The best guide on how to manage personal finances and build wealth.
Whenever you talk about success, financial freedom will always come in regardless of your definition of success. In a world where there’s so much noise about how to manage personal income and create wealth, I have dived deepest into the best books about financial wisdom and compiled the best insights in just a single article. I have tried my best to incorporate financial nuggets from the personal finance wizards themselves. I have tried to ditch the old and conventional wisdom by separating the little essentials from the many non-essentials.
- MONEY IS A GAME. YOU HAVE TO LEARN THE RULES THAT GOVERN MONEY.
Julius Kibor was a young man who was ever fascinated by marketing. Whenever someone was able to convince him into buying something, he always paid more than what the seller asked for. When he finished high school, he wanted to study marketing. He wanted to learn the science of making people buy things. He wanted to understand why he was sometimes convinced to buy things that he did not even need. He joined a leading national college and worked with the best professors and ended up scoring very well in his exams. He eventually graduated top of his class with honors and distinction. When he got to his first job, he was dying to start. He could spend the whole day talking to clients and trying to market the products and services of his employer. When he was not working, he was reading books about marketing and even attending workshops and seminars to learn more on the same. Five years down the line and he had been made the Chief Marketing Officer of a leading bank in the country.
When you hear people talk about him, some say that Julius was born a marketing genius. Others say that his great grandfather who followed his ancestor was a marketing guru. Others say that Julius is a very prayerful man-he prays before approaching clients. Others say that he quickly rose over the ranks through illegal means-he must have paid someone to get there.
Today, when people talk about the wealth of others, you will hear all sorts of stories. You will hear of false acquisitions of illegal means to acquire wealth. You will hear the rich being called all sorts of bad names- drug dealers, human traffickers, corrupt, murderers, and anything bad you may think of. Some of it is true but most of it is false.
People never seem to understand the rules of acquiring wealth. They don’t want to learn. When they hear of a wealthy person, they do not want to learn how he builds his wealth. They end up creating their theories.
Today, people go to places of worship to learn more about their religion. They learn about the God they worship. Medical students go to medical schools to learn about medicine. If you want to be financially stable, you must learn the rules that govern money. If you desire financial freedom then you must immerse yourself in financial literacy.
The rich understand the laws of creating wealth. They play with those rules and continue building more wealth. They pass the knowledge to their children and the rich keep on adding to their riches.
As George S. Clason put it, “as the law of gravity, the laws of wealth creation are universal and money is plentiful to those people that understand the laws that govern its acquisition.” These laws are the same laws that were used by our forefathers to create wealth long before money was made a medium of exchange. If you don’t learn the rules of money, you will never be financially secure.
2. THE RICH BUY ASSETS, THE POOR BUY LIABLITIES.
This is the best lesson from the best selling book Rich Dad Poor Dad by Robert Kiyosaki. This is how the rich can make money work for them while the poor work for money.
In the book, Robert, who is the most sought-after man on matters of personal finance, is criticized for his definitions of the terms asset and liability. He refers to an asset as something that puts money into your pocket and a liability is something that takes money out of your pocket. For example, when you get paid and buy a new Tesla Model S, that vehicle is a liability. It takes money out of your pocket. But if you purchase stocks from the stock market, you have purchased an asset. Those stocks will put money into your pocket when the company makes money and you are paid dividends.
On the 29th of January 2009, something big happened in the lotteries. Pete Kyle who was by then 52 years old won what went down in history as one of the biggest lottery wins ever. He had won a whopping 5.1 million euros jackpot on the British National Lottery. His dreams were about to come true. He had correctly guessed six numbers to win the huge jackpot. His life was about to change. He was about to change the lives of his family and friends, To the surprise of many, three years later, he ran broke and had to live on benefits. If you have been an avid reader, you must have seen such stories in the papers severally. This story is a common one. Stories of people who acquired a lot of wealth and then went bankrupt. You will hear about famous athletes and politicians who went bankrupt after retiring.
If you want to acquire wealth, then this is one of the most powerful tools that you must use. If you only use your money to buy liabilities- you have poor spending habits, then even after you increase your income, you will end up increasing your expenses hence not building wealth. This why people who acquire instant wealth like inheritance or a lottery win end up bankrupt within a very short time. They buy liabilities instead of assets. You should learn how to use your income to buy assets and then use the returns from those assets to buy liabilities. The way to get richer and to amass great wealth is by adding more assets into your assets column. This is how the rich keep on getting richer.
3. IT IS NOT HOW MUCH YOU EARN BUT HOW MUCH YOU KEEP.
According to a study done by a leading news channel in the United States of America, it was found out that 40% of Americans are just one paycheck away from poverty. If they were fired today, they would be unable to cater to their basic needs for the following month. For a country like the USA, which is among the top wealthiest in the world, that is worrying. That rate shoots up in countries that are not doing well economically.
If you want to be financial free, you must save part of your income. You must live below your means. Your expenses must be lower than your income. There are a few things that matter when it comes to savings
- You have to pay yourself first. This is the reason behind savings. You see, after receiving that paycheck, you will pay the government directly through taxes, you will pay the bank when that mortgage deduction is made, you will pay your landlord as rent, you will pay the farmer when you buy food, you will pay the clothes maker when you buy new clothes but you won’t pay yourself. You end up working for everyone else but not yourself.
For every income earned, pay yourself first, by saving a certain percentage of it.
- The percentage of income you save matters. Typically, saving at least 10% of your savings is enough. This will still allow you to cater to your basic needs and the most demanding expenses. You should however not overstrain yourself. If you can only manage to save 10% of your income that is enough. The secret to saving a greater percentage is cutting on unnecessary expenses. You have to realize that you cannot meet all your desires. This will help you to then identify the most pressing ones and prioritize them.
- It is not the amount you save, it’s the habit of saving and the discipline to save continuously that matters. When I was in high school, I thought that my parents gave me so little pocket money that I did not have to save even a penny. As a result, I never learned how to save and I came to later learn the discipline of sticking to my savings plan.
- It’s more than just saving. There’s some old unconventional wisdom that says we should save for the rainy days. You should not live below your means to save for the unknown future. Save and invest the money so that you have money working for you as it generates more money through investments.
4. PROTECT YOUR TREASURE
With the increasing number of investments and cartels who are sitting at the loopholes ready to trick you and steal your money, there is a need to be cautious about your investments. It’s not worth it to save and live below your means, then your wealth gets robbed away from you. Beware of family relatives and friends who will introduce you to fake investment plans. They will promise you greater returns just to get you off the hook. Do not invest in areas that you are not familiar with. Consult trusted people to help you to make investments in the right places.
Do not bring the burdens of the others upon yourself. Giving some of your money for charity and helping others is great only when done in the right way. Don’t end up helping too much and losing everything. Remember the goal is to maximize every coin that comes into your pocket to make sure it gives you the best value possible
5. FORGET ABOUT THE GET RICH FAST SCHEMES LIKE GAMBLING.
The desire to be lucky is universal. We all want to win jackpots. However, it is worth noting that when it comes to betting, the odds will always favor the betting firm and not you. The betting firm is there to make money from you. It is using your desire to be lucky to get money from you.
If you want to increase your chances of being lucky, find something profitable to do like a skill to sell or a trade to partake.
The greatest investment you could ever make is investing in yourself. Financial literacy has a lot of areas to be covered. The best books to learn more and delve deeper about it are:
a) Rich Dad Poor Dad by Robert Kiyosaki
b) The Richest Man in Babylon by George S. Clason