How do you Manage your Finances?
Making money, managing finances and multiplying it are 3 different broad topics which is tied to our financial literacy, experience with money and ideologies about money. These things interfere with how we manage our finances.
Over the years financial literacy has been an experencial and experimental one because as the year goes by I try to find better ways to manage money which has made me intentional about my financial growth and financial journey
From the moment I discovered this 3 rules to wealth creation I’ve been on a journey to financial literacy and they’ve been working as guiding principles to how I manage my finances. If you don’t like where you are financially and have the hunger to grow wealth then you stumbled on the perfect post. Read on
Rule NO. 1 : Making Money
The first rule that I’ve come to learn in financial literacy is having the ability to make money and keeping cash flow coming, when you aren’t making money and you skip to trying to maintain or multiply money trust me you’ll keep struggling for a long time or end up being a consistent borrower. So the first rule is, make money which takes me to these few points I’ll like us to deliberate on together.
1. Create value and money will flow:
Being financially stable is not about this paper called money because it’s just a means of exchange. Now money is exchanged for value and we only purchase what we think our money is what buying.
So the trick is create value be it a skill you can render, a service, something you can sell. Value attracts money and keeps it coming.
2. Get a job –
Get an income: you can get a job to earn an Income, which has to do with the value you offer and we can all agree that the level of value you can give out will determine how much income you earn which is a big reason to invest in yourself to be able to gain more income. What service can you offer? Can your deliver a good job? People are ready to pay for the service you can render
3. Invest in Yourself :
Lately I watched a YouTube video where a statement hit so hard “it’s more profitable to invest in yourself than to invest in various streams of income” it’s the fastest way to make money! Reason being that value attracts money, the more value you have to give the more money you’ll make and you’ll minimize the risk of losing so much. Invest in your financial literacy, invest in your skill, upgrade your service.
4. Business- side hustle:
I’m getting to know that owing your own business is more profitable than investing in other peoples business because you only get a % from the profit made. However let’s be true to ourselves starting a business is not easy, and majority who start don’t even have the patience to get it running from the ground. It requires commitment, dedication, consistency and self discipline which are very difficult virtues to inculcate for many.
So if you can’t start a full blown business you can do a side hustle that’s sort of a middleman business pattern or invest in other peoples business.
Starting your own business is one of the fastest ways to make money however it’s slow and requires a lot of effort and dedication.
Regular cash flow is the key to building wealth. So check yourself if this is where your problem lies, start thinking of ways to make money and raise capital.
https://paulkaywrites.blog/2023/11/28/4-reasons-why-people-never-get-rich/
Rule NO.2 : Managing Money
Making money is the first step to building wealth the next is managing money. Getting wealthy vs staying wealthy are two different things anybody can make money actually, it’s easier to make money but to keep money or manage money is hard even with all our financial knowledge, however it can be worked on by restructuring our ideologies of money and preconceived mindset on making money. An excerpt from the Psychology of money a book I’ve been reading lately
Getting money requires taking risks, being optimistic, and putting yourself out there.
But keeping money requires the opposite of taking risk. It requires humility, and fear that what you’ve made can be taken away from you just as fast. It requires frugality and an acceptance that at least some of what you’ve made is attributable to luck, so past success can be relied upon to repeat indefinitely.
Morgan Housel from psychology of money
Now this goes a long way in explaining the difference between making money and keeping money and the attitude we should put up.
1. Living below your income.
When it comes to keeping money we need to learn how to live below our means. Generally we all get a rush of different emotions when credit alerts come into our bank accounts or when we lay our hands on what looks like a huge sum of money.
We tend to want spend on looking good and looking like we have money, so upgrade our way of living, we quickly go about buying what we want and like, we even end up spending on impulse because the money is there however this mindset and mentality is not one for those trying to build wealth or come out of poverty. Our money habits matter a lot, it influences our decisions in various ways. Living below your means help you save better and focus on only things you need. This helps you manage your finances better.
2. Saving –
Now this is a deal breaker and a lot of people know about saving but have great misconception of it. Yeah you can read that again! I’m a victim of these too. We mostly grew up with the mentality that you work and save a little consistently and definitely you’ll build wealth, some others like me will save and when the going gets tough I go back to my savings to be able to survive at the end of the day have nothing left in my savings account, some do collective savings called “Ajo” here in Nigeria. Some others just save the money in their bank account.
From the book psychology of money it says
_No one’s crazy- we all make decisions based on our own unique experiences that seem to make sense to us in a given moment._
We all make decisions based on our knowledge on money.
Now saving should be putting money away for a particular need or saving to start a business that will inturn bring cash flow, or investing as a means of saving.
