7 Money Mistakes Rich People Avoid

Handling money. How to handle money correctly?

12/24/2015 4,663 3 Reading time: 10 min. Rating:

Author

: Konstantin Bely

I bring to your attention another article about how to handle money correctly and competently. The Financial Genius website already has a large number of publications on this topic, so I decided to write another one, firstly, for those who have recently joined the number of readers and are viewing more recent posts, and secondly, I came up with an idea on how to format it like this: so that it is remembered well. So, what should proper handling of money

I’ll start with the most important thing, which I have already written about several times:

You need to treat money like finances! Forget the word “money”: you now have “finance”. That is, something that can and should not only be earned and spent, but also taken into account, redistributed, saved, etc. And it’s even better if you have not just finances, but capital - finances that are invested in certain assets and generate income. You can read more about the difference between these concepts in the article Personal Capital: Money Must Work.

Well, now remember 5 verbs that talk about how to properly handle money:

Consider!
Control!
Save!
Save!
Invest!

Please note that I don’t even mention such basic things as “earning” and spending; I think this is already clear to everyone. But I will now describe these 5 rules that distinguish personal finance from money in a little more detail.

Rule 1. Take it into account! In simple terms, count your money: know how much you earn and how much you spend, when, where/where and how much of your money comes and goes. Handling money correctly is simply impossible if you don’t know these basic points - don’t you agree?

Nowadays, accounting for your money has become much easier than it was some 20-30 years ago: convenient technical capabilities have appeared that allow you to automate the accounting of personal finances. You can read more about them in the article Home Accounting.

Rule 2. Control! To handle money wisely, you must not only know how much money comes and goes, but also keep these processes under complete control. First of all, this concerns expenses: no matter how much you earn, as soon as you start spending money uncontrollably, it will all start to go away, and in especially severe cases, debts can even form and accumulate. Here, too, home accounting will be your faithful assistant.

Rule 3. Save money! Controlling expenses and saving are not exactly the same thing. And even more so, there is no need to associate saving with greed or anything else negative. Saving is a thrifty attitude towards money and personal finances. “Saving” means “saving” your money - is that bad? Smart savings allows you to spend less money on all necessary goods and services than without saving. You can read more about this in the article How can you save money?

Rule 4. Save! This is where it gets more interesting. If you take into account, control and save your expenses, you will have free money. They can and should be accumulated, distributed into different funds and each of them used for its intended purpose. What are these funds?

Reserves are a well-known “financial airbag” that you can spend in the event of force majeure situations. If you do not have reserves, any force majeure will inevitably lead to the formation of debts and significantly worsen your financial condition.
Savings are funds that you will accumulate for various large expenses - those that you are not able to pay through regular income to your personal or family budget. It is with the help of savings that financially literate people acquire expensive household appliances, furniture, cars, carry out repairs, arrange vacation trips, etc. For the financially illiterate, all this comes from loans, and is much more expensive.
Capital is the most important of a person's funds, which only a very small percentage of people can boast of having. But if it is present, this can be regarded as a very big advantage, since capital creates new sources of income, increasing budget revenues. Moreover, in most cases, this is passive income. Having personal capital, a person becomes a private investor and begins to earn money not with his labor and time (which are always limited), but with his own money, forcing it to work for himself.

For more information about these three funds into which accumulated money should be distributed, read the article Human Monetary Assets. And even if you don’t have capital yet, reserves and savings should definitely be present.

Rule 5. Invest! Well, if you have capital (and you need to strive for this), then you should think about where to invest it. This is the most complex rule, but without it, handling money cannot be called absolutely competent and, if you like, complete. Yes, you can live your whole life on active income without worrying about your future, but what will await you later when, either due to age or due to some force majeure, you lose your ability to work? Pension?

Of course, investments are always associated with risk: any investment of money, even if it seems the most reliable, always involves risk. Moreover, risk and profitability are very strongly interrelated: to obtain a high return on investment, you will have to take more serious risks. But look at it from the other side: when you don’t invest money anywhere, you also take a lot of risk. Because they are gradually “eaten up” by inflation and devaluation, which, as we see, can be no less serious than investment risks. So compare: take risks in order to gain income, or inevitably lose money? I think the conclusion is obvious.

I recommend reading the large article Where to invest money?, which discusses the features of all key investment options.

Remember these 5 rules again. They are the ones who talk about how to handle money wisely. And not only remember, but also try to start applying them in life, even gradually. I am sure that soon you will feel how your financial situation will begin to improve, even if your income level remains unchanged.

Take care of your personal finances and handle them wisely. Handling money correctly never hurt anyone. Until next time, see you on the pages of the site!

