One of the biggest myths about creating wealth or making money is that it is very hard to make money.
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The truth is that it really is not hard to make money; it just depends on the vehicle you are using to get to your desired monetary destination. But even though it is simple to make money what is becoming increasingly difficult in today's economy is keeping it.
Most people talk about applying the principles of the popular "pile theory", a process by which you amass money over a forty year period, towards an easy retirement. And more people are finding it is relatively to start a pile of money growing but almost impossible to keep it growing or keep it at all!
Believe it or not the problem here is not that money is scare, fleeting, or difficult to amass. People are just inherently bad with money. There are very few courses on how to manage finances and most MBA students are trained on balance sheets and journal entries but nothing with regards to understanding how to effectively protect personal assets. The following tips will give some guidelines on some of the habits to form and habits to break to become effective with managing your finances.
Stay away from too much credit usage
As of the beginning of the year 2008, Americans are stated to spend close to 120 percent of their income. At first glance this sounds ridiculous. How can you spend more than you make? The answer: credit cards.
Credit card companies make a fortune from people who buy stuff on credit because they can't afford to pay for the item with cash. And the worst part is the people who use their credit cards don't just have one. Most times they have two, even three credit cards that are maxed out. Minimum payments will get you nowhere on your credit card balance. If you find that you are already in trouble with creditors then just do the best you can to save up some money and pay those suckers off. If you are able to do that, then I recommend cutting the cards up and tossing them into the trash.
Get used to buying only what you can afford. Here's a tip: if you have to buy something without cash, then you can't afford it! Debit cards and cash are effective because you owe nothing to anyone afterwards and you know exactly how much disposable income you have left. Using a credit card is the fastest way to develop bad habits with money.
Get a budget
A budget will keep you grounded and prevent you from making those "impulse" purchases that are usually emotional. Have a budget that will tell you exactly where your money is going. Write down how much your monthly income is, how much goes to rent, mortgages, gas, groceries, cell phone, etc, every single month. That way you know exactly how much wiggle room you have with regards to your leftover disposable income. This way you can decide what you want to spend that extra cash on well in advance. And if someone happens to surprise you out of nowhere with a great idea to go to some expensive resort for the weekend, you can simply take a glance at your budget and say "sorry, can't do it. It's not in the budget this month!"
Start using a budget immediately. It will be difficult at first and you will start to feel a little choked, but it's the exact thing you need to do to form better money habits.
Stop spending leaks
The budget that was talked about in the last point is tied directly with this concept of clogging up spending leaks. Imagine you have a house with little cracks in the roof, and every time it rains you simply just put a bucket under the leak but you never empty the bucket out. After a while it will simply start to overflow and you know what you get: a mess! If you don't stop impulse buying to appease your desire for lavish lifestyle that you cannot yet afford, you will never have that lifestyle.
As a business owner you have to be even more careful about what you waste money on. There is a big difference between spending money and investing money. When you invest money into your business there is the potential for a return on that investment. When you spend money on a lavish dinner at fancy restaurant, the money ends up in the toilet later on that night. Make your business the priority as far as where your finances go is concerned and everything else will fall into place.
Focus on savings
Most people do not save any money at all and so find themselves straggling when an emergency arises that requires emergency funding. A safe rule of thumb with saving is to always put aside 10 percent of your income into a savings account. Put in there and forget you even put it there! If you must, set up an automated plan with your bank that transfers a specific amount at the end of every week to your savings account.