Rich people manage their money well. Poor people mismanage their money well
–T. Harv Eker
The habit of managing your mindset is more important than earning money.
If you are looking for effective ways to first manage your current mindset, then this chapter is for you.
When I was reading this book “The Millionaire Next Door”, by Thomas Stanley, I came across some interesting facts:
- Surveys were conducted to find out the rich people’s habits in North
- There were particular trends regarding the mindset of poor people and rich
- The rich people are great at managing their
- Poor people, on the other hand, have found ways to “mismanage” their
This is true in light of my practice for over the last two decades. I could summarise the following similar trends that prevail in India:
- People do not plan their finances They invest based on emotional instinct only.
- They go on “investing”, thinking they are
- They have a plan to very well “mismanage” their mindset and continue to do so over the
- Even to find out if they are managing their mindset well, they wouldn’t like to pay someone for the values derived or benefits
- Over the years, they are conditioned to start believing that their (mismanaged) mindset is doing well and shall bring the Results, which they never defined and never had any set formula or plan for. They do not, therefore, know that they don’t know!
- So, gradually they start believing that, if they were ever to start planning their goals, they would lose their financial
- Most of the people I have interviewed, (on an average of one per day), say, they don’t have enough money to manage (and hence avoid taking my services as a fee-based financial planner). Recently, a very well-settled lady (I thought her to be a rich person until I met her), discussed her financial investments with In India, the retirement age is 60 years, and the average life expectancy is 85 years. Based on these two figures, I asked her, “Where would the money come from during those 25 years when there would be no source of income?” She said that the current assets would suffice. I asked her if she had done any calculations about the future value of money, as to exactly how much she would need and if the current assets would fetch her confirmed source of money every month, without she having to do anything. She said no. In my next follow up call to her, she said that she should hire my services as soon as she has money. (I said to myself, “… the time when she would learn to manage money, she will have it…”
- This is the most important and critical issue in every client’s life that I have come When it comes to the monthly budget and cash-flow, either one or both are non-existent.
- People do not have a system of managing their income, expenses and don’t know how to save or later invest.
In light of this, I found it imperative to write something precisely about how do rich people manage their mindset and hence their cash-flows.
Here, I would like to begin with a disclaimer that I am not in any way referring to rich or poor people by their earning capacity or how much assets they have. I am referring to those people who have managed their wealth in some significant way, and we can perhaps learn the best practices from them. My intention is to be able to find out what works best for you and help you adapt to the system(s) of managing your cash-flows. This can, therefore, be called as one of the roads to the Riches!
In my workshops and financial planning coaching programs, I dig deep into the in-depth analysis of every individual and family’s cash-flow. How they earn, how they spend and save money. Is there any drainage (ineffective use of money) that is leaking their money out?
But why would these ways be or maybe urgent and essential for you to adopt them right away?
So, unless you can demonstrate to your mind (or your spouse or your family), that you are effectively managing your money, how will the Universe conspire to fetch you more money?
Until you show you can handle what you’ve got, you won’t get any more! – Secrets of the Millionaire Mind by T. Harv Eker
Let me give you the top seven principles to manage your money effectively. These are step-by-step plans that can help you in accomplishing your financial goals:
- The Leverage of Long-Term investments: If you have goals that have a timeline of 10-20 or more years, plan for these goals and start investing. Such goals should not be mixed with your short-term Besides, the money that you have gathered in this goal account should not be touched during any emergency or contingency money requirement. Depending on your risk- profile (risk-taking capability or risk appetite of an individual while investing), you can plan to invest about 10% of your net income/salary (after taxes) on a monthly or yearly basis.
Affirmation: “Day by day, I am making my long-term investments. I am focusing on investing 10% of my monthly income on a daily basis.”