3. Borrowing –
Debt is a force that will not let you make wealth, the faster you can avoid debt the better. Being in debt is a habit that one forms unconsciously that can reck a person. Borrowing comes from not being able to live below one’s income or not making enough money to cater for your basic needs and some wants thereby causing one to borrow money to augment.
This is a habit that you need to be intentional about.
1. Budget Everytime your income comes
2. Live below your means
3. Pay your debt gradually till your out of debt
4. Be intentional about not borrowing
There are valid reasons to borrow, for a business or investment or certain levels of need as much as possible avoid borrowing. The money you borrow is the money you should be saving or investing.
4. Budgeting –
This is an activity that I believe it’s very flexible because you keep updating how you budget as you get better financial knowledge. Budgeting is everything! Helps you raise capital in other to make money, helps you track you income, helps you manage your expenses and also solve needs more than wants. Budgeting helps you kill the habit of borrowing and also helps you live below your means and save as well.
If you receive income monthly, daily, hourly or weekly you have to budget!
You budget what to save, what to spend and what to invest and you can even make a plan on how to repay your debts. Budgeting is planning.
What it looks like:
What do you want your money to do for you?
Investment (savings)
Self development (savings)
Emergency funds (savings)
Expenses
-Personal Upkeep
-Bills
-Tfare, food.
-Black tax (family)
-Social giving
-Entertainment
Project (goal)
Debt repayment plan
Rule NO.3 : Multiplying money
Now this is the major one we keep missing out that tells the true test of time to those who earn lots of money or who we believe are wealthy, it plays a huge role. It’s in reading books like The Richest man in Babylon, Rich Dad Poor Dad, The smart money woman and psychology of money that has given me a brother view on what it truly means soon I’ll may more book reviews.
Multiplying money is the key to stay wealthy even after years have past or economies have fallen nor governments have failed or that you no longer have much power to raise the initial capital to start your journey to financial freedom. This is the stage where financial freedom dwells. You can read up here 8 Tips on How to gain financial freedom: getting a job is overrated
At this level you have passive income making money, investments making money ,you don’t have to put in so much physical labour or mental labour because your money is working for you.
1. Investing:
Knowing the difference of these 3 stages to becoming wealthy has shifted my perspective and I believe shifted yours too on investing, managing finances and financial freedom. Having a goal for investment guides your choice of investments. There are lot’s of legit investment streams that one can use to multiply money. The purpose of saving becomes authentic and realistic when we invest money. Keeping money does not multiply money but investing money multiples money.
So saving should be targeted to a particular goal or project as stated earlier or Keeping money in investment platforms where it can yield profit, it is in investing that compounding interest no matter how little builds over the years, so I’m learning to use invest in place of save! When you invest money in a good place, mutual funds (money market) real estate, stocks and shares, bonds, crypto, forex, Treasury bills and other streams of investment you make your money work for you thereby multiplying money.
2. Buy assets not liabilities
This is a big lesson Robert Kiyosaki instilled in me from rich dad poor dad the difference between assets and liabilities.
Buy assets! Build your investment portfolio, minimize liabilities and expenses and you’ll find your financial status and net worth growing by months and by years.
3. Diversify investment portfolio :
learn to put your eggs in many baskets! My opinion anyway. Diversifying your portfolio means investing in various things that help make your money work for you so that profit can come from anywhere and the lose of one business or investment will not affect your capital nor you as a person.
_The trick when dealing with failure is arranging your financial life in a way that a bad investment here and a missed financial goal there won’t wipe you out so you can keep playing until the odds are in your favour. _
This statement goes a long way in encouraging people to learn to diversify their investment instead of putting all your capital in one that may loose all your money, so be very conscious of losing money, this is we mostly see in the rich that’s why we should be careful how we invest our money and where we choose to invest our money, this goes back to point 2 managing finances.
_The ability to stick around for a long time, without wiping out or being forced to give up, is what makes the biggest_ difference.
4 . Don’t save in banks -Don’t save in “Ajo”
This was very funny to me the first time I heard it, I had to think, rethink and calculate to agree on a
These are both streams that waste your time and like the saying goes time is money. They are both good places to save your money, especially if your working with the old mentality of saving or you are too scared to even invest, however if you’ve come to agree that saving is investment and investment is saving you’ll choose neither of these, or if you want to have financial freedom this is not for you.
They help you keep your money but they can’t multiply it, there’s no interest or profit accumulating on your money and if you want to grow financially multiplication of your income is key to financial growth so that’s why it makes sense to say banks or Ajo is not a good place to “save” your money.
This must have been a long read for you but I hope it was worth it. Our money habits and our decision to change them for a better financial lifestyle is the beginning of our journey to financial freedom.
