the short-term and learn to work hard & smart to earn the money you invest.
Thank you for reading!