- The Leverage of Financial Freedom Account: During my client interactions, a lot of my retired clients have this pertinent question: “Where should I save my post-retirement amount and how much return will I get?” Well, over the years, I have realized that if you can save just about 10% of your net income (after taxes), on a monthly or yearly basis, it can be It is sufficient towards your retirement planning during your earning phase of active life. The investment should be for long- term with the primary motive to invest in something which should give you an amount equal to your then (future value of your current household expenses, etc.) monthly required cash- flow. The idea is of not letting the core corpus deplete and let it grow faster than the inflation rate. If you wish to retire early, then this can be your guide to financial freedom. When your money starts returning more money for you, perhaps equal to your monthly expenses, you can find yourself financially free. How can all this be done? Well, that’s precisely the planning and execution part that you will learn later in this book.
Affirmation: “Day by day, I am working on achieving my financial freedom. I am saving 10% of my net income every month.”
- The Leverage of Money Piggy Bank: I remember, when we were kids, we used to put away small change into a gullak or a piggy How fantastic was this little idea! To start having a feeling of your money growing and hearing the clacking sound of your money! Therefore, I suggest opting for some “feel the money” device, a glass jar maybe. Every day slip in Rs. 10 or Rs. 100 into this bank. See it every day at least once. This activity shall ignite the money desire more deeply in your subconscious mind. You could verbalize the money affirmations daily while engaging in this activity.
Affirmation: “Day by day, I see my piggy bank fattening and making a terrific sound of money.”
- The Leverage of Enjoyment Account: You might be investing or earning more money and having all the financial goals planned appropriately, but you may miss something on this journey. You might have heard of the four pillars of our life: Physical, Mental, Emotional and Spiritual. Since these four pillars are the basis of our life, therefore you should allocate some time and money for the second and last pillar as well, which are mental and Start putting 10% of your net income into this account every month. The trick is also to spend the entire amount accumulated under this fund at the end of the month. For example, go out for a trek, join Yoga classes, learn French language/any language, take your family for an exotic dinner or buy the elegant dress which you always wanted, but you restricted yourself saying: “I will buy it when I have money…” Money is only a commodity. Happiness also comes from spending money wisely. So, take out time and money to enjoy ceaselessly every month. Learn to relax and enjoy your life.
Affirmation: “Every month, I look forward to exhausting my enjoyment account in the most blissful way.”
- The Leverage of Self-Learning Account: Invest in Educate yourself further. Look out for self-improvement courses. Attend workshops. Read more books. Listen to audiobooks. Make your endeavour to upgrade yourself in this ever-changing world. This shall also boost your confidence and bring more happiness into your life.
Affirmation: “Day by day, I am learning and getting better and better.”
- The Leverage of Household Expenses Account: For all your groceries, house rent/maintenance, fuel, mobile, keep aside 50% of your net Usually, people tend to overspend on grocery items. These are the products that keep gathering dust on the shelves until they expire. So, ensure that you do not exceed the allotted budget.
Affirmation: “Every month, I am looking forward to managing my household expenses within 50% of my net income.”
- The Leverage of Helping-Others Account: Now that you are a successful and happy person, why not share your success with Plan to give away 10% of your net income to those who may seek monetary help from you. Try helping the ones who are in real need of money and are struggling in life, perhaps due to the temporary shortage of cash.
Affirmation: “Every month, I am looking forward to helping the ones who are in the real need of money, thus bringing me joy and happiness.”
Grand Affirmation: “My journey of richness becomes better and better and day by day by following the seven principles of managing my money effectively.”
I teach these principles in my workshop and help the aspirants learn the easy way.
Initially, most of our clients also think that only the rich should plan in this way.
It’s not the rich, but the ones who are on the path to being rich and wealthy should know these secrets. For any plan to succeed, the first thing to consider is your mindset. You need to develop self- control that saves you from any deviations.
Only when you are managing your mindset well, more money starts getting magnetized. When money sees such an organized and systematic mindset, it gets attracted.
Taressh Bhatia is a CFPCM CERTIFIED FINANCIAL PLANNER CM and is the founder/partner of Advantage Financial Planner LLP – A firm Registered with SEBI (Securities and Exchange Board of India) as RIA (Registered Investment Advisor).
If you have Liked the blog You can read more in the book – The Richness Principles.
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