How do Rich People manage their Money Well?
Rich people manage their money well.
Poor people mismanage their money well.
- Secrets of the Millionaire Mind by T. Harv Eker
The habit of managing your money is more important than the amount.
If you are looking for the effective ways to first manage your current money, then this blog is for you.
When I was reading this book- The Millionaire Next Door, by Thomas Stanley, I came across some interesting facts:
Surveys were done to find out the rich people's habits in North America.
There were some peculiar trends.
How people manage their wealth, had a specific trend.
The rich people are great at managing their wealth.
People people, on the other hand, have found ways to "mismanage" their wealth.
This is true in my practice over the last three decades also.
I could summarise the following similar trends here in India:
- People do not plan their finances well.They invest based on emotional instinct only!
- They go on "investing" thinking they are investing!
- They have a plan to very well "mismanage" their money and continue to do so over the years.
- Even to find out if they are managing their money well, they wouldn't like to pay someone for their values derived or benefits achieved.
- They are conditioned over the years, to start believing their (mismanaged) money, is doing well and shall bring results. Results, which they never defined and never had any set formula or plan! 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 freedom!
- 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 (I thought him to be a rich person before I met her), discussed her financial investments with me. I asked her, where is the money going to come after her age 60 to her age 85 (life expectancy in India), and she said 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 bring her a confirmed source of money every month, without her 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, "... when she would learn to manage money, then she will have it..."
- This is the most important and critical issue in every client's life that I have come across. The monthly budget and cash-flow are or non-existent.
- People do not have a system of managing their income, expenses and don't know how to save then or later invest.
In the light of this, I found it imperative to write something precisely about how do rich people manage their cashflows?
Here, I would like to give a disclaimer that I am not in anyway 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 some great way and hence, are in some way, and we can perhaps learn the best practices. To be able to find out what works best and then adapt to our system(s) of managing our cash-flows. This can, therefore, be called as one of the roads to Riches!
At our workshop and financial planning coaching programs, we go into in-depth analysis of every individual and families cashflow. Where they earn, spend and save money. Is there any drainage (ineffective use of money) of their money!
So, can there be some proven ways, or methods, or suggested formulas to adopt, while you consider consulting our firm as your financial planners! Meanwhile, the following approach may not be regarded as some shortcuts or easy methods but an example of how you can start managing your current income meanwhile.
But why would these ways be, maybe, urgent and essential for you to adopt 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 get 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 ways to manage your money effectively:
The Advantage Long Term investments
: If you have goals that are 10-20 or more years away, plan for these goals and start investing based on the advice of a Registered Investment Advisor. This should not be mixed with your short-term goals and not to be disturbed for 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 ten %of your net (after taxes) income/ salary, on a monthly or yearly basis.
The Advantage Financial Freedom Account
: During my client interactions, a lot of retired clients have this pertinent question: "Where should I save my post-retirement amount and how much returns will I get?" Well, over the years, I have realised that if you can save just about 10% of your net (after taxes) income/ salary, on a monthly or yearly basis, it can be sufficient. Sufficient towards your retirement planning during your earning phase of active life. The investment should be for long-term to invest eventually into something which should give you an amount equal to your then (future value of your current household expenses etc.) monthly cash flow required. The idea is of not letting the core corpus deplete and let it grow faster than the inflation rate. If you also wish to retire early, then this can be your guide to financial freedom. When your money starts earning money for you, perhaps equal to your monthly expenses, you can find yourself financially free. How can all this be done? Well, that's exactly the planning and execution part. The technical part by a financial planner
The Advantage Money Piggy Bank
: I remember, when we were young, we used to put away small change into a "gulag" or a piggy toy! How wonderful was this small idea! To start having a feeling of your money growing and to hear the sound of money! Therefore, suggested having some "feel the money" device, a glass jar maybe. Put away Rs. 10 or Rs. 100 daily 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 say out the money affirmations daily by this activity.
The Advantage Enjoyment Account
: You can continue to invest, earn more money and have all the financial goals well planned, but you may miss something on this journey! You would have heard of the four pillars of our life: Physical, Mental, emotional and spiritual. Since we are all living on these four pillars of life, take out time and money for the second and last: mental and spiritual. Start putting 10 of your net income into this account every month. The trick is also to spend the entire amount so accumulated, 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 a nice dinner or buy that dress which you always wanted, but still said: " I will buy it when I have money...". Money is only a commodity. Happiness comes from spending money wisely also. So, take out time and money to enjoy, continuously, every. Month, what you earn. Learn to relax and enjoy your life.
The Advantage Self-Learning Account:
Invest in yourself. Educate your self further. Look out for self-improvement courses. Attend workshops. Read more books. Listen to audiobooks. Keep your endeavour to upgrade yourself in this ever-changing world. This shall also boost your confidence and bring more happiness into your life.
The Advantage Household Expenses account
: For all your groceries, house rent/ maintenance, fuel, mobile etc. Keep aside 50% of your net salary.
The Advantage Help Other accounts
: Now that you are a successful and happy person, why not share your success with others. Those who may seek monetary help from you, plan to give away 10 % of your net income. To those who are in real need of money and are struggling in life, perhaps due to an only temporary shortage of cash.
We teach these principles in our workshop to make you learn the easy way.
Most of our clients also think, initially, that only the rich should plan in this way!
It's not the rich, but those who are on the path to being a rich and wealthy know these secrets!
Only when you are managing your money well, more money starts coming. When money sees such an organised and systematic manner, it starts happening.
These seven ways to effectively manage your money, work for all income levels. Only when you adopt such methods, can you manage more money?
Your control of your money shows! You control it, or it controls you. Decide.