Do you have a good income but are always broke? Have you been working for years but have little to show for it? Today, we look at how to break the feast or famine syndrome, begin to build your wealth and never be broke again. Click Here to Watch Video.
A week after payday, most people are broke and it has little to do with their income or the cost of living. If you are one of such people, do you know why you continue to suffer financial difficulties? This may come as a surprise; your biggest enemy is neither your small income nor inflation. Although these two may be making things worse, for most people, lack of knowledge about how to manage their money effectively or lack of the moral fiber to do the right thing are the root causes of money – problems. Ignorance and living in denial are more hazardous to your financial welfare than a small income or high prices.
I am sure you know people of similar modest back ground who ended up in dramatically different financial circumstances. One becomes rich while the other remains poor. One educates his or her children comfortably while the other struggles. Yet the more comfortable of the two may not be as well endowed intellectually as the other. The story of the most foolish boy in school ending up being rich while the bookworms or hotshots suffer financial distress is well known. If you ignore wheeler – dealer overnight millionaire types and observe how wealthy ethical individuals lead their lives, you will notice some traits worth emulating. They cultivate habits such as:
- They spend less than they earn. No matter how little your income is, you have to ensure your expenditure is even lower. If you do not, instead of your financial situation improving over the years, you will find yourself in a continuous downward spiral of money problems. Suppose you notice a nice refrigerator advertised online and looks just right for your needs. You will be contravening the spend less than you earn habit if, in spite of not have enough money in your budget to pay the monthly installments, you decide to buy it on hire purchase anyway, telling yourself that somehow, you will make it. You see, money follows the laws of cause and effect so by committing yourself to spending more than you are earning, you create a deficit that must be met, most often by borrowing more. This additional borrowing creates an even bigger deficit and you enter a downward spiral of debt.
Living within your means requires a realistic look at one’s income, desires and needs. Everybody wants more than they can realistically have. What one needs to do is get their priorities in order and gracefully surrender or defer the wants that cannot be accommodated. When going through this exercise, do not forget to consider important long–term issues like retirement, home ownership, and children’s college education. This applies even if you think they are too far off to worry about. In fact if they are far off, this is the best time to take care of them relatively painlessly.
- Another habit wealthy people have is that they prioritize investing over consumption. Too many people confuse conspicuous consumption with prosperity: you must understand the difference between looking prosperous and really being prosperous. A prosperous person first ensures he or she has some money saved for emergencies, adequate insurance protection and investments for the future then rewards himself with a few luxuries safely, and without jeopardizing his family’s financial security. The perpetually broke person has his priorities upside down. He starts with the most visible and expensive luxuries he can manage to get and a high cost lifestyle. This usually means borrowing to finance the luxuries and high credit card balances. Emergency savings, insurance and investments are relegated to some period in the future. No matter how much you earn, if this is your lifestyle, you are walking on the edge of a financial cliff. Should anything happen to your job, or your business, your family could suffer a painful drop in the standard of living.
- The wealthy person plays the long game. Not thinking long – term; many fail because they think of only what they can do today. “I don’t have the money for down payment on a house, where am I expected to get half a million shillings from? It is impossible, it can’t be done!” The person destined for wealth thinks differently: “If I save six thousand shillings monthly, in seven years I will have the down payment.”
Saving and investing a little money every month can enable you have a huge sum of money in the long term. This is because the earnings also earn and your money grows at an ever increasing rate. This is called compounding.
- They avoid get rich quick gambits. Getting involved in get – rich – quick schemes is the most assured way of remaining poor. The news full of stories of individuals who have lost their hard earned money to tricksters while trying to make it grow unrealistically fast. For any get rich – quick plan that works there are thousands that fail leaving the investor poorer and sometimes in debt. The safe and ethical way to gaining financial security is to save and invest a little at a time in regulated investments that you understand.
- They hire qualified advisors. Making a mistake with your money can be very expensive. To minimize loses consult with professionals in the relevant field. Information and advice about investments should be sought from a qualified investment professional, about legal issues from a lawyer, general financial planning from a qualified personal planner and so on. The fees these professionals charge are paid back a thousand fold in financial gains. Furthermore, using a professional helps you avoid devastating and life destroying mistakes.
- They have a plan for their finances: If you just drift through life without thinking about the future, you will keep bumping into situations for which you are not prepared. One has to be proactive rather than reactive with their finances. Plan how you are going to take care of your future needs rather than scramble around at the last minute trying to raise funds for your children’s college education and so on.
A stable and secure financial life is not the result of a sky high income or of cheap prices, rather it is a factor of how much you know about money management, the quality of professional advice and how much of that knowledge and advice you put into practice rather than living in denial. If you adapt these habits, not only will you have less financial stress, you will never be broke again.
I look forward to seeing you next week!