Managing your money sounds like a pretty simple and intuitive topic. However, it is amazing how many people struggle to manage their finances well. The reason for this is that money is not just a ‘practical’ commodity. It is a deeply emotional resource. While managing the money itself is pretty simple, managing one’s emotions is a much more complex and multifaceted area.
In addition to this, schools do not teach financial intelligence. We may learn about basic math skills and an element of economics. However, when it comes to managing our own money, most people refer to their parents for financial advice.
Oftentimes, our parents have not mastered money management skills. In other words, we tend to learn their negative financial habits. We subconsciously replicate their behavior, which results in our development of negative habits as well. As adults, we should learn from their mistakes.
In consideration of this, we must remember that we are not six-year-old children anymore. We are adults, therefore, we must take responsibility for our own finances. We must be responsible for our own financial education. If necessary, we also need to become better educated in money management.
One good source of information concerning this is the book “Rich Dad Poor Dad” by Robert Kiyosaki. In addition to this, for more in-depth topical insight such as spread betting, CMC Markets can also be a good resource to learn more about investing. Listed below are two practical tips on managing your personal finances. One of the tips is for entrepreneurs who employ others. The other tip is for people who are employees.
Pay Yourself First
If you are already an entrepreneur or business owner, then you know it is important to pay your employees. More often than not, you ensure that others receive compensation prior to receiving anything for yourself. However, it is imperative that you structure a salary for yourself into your financial projections as well. Just because you are a start-up business, it does not mean you do not deserve compensation for your time.
Many entrepreneurs take a short-term pain for a longer-term gain view. This paradigm of delayed gratification works well for many people. Yet, you must have enough money to live and support yourself like everyone else. Many startup founders end up almost homeless because they have put everything into their businesses. So, remember to pay yourself a salary that can help support yourself. Even if it means supplementing your startup salary with part-time employment.
Siphon Your Income
If you are an employee, then, a great strategy to create financial stability is to siphon your income. This means that when you receive your salary, deposit 20% of your income automatically into a separate savings account. In addition to this, also deposit an additional 10% automatically into a separate investment account as well.
For example, if you receive £1,000 per month in salary, then at least £200 should go into savings. It also means that at least £100 should go into an investment account. The savings are obvious, while the investment account should be spent on worthwhile investments. The investment account could increase, or decrease, in value over time. However, if you consistently invest 10% each month, by the end of five years, your money will increase significantly.