How to manage money wisely

How to manage money wisely
For many people, money management seems to be something that only entrepreneurs and investors do. And how wrong they are. In reality, all of us should be able to manage our sources of income and our expenses. The next step would be investing your money so that it pays off in the future.

So why would you need to manage your money? You have enough money to pay your bills and to afford a decent life. Yes, that might be true but by effectively managing your money you can reduce some of the stress that you might be feeling right now regarding your financial situation. It offers you security in the face of difficult situations such sudden illness, accidents, your car breaking down and other adversities that life may put in your path.

Also, have you ever thought about all the “hidden” expenses that you may have? Such as bank commissions, bio-diesel fuel taxes, cigarette and alcohol taxes, environmental and hazardous material fees. It’s important to know where your money goes and why you pay these taxes and fees. And the easiest way to find out is by monitoring your expenses.

Savings

When it comes to money, it’s not about how much you can make, it’s about how much you can save. If all your money goes on useless things that depreciate over time such as a cell phone or a car, then you’ll never be able to reach financial freedom. It’s like chasing your own tail…

What’s important is to know how much you usually spend, then add another 30% over that to be prepared for unexpected events. It may seem complicated, but it’s simple math. For example, if your current salary is $1200 per month and your average expenses per month are somewhere in the range of $700, this means you can save ($1200-$700)/$1200 or $500/$1200 or 41.6%. For the $700 which is the usual expense you should add another 30%, $700 + $210 = $910. That the income which you will need per month, or $910 * 12 = $10,920 per year. To get $10,920 from an index fund you will need at a return rate of 7% about $156,000.

I’ll say again, saving is very important because it’s something you can rely on and all you have to do is to accumulate as much wealth as you can, and in return, it will generate more wealth. This is the mechanism that the rich use to get richer and you should use it as well, take advantage of what you already have.

Each time you get your paycheck how much it goes into your savings? I hope the answer is more than 10% because at that rate it will take quite a while to get to financial independence. How frugal can you go? Saving more from your income means to give up comfort and always depends on how frugal can you get without affecting you too much. Without investments to create more sources of income, you will always be directly tied to your main source of income.

Investments

People who wish to achieve financial freedom recognize the importance of investments. Usually, investments require plenty of capital in order to have a solid benefit. But that’s not always the case. People often think that they don’t have enough money to invest. You might find yourself in this situation. Let’s say that you are a full time employee with a single source of income, your job. And by the end of every month you have some money left, if you’re lucky. Surely, investing a small amount wouldn’t make a change, would it?

How to manage money wisely

  • Pay “bad” debt
  • Increase your savings rate >10% per month
  • Invest in real estate if it’s favorable
  • Invest in index funds
  • Invest in bonds
  • Try out some alternative investments

That’s a small plan to follow, it’s not the same path for everyone. I have a big chunk of my assets into alternative investments, because I’m ok with the high risk and high return rates. It takes a little more work but I’m satisfied with my investments.

Investing and managing money wisely is something that is different for everyone. Depending on how much risk you can take and the timeframe, the financial strategy will change.

It’s never easy to save money, but it’s even harder to manage them wisely. Take advantage of the opportunities that you have, create abundance from your life and focus on what matters in your life.

1 thought on “How to manage money wisely

  • I think it’s such an underrated skill to manage your own money. It takes discipline, perseverance and a little bit of know how to become an expert. Relying on other people to handle your money is definitely risky in my opinion and definitely not something that is sustainable long term. Look at all the people that have been ripped off over the years.

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