All of Us Owe It to Ourselves to Be Penny Wise. Here Are 15 Money Skills That Will Change Your Financial Life.
Some people think that to get rich you simply have to have money left at the end of the month. But this isn’t true. This is just the start.
Whether you are paid a little or you’re paid a lot, you might still just be Jenny from the block.
But don’t despair, there are ways to boost your finances and increase your and your family’s wealth status. And to do that, you need to think of money differently.
Welcome to Alux, the place where future billionaires come to be inspired.
Let’s take a look at 15 Money skills everyone should know.
Who wants to save pennies when they’re wise with their pounds? Do you want to read this article when you can simply switch to a fun YouTube video?
That was hell of a transaction. With that deal made, let’s move on to the first financial skill that’s a MUST for everybody.
Nobody Got Rich From Saving Money
Unless you’re saving in the millions, moving up in wealth won’t happen just from having money saved. It’s what you do with it that determines if you turn it into wealth.
Saved money, in other words cash, or liquidity is good for 2 reasons. First it acts as a safety net. If anything happens to your regular income it is advisable to have 3 to 6 months of living expenses saved. This will get you through until you can rally and earn again.
The second value of cash is that it gives you access to opportunities. If a solid investment property or business opportunity crops up, you can take it. And cash is king when negotiating a better price for yourself. Lock down the investment and begin building your wealth portfolio, but more on that later.
Wealth. Savings. Liabilities.
Being wealthy doesn’t mean how much bling you have or what car you drive. Wealth is having valuable financial assets or physical possessions which can be converted into a form that can be used for transactions. To attain these valuables, you have to add some effective money skills to your arsenal.
So, you’re thinking, “but a Maserati can be cashed out for Dollar bills,” but the truth is that it isn’t an asset, it’s a liability. Cars cost you money in maintenance, insurance fuel and depreciation. But an interest-bearing investment or a property is considered an asset and leads to your wealth. Over the long term, they gain value and can be cashed out for more money than you put in. You following?
Savings are what is left after you are done paying your expenses. These can be put away to earn interest while you sleep, or can be invested to grow in value and make you a profit.
Liabilities are things that you owe on or cost you money. We mentioned the Maserati. But it can also be debt – student loans, your phone contract, a home loan or a credit card. Even your lease agreement is a liability because in essence it is money you are signed up to pay. To figure out your wealth; you minus your liabilities from your savings plus assets and you can see how long you can afford to live without earning. The longer you can live, the wealthier you are.
Make Tax Work for You
Small earners fear taxes and tend to pay more than they should just because they are scared the tax man comes knocking. Whereas the rich love taxes. Not not paying taxes… we mean using them to their advantage.
To master money you need to use taxes to your advantage. Find out more about how taxes work in your region, and how you can use tax incentives to protect your wealth. There are usually tax advantages for investing or putting away for retirement, whereas you might pay more tax if you just save your money in your current account.
Or keeping your property in a trust or a company might be more tax effective than owning it in your personal capacity. The tax you save, you can invest and then save even further tax.
Be sure you use tax like the rich do, to keep your money, not part with it.
Learn How to Use Other People’s Money
Another common mistake of the poor and middle class is only using their own money. There is a general fear to access loans and go into debt.
For sure it’s a dumb idea to go into debt for a new watch or shoes, or even a holiday. But to access loans at a manageable interest rate might mean that you can increase your earning.
For example, perhaps you run a service which requires machinery, or have a property business. To upgrade your property or buy better machinery on a loan might end up meaning that you can charge more for your rental, or provide the service faster and be able to double your clients. Each time you weigh up a loan or debt you have to be certain that the inflation isn’t going to be uncontrollable, and that you have enough business to cover the debt regardless of whether your business prediction takes place.
However, if you do the sums and can charge more for an upgraded property or double your sales with a faster service, then the loan repayment is affordable and you have a sustainable business. Calculating loans like this is one of the money skills that are going to work in your favor.
Which leads us to the next point:
You Need to Earn More, Not Spend Less
Not having enough money is seldom solved by cutting back. In the end we get frustrated and end up with old spending habits again.
While it is never wise to spend above your means, the best way to have more money is to bring more money in.
Perhaps this is a raise, or a job move, or maybe a side hustle. Maybe your business has grown stagnant and needs a productivity boost.
When your mind is open to the idea that the world is abundant and you just need to tap into bringing more money in, you will open your mind to what you can do to bring in more income.
What Are Basis Points?
We’re sure you’ve heard this phrase being thrown around the financial reports section of a news bulletin. Well we’re here to let you in on what all these technical financial terms mean so that you can start decoding finance.
Basis points are actually a really simple concept. If you take one percent and divide it by 100, then each of those one hundredths of one percent are a basis point. So, in other words: 0.01 of a percent.
So, why do we need them?
When talking about finance we have to be specific, right down to the T. It is most commonly used when talking about interest rates. So they are used to ensure that even small changes are listed. Because a quarter of a percentage point can mean millions when you are talking about billions.
So next time you hear 50 basis points increase or decrease, then you know that the interest rate has gone up or down half a percent. Know the financial jargon is a money skill that allows you to play in the bigger games.
Know Your Dollar Needs
Now that you have decided that you need to bring more money in to get more money out, then it’s time to work out how much money you actually need. This will make it easier to ensure that when you start getting in more money, you use it wisely to grow your wealth, and not just to spend more.
Most banking apps nowadays give you the option of labelling your expenses, and this spits out a great pie chart at the end of each month to see where you spend your money.
