What you will find in this article are not magic quotes on how to get richer. These are economic fundamentals for every modern person that will help them manage their money wisely: save it, spend it wisely, save it, and invest it properly.
How to Effectively Manage Your Money
Spend Less Than You Earn
In 1960, Stanford University conducted the famous Marshmallow Experiment. Researchers offered a group of children a piece of marshmallow each.
Then they said they would leave for a few minutes, but if the kids could be patient and not eat their marshmallows, they would get another piece.
As a result, only a third of the children were not tempted and received their reward. Years later, these children showed higher levels of success in many areas of life.
Knowing how to limit your desires and save is a key skill in achieving financial freedom. Make it a rule to set aside at least 10% of your income each month, and you can live off the other 90%.
Why do you need it? In the future, you can use that capital to create passive income streams, build an emergency fund, or save up for something expensive.
Meet basic needs first.
When faced with a question between “set aside this amount to buy an apartment” and “go abroad for an extra trip,” what choice do you make?
Common sense dictates that first of all, and you should satisfy the basic need for housing. And only then can you go on a spending spree and spend money on entertainment.
Don’t do spontaneous shopping.
Here is a relevant little story of a real man, who is an essay writer free at writing service: “Once I was in another city and stumbled upon a huge book market. My passion for books was too great for me not to get stuck there for an hour.
And, as a result, I walked out of there with a pile of books. Not only did they make it difficult to get around, but I haven’t read a single one of them since. It was a small amount of money, of course, but it was pointless.
The way to avoid this is to plan your expenses. Make your budget every month. Allocate mandatory payments (utilities, transportation, Internet, various subscriptions, etc.), funds for food, entertainment, and other categories.
Consider not only the cost of the purchase but also its contents.
When deciding on a purchase, also consider hidden costs that are not included in the base price. Buying a car means spending on gas, parts, insurance, maintenance, etc.
Traveling abroad means not only paying for the finished tour but also other expenses for souvenirs, additional excursions, and force majeure. Take this factor into account and always plan your maintenance budget.
Create financial reserves
Any state or private enterprise has reserve funds in the budget structure. Their presence is due to the unpredictability of the world we live in.
Financial crises, job loss, sudden illness, a lawsuit from a foe – all these “black swans” can instantly empty your wallet. Be sure to create your own personal emergency fund in case of unforeseen circumstances.
Keep track of your spending.
There are three major mysteries of life: where the dust comes from, where your socks go, and where your money goes. Well, at least you can solve one of them. Keep an eye on your spending habits over the course of a month, and you’re bound to discover surprising patterns. You’ll also find lots of opportunities to save money.
Look for sources of passive income.
A smart man works for money; a wise man has money working for him. That’s roughly how the passive income paradigm can be described. If you have done everything right, diligently saving money, over time, you should accumulate a small capital.
Now you have come to the most important step for your financial freedom – creating a source of passive income.
There is no need to describe why this is so cool – you yourself understand everything. All you need to do is worry about it and look for opportunities to invest your money. It can be a business, securities, a deposit – anything that will bring in money without your involvement.
Diversify Your Risks
Do you remember the story of how Robinson Crusoe saved his gunpowder from being struck by lightning? He simply put it in several bags and hid it in different places. It was his main asset, and he handled it very well.
You should do the same. Keep your money in different banks, in different currencies, and use different sources of income. This will keep your money safe from inflation, crises, thieves, and other unpleasant surprises.
These basic rules of financial literacy will help you become a little smarter in terms of dealing with money.