So you've gotten your pay cheque and you can finally get out of the state of your "end of month blues". It's time to celebrate right? Or probably it's time to pay off all the bills and take out a loan for that car you've been eyeing. So you put your plans in place and meet all of your obligations then when the end of the second week in the month comes around you begin to wonder...where did all the money go?
One of the relationships that we neglect the most is the relationship we have with the money we earn. Very few people learn the art of making money their friend and instead become a slave to it. When I was about 14 years old my uncle gave me this book called "Rich Dad, Poor Dad" written by Robert Kiyosaki. That book has changed my life and the way I view money. I firmly believe that regardless of how much you earn, it is possible for you to live a debt free and comfortable life instead of living from pay cheque to pay cheque. This is one of the reasons why I want to become a financial consultant so that I can help people better manage their finances.
Throughout my short time on this earth, I have learnt quite a bit about how to control money instead of having it control you. I have observed people, read that life changing book I mentioned earlier, and made a few mistakes of my own. These are the few words of wisdom that I would like to share with you:
1. Learn to Gauge Your Spending
One would think that the first thing I would say is "prepare a budget". I have tried that on many occasions and I have never been able to stick to it. However, in my mind I always have what I like to call a "mental budget". I always know the amount of money that is in my accounts and try my best to determine what I can really afford to spend on. Granted, when I am hungry and feel for a pizza I end up spending money that I don't want to spend but I'll talk more about this later. Neverthless, this is a very good habit to adopt because you will force yourself not to spend unnecessarily.
2. ALWAYS Pay Yourself First
One of the key principles from "Rich Dad, Poor Dad" that I will never forget is the fact that you should always put your savings away first. Most people pay their bills first and buy groceries then worry about saving. That's not the way to do it. Always set aside a set portion of your income each month first, regardless of your expenses, and put it in an INVESTMENT account. Once that money is in that account it should no longer exist in your mind in order to prevent you from withdrawing from it when little "emergencies" arise. Saving in this way will result in you accumulating money overtime that can be used for major emergencies later down the road or to invest in profitable ventures.
3. INVEST, INVEST, INVEST
As a child I, of course, did not have alot of money and didn't have a job. However, I made it my point of duty to look for companies that offered investment products with attractive interest rates. LONG TERM INVESTMENTS are the best because they provide you with higher returns over a long period of time and do not require a large amount of capital to begin with (although the more you invest is the greater the returns). Stocks, though risky, are a form of long term investment. Bonds, purchasing company shares, and government papers are also long term investment options. Also, when you put your money in a long term investment account you know that it will not be beneficial for you to withdraw money from the account until the period of investment has elapsed since your returns will be far less. I had to withdraw money from my long term investment account to help pay my boarding expenses while on hall and it really messed up my returns.
One of my hopes is that I will be able to save enough money to one day invest in some company shares or to invest in a company. That is my way of making my money work for me. Always look for ways to make your money do some real work instead of just sitting in a bank account earning a measly yearly interest.
4. Don't "Binge Spend"
I have a problem. When I know that I have enough money in my account I will buy things unnecessarily just because I like them. I have never really had a lot of money so I don't really have a lot of those unnecessary things but the point is that I have them. I also buy a lot of pizza (*covers face*) and pizza a'int cheap out here so you know what happens to my pocket by the end of the month.
5. Minimise Your Expenses...Increase Your Assets
Your expenses should never be more than half of your income. When that happens you end up borrowing money and that leads you into debt. Conserve as much as you can so that your utility bills are not that high. DON'T GET MARRIED UNTIL YOU CAN SUFFICEINTLY SUPPORT YOURSELF. Don't buy a car unless it is absolutely necessary for your job. I know in America people have to have cars in order to get to and from work, but in Jamaica our transportation system is good enough that we can survive without one and paying for a car out here causes people to incur ridiculous expenses. DON'T HAVE CHILDREN UNTIL YOU CAN AFFORD THEM (try to avoid situations where accidents can happen too). Instead, use what you earn now to invest and build your asset pool.
6. Plan Your Entertainment Properly
I like going out with my friends and my taste is such that i like to go to places like the movies, OMG, Cuddyz, Tracks and Records, Devon House etc. These places are not cheap. I therefore know that I have to tailor my lifestyle to suit my pay cheque. This means that I can't go and watch a movie every week (unless I am going on the two for one night and the other person splits the cost) and I most certainly can't go to my favourite hang out spots every weekend. Since I like going out, I have learnt the hard way that I need to tone it down to probably 2 to 3 outings per month and keep my spending at these places at a minimum.
7. Know your skills and market them
When you know what you are capable of, you can market yourself to people and therefore earn a little extra cash on the side. Paying yourself FIRST applies here in the same way that it applies to your regular pay cheque. Therefore, all of your extra cash shouldn't be spent splurging on something you've always wanted. Ensure that you put a portion away in your investment account.
8. Minimise your risk
Some people are high risk and know how to make great profits from risky situations. I am risk adverse and will therefore not pretend that I am comfortable in high stakes. For instance, I will not embark on major projects unless I see the funding that is available to make the project work. I have learnt that from at least one experience in my life. Although risk is good, I wouldn't suggest that you make huge risks when it comes to your money.
9. DO NOT get a credit card
Credit cards make you think that you have money that you really don't have. The bank charges associated with their usage are enough to drive anyone crazy and are a quick launch into a sea of debt. Instead, get a Visa Debit card. Visa Debit cards use the money that YOU put into the bank instead of the money the bank gives you. You are also able to use them online to make purchases. In Jamaica, there are two banks that offer Visa Debit cards: Scotiabank and First Caribbean International bank. You can look at what they offer and then make your decision.
I am still in the learning phase of good money management and some of the things I have listed are things that I need to employ myself. Nevertheless, I hope this post helps you to view your money differently and take you out of whatever financial crisis you may be in.