Estimate:

Spend more than you earn

It would seem that this is just a matter of common sense. Alas, this is not true. If everything were so simple, we would never live in a crisis. Here we are talking about a fatal mistake and even a habit that will ultimately lead to complete financial collapse. The worst thing is that temptations await us at every step, for example, credit cards, they come to us easily and encourage us to spend more than our financial capabilities. We can name a lot of other services as networks placed along our path. There is only one salvation: curb your desire to spend more than you have, control your budget and your expenses. “Before you spend, you need to earn.” William A. Ward

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Don't invest under pressure

In our world there are a lot of scammers who are ready to transfer money from your pockets to theirs by any means. In general, in our culture, the art of taking money is much more sophisticated and developed than the art of saving it. And one of the effective tools of scammers is to play on your weaknesses. For example, they can play on your greed, offering only today, only now, to purchase the most wonderful product or service at an unusually low price. And if you miss this opportunity now, tomorrow it will be too late. But in fact, tomorrow, the purchased product, service or shareholding turns out to be empty. Therefore, Herbert Newton Casson strongly advises against investing under pressure.

Don't plan your budget

Planning is an absolute necessity for your finances. Financial goals can and should include: your retirement plans - what will be saved for the future, the intention to pay off debts as soon as possible, investing regardless of whether your income is high or low. “Make sure you have a plan for your life, which includes a financial plan and your mission to implement it.” - Manoj Arora

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Error four. Lack of a financial plan

Many women do not understand at all that there is a personal financial plan, which clearly shows how much money comes in, how much you spend, analysis of expenses by item (groceries, household expenses, cosmetics, utility bills, etc.). Of course, we inherit a lot from our parents, especially from our mothers.

Conclusion:

If your mother hasn’t told you how best to do it, then learn on your own, try it, learn how to do it. Knowledge and application of clear planning always leads to monetary well-being;
Many banks now offer an expense planning system and monthly analysis of your expenses as a mobile application.

Error three. Shopping according to the “I buy everything and don’t think about it” program

This is the most common mistake among women. If a man goes for bread, he will only buy bread. A woman goes to buy bread, suddenly discovers that the bread is stale, and goes to another store that sells dresses. And he buys a dress, and then a handbag to go with it, and then shoes.

Men are very irritated by this fact. And a woman is capable of such actions. And this is a very big mistake. The closet is full of things, and she uses her last money to buy something else.

Conclusion:

Error two. Prolonged stress

A woman is often in a stressful state, which depends on the lunar cycle, weather conditions, work, and her internal state. For example, a woman goes on a diet for quite a long time, and then suddenly at one moment finds herself in the refrigerator with a full stomach.

This is stressful for her, and she may also waste money. Save and save, and then at one point spend it on a completely unnecessary thing.

Conclusion:

You cannot constantly deprive yourself of some pleasures, otherwise such a reaction may occur. Plan in your budget money for your little joys: delicious coffee and cake in a good cafe, planned purchases of the necessary clothes, but only planned and what you like. It is necessary to avoid stressful situations, otherwise excessive stress will lead you to illness.

Mistake #1. A woman takes out a loan for her partner or becomes his guarantor.

Bodo Schäfer warns: under no circumstances sign a loan agreement with your partner. By helping him get money, you become his guarantor. And this is a sure way to drive yourself into a hole of debt. Unfortunately, at every step there are situations when, after some time, a partner disappears in an unknown direction, and the woman must pay for him under loan agreements.

If the obligation is registered in the name of the husband, and he is no longer able to pay the bills, the wife has a lot of options on how to get away with it. But if both are in this boat, it is difficult to find a way out of the situation and save money.

Before agreeing to help in obtaining borrowed funds, think about whether this is the right thing to do. Perhaps instead of taking out a loan, your partner should work a little harder or be more creative. Perhaps he can find other, better ways to solve his problem.

According to Bodo Schaefer, a woman should not be responsible for the financial obligations of her partner. He recommends that spouses separate family accounts and enter into an agreement on joint income.

Rely on one source of income

Many of us live dependent on a single source of income, and we are even very happy to receive a salary on certain days of the month. Even those of us who run our own businesses or are self-employed typically rely on one income stream. This could lead to absolute disaster. Regardless of how stable and impressive the income is, it is worth thinking: what will happen if this source dries up - you never know what problems happen in life? And then it will turn into financial problems.

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Mistake #2. Women avoid talking about money

Bodo Schäfer suggests that women don't like to talk to their partner about money for fear of causing an argument. But this is a fundamentally wrong situation. You need to overcome your fear and learn to discuss financial issues with your partner.

Set aside one evening (or even a whole day) during the week to talk about financial topics. Such joint discussions strengthen relationships and increase the financial literacy of each partner.

During these conversations, determine your joint financial goals. Consider how each partner can contribute. Develop an action plan that you will undertake to implement in the next three days. Set a date for the next meeting to discuss progress.