This way you can compare a real Dollar and cents value per category because our estimates of how much we spend on items like entertainment and groceries are generally way out.
Once you know this, you will also be empowered to know how much you have left to build wealth with.
There are many such skills a millionaire has to learn before peaking the million-dollar-mountain. These are the 15 SKILLS You Need To Develop If You Want to be RICH
Have a Retirement Plan
The sooner you have a retirement fund the sooner you can retire. It’s as simple as that. Retirement planning is a money skill that every individual has to develop for a secure future.
Most countries have some form of labour force retirement benefit. In the US this is called the 401k. This might be sufficient for you. But if not, explore private retirement fund options.
There are a lot of tax benefits of putting your money into retirement funds, because most governments reward you for looking after your retirement needs and not becoming a burden on the state. It is never a loss to invest into your retirement, because at the end of the day it’s money you will cash out. Long term investments like this rely on compound interest, so the younger you start the less you will actually have to pay as the interest will do the real earning for you.
How to Safeguard Your Money
You might have heard of the term diversify, and it all sounded very much like something that people on Wall Street do. But that’s not true.
For centuries people wanting to secure or grow their wealth have diversified. Buying gold, art and property are firm favourites. Collectors’ items and valuable family heirlooms have also been a way people have stashed their cash for a rainy day. The only threat is really theft, and if stored securely and insured this isn’t a great risk.
The real risk to your wealth is having it in one place and the economy tanks, or your country is hit with inflation or there is an economic crisis. Having all your eggs in one basket, kept by the same few financial institutes in your home country could spell financial loss.
Crypto currency is a tool used to safe guard money. As it diversifies your investment portfolio between savings, investments, property and business. This way you reduce the risk of everything being wiped out. And while your investments rally after a dip, you might find your property values are still increasing steadily and your wealth is still growing overall.
Make Money While You Sleep
To understand money, you need to look beyond how many hours in a day you have to earn money. If you have the right money skills, a dollar can make you another dollar while you sleep. That is, if you put it in the right place.
Even the smallest amount of spare change you have should be put in an interest bearing account. This way while you decide your next money move the money is at least working for you.
In the same way investments are your money put to work. Or perhaps you can use a small amount of money to build an arbitrage business that will also require a mostly hands-off approach.
One of the greats in teaching how to make your money work while you sleep is Tim Ferris and his methodology of money making “The 4 hour work week.”
Check it out on audible using our free voucher at the link alux.com/freebook
Use Some Sort of Rule for Your Monthly Income Planning
Elizabeth Warren has made some bold moves in her life as a career politician. But she isn’t your average politician, she descends the ivory tower of policy into the practical when it comes to money matters.
She focused her time in Senate consumer protection, economic opportunity, and the social safety net. The advice she gives to anyone wanting to get ahead financially is to spend your income by dividing it into 3. Spend 50% of your income on needs. Use 30% on wants and 20% investing. This is also known as the 50-30-20 rule and is well regarded as sound advice.
Don’t Make Money Your Meaning
If your plan is to just squeeze every cent you can from a dollar then you are missing the point and the more important money skills. Gone are the days of driving up prices and driving down costs to make a quick buck. To build a sustainable income you need to look at how you can add value to your boss, clients or consumers.
When you add undeniable and unique value, people are willing to pay you more.
Naturally, this doesn’t give you complete immunity to financial loss or being taken advantage of, but for the most part, looking to provide value is a far better way to build wealth then trying to make a quick buck.
Next up we’re doing this a little different. Terms and Conditions, the 3 words that make us all run in fear. When it comes to financial contracts it’s a good plan to read your T’s & C’s and know what you are signing. It’s impossible to know the unique ins and outs of every contract, but here are 3 items you should look for and understand before you sign anything.
Know What to Look for in the Ts &Cs – Number 1 Banking Fees
Paying bank fees is like going to the dentist, a necessary evil. But there are ways to pay fewer fees. Firstly, some banks offer you a no-fee bonus if you keep your account above a certain amount. Look out for this and try to maintain it.
Next, if you are paying a fee per transaction, perhaps upgrading to the next type of account is worth the monthly fee if it gives you unlimited transactions for free. Also higher packages sometimes pay for themselves with airport lounge visits, gym membership savings and airline miles or points.
Know What to Look for in the Ts & Cs – Number 2 Credit Cards
You can really hack the credit card system if you read the Ts and Css. Many credit cards offer 30 days interest free credit. This means that as long as you clear the card back to zero every 30 days you won’t pay a cent for the free transactions and the safety net of having access to a little extra cash flow if you need it.
Many credit cards offer free insurance when you buy certain items on them. Like free travel insurance when you book flights with your credit card. So look out for these advantages and make your credit card a savings device rather than an expensive way to access a loan.
Look out for any clause on inactivity penalties, and rather swipe for a small item just to avoid this if you have to. Knowing what not to do with your money is a different set of money skills.
Know What to Look for in the Ts & Cs – Number 3 Investment Fees
The main charge on an investment is the expense ratio. If you are investing in a fund with a diversified portfolio, this is most common. This is basically the money that the investor charges for managing the fund. It is a percentage of every dollar invested.
So if you invest $1,000 at an expense ratio of 30 basis points (basis points…huh? huh? VO:a there they are coming up already tone) that means you will pay 0.3% on $1,000 making it $3. It doesn’t sound a lot now, but be aware of how it adds up and try to negotiate for less. Expense ratios range from 0.05% to 1% in the extreme case.
Aluxers, what basic money skill has worked well for you? We appreciate your advice and sharing your thoughts with us?