“Academic qualifications are important and so is financial education. They’re both important and schools are forgetting one of them.”
― Robert Kiyosaki
Money in modern society is a unit of trade.
By having money allows you to make purchases you need for survival and wants for enjoyment.
Because of those reasons, money plays an important role in your life. It is also one of the key motivators for people.
Without money, you’re challenged to face different types of problems that can create stress and anxiety. For instance, money can cause stress in relationships with your loved ones.
Therefore it’s not surprising money is one of the leading causes of divorce.
Other types of stress can be worrying about having enough money for your rent or mortgage payment.
When your finances are taken cared of, you have less stress and anxiety. In return, you gain more freedom so you can focus more on what brings you happiness and meaning to your life.
To help you better manage your finances, here are some steps you can start implementing today.
1. Eliminate Debt
If you have debt (student loans, credit cards, purchases, etc.), eliminating it as soon as possible should be your first priority!
Because the longer it takes for you to pay it off, the more you will have to pay on interest.
An easy way for you to do this is to set up automatic monthly payment plans.
Put aside each month a certain amount (percentage of your income) and dedicate that towards paying off your debt.
You might initially have to make some sacrifices by eliminating other less important expenses to pay it off quickly, but you will be thankful that you did.
2. Emergency Fund and Setting Up Bank Accounts
After you have paid off your debt, the next priority on your list should be to save up for an emergency fund that covers up at least 6 months of expenses.
You can do this by following the rule of paying yourself first!
For each paycheck, you designate a percent of it towards your emergency fund. This becomes simple and easy when you automate your bank accounts.
When you set up your bank accounts to systematically work together, money will directly go to their designated accounts without you seeing it.
You can spend the remaining amount however you like knowing you have money saved up for your goals (eliminate debt, vacation, purchases, etc.).
As soon as money is deposited into one of your bank accounts, you decide how the funds will be distributed among your other bank accounts.
Both your checking and savings accounts should have high-interest rates. That way you will be earning money just by having money in those accounts.
For checking accounts, the interest rate is usually quite low. But it’s better than storing money is a 0% interest checking account. My checking and savings accounts are Charles Schwab and Capital One 360 respectively because of their high-interest rates and lack of fees.
3. Use Credit Cards Like Debit Cards
The message here is to make purchases you can truly afford by paying with cash. That way you can pay your credit card statements in full amounts every billing cycle.
You won’t have to worry about forgetting to pay if you set up automatic monthly payments.
Because your credits cards have rewards, you will also be earning some cash on your purchases.
To maximize your earnings, you should select credit cards that have high rewards without fees.
Although some cards that have fees provide higher rewards, they typically require large expenses to break even. It’s one of the ways credit card companies encourage their customers to spend more money.
If it makes sense for you to spend that large amount per year, then choose those types of credit cards. Otherwise, you’re better off by saving the money you would have otherwise spent.
4. Invest Your Money
An easy way to grow your money is to make them work for you. To do that, you have to invest your money.
Use your money to buy assets (adds income) rather than liabilities (reduces income).
Examples of assets are businesses, real estate, or paper assets, while those of liabilities are cars, TVs, and any electronics.
Houses can be both assets or liabilities.
It depends on if your property is increasing or decreasing your income.
The simplest investment you can make is your 401(k).
If your employer offers matching on your 401(k), then the first priority should be to invest in your 401(k) up to the match point. You always have the option to transfer your 401(k) over to an IRA account if you no longer work for the same employer.
The advantage that an IRA has over 401(k) is the additional options of funds you can choose to invest.
After matching your 401(k), the next best investment is in your Roth IRA (tax-free).
Since you’re investing with tax-free money, it will also be the case when you withdraw from it.
Roth IRA accounts are easy to set up and they allow you to make investments in all different types of funds such as mutual funds, index funds, and lifecycle (target-date retirement) funds.
These funds require a minimum investment to buy, so save up if you don’t currently have enough.
After setting up automatic monthly contributions to your lifecycle fund, you can occasionally check its progress and watch your money grow. I have a lifecycle fund from Vanguard and I purchased it through Charles Schwab with a one-time transaction fee.
In your journey of investments, there will be some inevitable fluctuations along the way. It’s natural since the market will have ups and downs, but you’re in it for the long run of ten to forty years.
Despite the changes, just let time and compound interest take their course and watch your money grow!
Your diversified portfolio in your lifecycle fund will take care of itself. There’s no maintenance required because lifecycle funds handle rebalancing of individual investments for you!
And now you’re an investor!
5. Reduce Cost
Some ways to have more disposable income are to negotiate for a higher salary and on any big purchases. For business owners, you can increase the price of your products and services or increase your client base.
Among all those options, the easiest way to have more money is to reduce your cost.
This requires you to focus on the essentials, the “must-haves” in your life.
Food, shelter, and clothing are some examples of the bare necessities for survival. Anything else is just “wants,” the nice-to-haves (vacations, dream purchases, children’s education, etc.).
As long as these wants truly bring you value and enjoyment, spend money on them.
But what about the purchases that don’t add value to your life?
What acquisitions are you making that you can live without?
Are you buying things you don’t need with money you don’t have to impress the people whom you don’t like on social media platforms you don’t belong on?
To have a clear understanding of where your money is going, track your purchases!
Determine what costs can be reduced or eliminated so you can have more money to support endeavors which truly add value to your life.
If you want to take your wealth to the next level, then invest in yourself.
Start learning practical skills that will make you more valuable in the workforce or start a business where you create real value for the world.
Be in command of your life by becoming a creator rather than a consumer.
According to the Princeton study in 2010 of 450,000 responses, there’s no increase in emotional well-being (health, caregiving, loneliness, and smoking) and life evaluation (income and education) beyond an annual income of $75,000. There’s some variability depending on where you live.
Although an increase in income does increase life satisfaction, it doesn’t boost happiness. It’s also stated in the study that low life evaluation and low emotional well-being are associated with low income. You need a certain amount of money to survive and fuel the lifestyle you live.
The best way to have more money is to reduce your overhead cost.
When money doesn’t become a major concern knowing your needs are met, you can live with more freedom. You will have less anxiety and stress associated with money.
As a result, you will have more time to be creative and enjoy the things that truly matter to you. It can be as simple as taking a short walk outside and appreciate all of its beauty.
Take a moment to enjoy everything around you and live in the present moment. You’re fortunate to be alive and to have everything that you already possess.
Others who are less-fortunate have much less, yet they’re happier than most blessed people will ever be.
Why is that?
It’s because they’re not exposed to the noise that’s constantly around you. They live with what they have and are grateful for it.
The more options you have with technology advancements, the easier it is for you take the simple things for granted. This is what happens when you have more money to buy more expensive things that make your life more comfortable.
But the cost is not just money. It’s also your desensitization to experience the simple pleasures in life.
This is supported by a 2008 psychology study that suggests the possible association between high income and a reduced ability to savor small pleasures.
So ask yourself:
“What role does money play in my life?”
If it’s happiness and fulfillment you’re after, you must allow money to support you rather than control you.
I am on a mission to help 1,000,000 people, but I can’t do that without your help. Please share this article with anyone who you may think will find it valuable and helpful.
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Kahneman, D., and A. Deaton. “High income improves evaluation of life but not emotional well-being.” Proceedings of the National Academy of Sciences 107.38 (2010): 16489-6493.
Howell RT, Howell CJ (2008) The relation of economic status to subjective well-being in developing countries: A meta-analysis. Psychol Bull 134:536–560.