4 Easy Steps You Can Do Right Now To Stuff More Cash In Your Wallet
Its time to jam-up your wallet with more cash, rather than paper receipts.
- While personal finance takes into account the context of the individual’s financial standing, it is governed by a few rules.
- A financial foundation starts with simple and actionable steps.
- Here are 4 one-liner tips from personal finance experts that one can act on in order to be a master of money.
A lot of people mentally file financial plans under “things I’ll worry about later”. For some, the process seems to be complex and difficult to follow through on. For others, the idea of reading through mountains of books, articles and financial blogs seem to be overwhelming. With more than 60,000 books on Amazon.com about finance, even finding a starting point can be daunting.
Fortunately, building a strong financial foundation starts with four simple, actionable steps. While the road ahead to riches and long-term wealth is audrous, there are a few key things you can do today to put yourself and your family on track.
Here are four simple tips from the most established names in finance to help you master the game of money.
- Four Actionable Steps To Take
#1. Pay yourself first
Stop everything you’re doing and pay yourself first
Now that you have decided to get your financial life in order, it is time to take some actionable steps towards your goals.
A tip from Geroge S. Clason, author of The Richest Man in Babylon, is to pay yourself first every time you receive your monthly salary. According to Clason, for every ten coins that one has in his purse, he should remove one coin and keep the other nine for his own use. Over time, he would notice that his ourse will “begin to fatten”.
While this tip sounds very simple in principle, it is also very difficult to execute. Put away 10% of your earnings without having any intentions of touching it? Absolutely not! With all the bills that you’re receiving every month, how can putting 10% away consistenly be an option?
While it seems challenging at first, learning to live off 90% of your income will help you build capital and move you closer to other goals. One can easily leverage on modern tools to gain some motivation for putting aside a small portion of income. Rest assured that changes can be observable from within the first few months.
#2. Live below your means
Life is more peaceful when you’re a smart spender
Now that you have only 90% of your income to work with, choices and sacrifices must be made in order to decide on how the remaining sum of cash should be distributed.
According to Dave Ramsey in his book The Money Answer Book, many people live with a mountain of debt stacked against them. This is because their emotions were tricked and just like drug addicts, people have been conned into believing that happiness will come with the next purchase.
Unfortunately, I find myself agree with Ramsey.
We all have been marketed to the moment we were borned. The media has always told us that happiness can be derived from the next big purchase. Deep down, however, we know that the new car or bigger house or new iPhone can never bring about long-term contentment.
Changing our mindsets and choosing to live more frugally can help us to be happier. By choosing to take the public transport instead of buying a car, you can save thousands of dollars in payment every month. Choosing to live in a HDB would give you a greater peace of mind as your family would not be sweating about how to pay the monthly instalments. It is far easier to spend than to earn so it pays (literally) to be thoughtful and thrifty about where your money goes.
#3. Make eliminating credit card debt a top priority
This is how you’d feel when you’re debt free. Much lighter.
Credit guru John Ulzheimer blogs on Mint.com, a personal finance service and has provided pearls of wisdom about the dangers of credit card debts and how one can pay them off.
It is obvious why consumers are better off paying down these debts first – credit cards debt, although held in smaller amounts than housing or car loans, are the most destructive to our finances because it has the highest interest on them. The typical credit card has an interest charge of 24% per annum, with an interest charged at 2% monthly of outstanding balances. It would be every investor’s dream to have their portfolios compound at such a rate on a yearly basis. But imagine what it would do to you if it was your debt which is snowballing against you.
Another advantage of paying down credit card loans is the improvement it brings to your credit score. With a better credit score, consumers are able to borrow at a lower interest rate and that can help save thousands of dollars in interest payments over the tenure of the loan.
Paying off loans on that pesky plastic card is clearly the route to take if the goal is to beef up credit score and pay as little interest on outstanding loans as possible.
#4. Know the difference between an asset and a liability
Are you growing or losing your money?
If you can execute the first three steps, then you are off to a great start and probably ahead of the majority of people. Financial goals can easily be achieved once you have mastered the art of living frugally and saving consistently. However, if you are more ambitious, read on further.
According to Robert Kiyosaki, one needs to recognise the difference between an asset and a liability if he were to build long-term wealth. After all, “most people struggle financially because they do not know the difference between a an asset and a liability.”
Kiyosaki does not tell us to quit our day jobs. In fact, he spurs us to be a great employee. However, he also recommends that we need to take control and ownership of our own financial future. Instead of putting our financial future into the hands of the companies we work for, we might be better off using our savings to buy assets and take care of ourselves.
So how should we define an asset and a liability?
“An asset is something that puts money in my pocket. A liability is something that takes money out of my pocket.”
Investments in stocks, bonds, real estate or even a mutual fund are assets that put money in our pockets. Cars, housing mortgages and credit card debts are liabilities because they take money out of your pocket. While Kiyosaki’s definition is far from the actual accounting standard, it acts as a practical guide for your purchasing decisions. Finding the right balance is the key here and that decision is yours to make.
Pay your first. Live below your means. Making eliminating credit card a top priority. Know the difference between an asset and a liability. All the other words surrounding finance can easily be classified as fillers.
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Research Analyst, Mind Kinesis Value Investing Academy
Disclaimer: Please note that all information stated in this article is just for education purpose only and should not be used as any form of recommendation or advice.