HOW TO BE BETTER WITH MONEY - 5 RULES. Improving your finances is not an unachievable goal - I'm going to give you 5 simple steps to follow and you'll notice the difference already in the first month of implementation! I know the word "rules" isn't exactly attractive - so go ahead and change them into guidelines, or tips, or whatever you think helps your subconscious collaborate!
Understand your relationship with money
It's easier said than done but here's how: we all have some beliefs about money. It takes time to let them surface, so take a minute to sit down with pen and paper. Questions you may ask yourself include: what did my parents/grandparents say about money? How does money behave in my life? What do I do when I receive money? How do I feel when I have money - and when I don't?
You'll be surprised at how much valuable information emerges! This is your relationship with money. How you think and feel about it, and how you spend it.
I grew up with a single mother, and she in turn had grown up with an absent mother and mostly raised by her gran who was very very stingy. To top it all up, it all happened during the Soviet period where scarcity was daily reality. So this is what I inherited: lack mentality, fear, hoarding and the belief that money comes with hard work, shouldn't be spent on trivial objects, and honest people never have enough. It took me years to clean all that crap! Now I'm better with money rules and I want to help you get there, too.
What makes you spend
I've already written extensively about it in another blog post, but it's worth getting an idea of what makes you spend in the first place. Sometimes it's as simple as advertising - you see something, you want it. You buy it. Or you pass a bakery and the smell of bread and freshly brewed coffee drifts into your nose, and you decide to grab a coffee. It's normal. Sometimes spending becomes compulsive when we seek emotional fulfilment.
Looking at it more closely, we see that our unmet needs reside in the Inner Child that needs attention, care, and nurturing. We may not even realise that when we shop compulsively, need alcohol to "wine down" after work, or gamble is the unhealed Inner Child who seeks your attention and validation. It often sabotages your efforts to budget and save. Just think about it: does a child know anything about budgeting? No! All it wants is to buy ice cream...
What gets measured gets improved
The only way to figure out where your money goes and improve the situation is to start tracking your expenses and create a budget or a spending plan that works. One option is to look at your statement at the end of the month and group all the items under various categories: "groceries", "utilities", "rent", "going out" etc. You can even take it a notch up and highlight everything as either wants or needs and reduce your spending on wants for the upcoming months.
The other option is to use a spreadsheet or a budgeting app and enter all the expenses as soon as they occur! Usually apps like these already have predetermined categories and some of them will allow you to create your own. This kind of creates a budget for you on its on - you know exactly where you spend and how much, and all you have to do at the end of the month is review and decide where you need to make the changes, if any.
Live below your means
Rule no1 if you wan to better with money: we need to live on less than we make. If the expenses exceed the income, see the previous point: tracking the expenses becomes absolutely essential! We may not even realise that a couple of order-ins, a quick visit to the nail salon, or a surprise birthday party punched a hole in your budget - and your bank account. Again, there are two options: saving more, or earning more. I always recommend both, because tweaking the expenses is not just necessary, it's a valuable skill! One day when you have your own business, or you have passed the 100K savings mark it's good to be able to identify the money leaks and course correct.
Feel free to read this post on how to motivate yourself to save!
However, saving has a limit while earning doesn't. Seriously - there's no limit to how much you can earn. I challenge you now to grab than pen and paper again and think of at least 5 things you're good at; 5 things you're passionate about; and 5 things people usually come to you for advice. If there are any overlaps - voila! you've just identified a new way to make money. You can also google "100 ways to make money from home" and see what comes up - you'd be surprised at how easy it actually is to generate some extra cash!
Pay yourself first
Rule no2 of wealth building: make sure you save a little every month by setting up automated deductions. The recommended amount falls between 10-20% of your income. If you're very, very good, you can even boost your savings with an additional transfer at the end of the month. Remember: you must have a goal in mind. We're not saving "for the rainy day" here, we are saving to be financially independent - we are saving to a) cover any emergencies and b)towards investment. This is what "pay yourself first" means. Pay the bills, put food on the table, then savings - and then entertainment.
There are multiple financial planning techniques, such as 50/30/20 or zero based budgeting, etc. but at the end of the day, once you've got your back covered, it doesn't really matter how you allocate the rest. I´ll be talking about budgeting and spending plans in the future, so stay tuned!
Of course, while you're at it slaying financial planning like a pro, don't forget to relax and reward yourself! If you veer off course, don't be hard on yourself. Happens to the best of us! I also have a reward system in place - after hitting a goal or seeing a noticeable improvement, I treat myself to something nice. Discipline really does pay off!