Saturday, December 15, 2007

Top Money Management Issues

I'm working on a series of articles about Money Management Issues. This will be a 10-part series, where I'm going to drill down into each one of these issues with separate articles (posts) to help with insights into each:

Ten Money Management Issues to master in order to grow financial abundance:

1. Be careful with credit. Credit is the #1 problem in America for people in managing their money. The most important advice regarding credit is to pay it off monthly, when the bill comes in. If you cannot pay it off in the first month, make sure you pay off the bill before you buy anything else on credit.

2. The most important lesson to learn about making money is not that hard work will make you money. It is that you want to build systems that serve as investments where your investment pays you. This is the lesson taught quite well in the book, "Rich Dad, Poor Dad," by Robert Kiyosaki.

3. Working harder will often result in making more money, but not always. For example, if you get paid $20 an hour to dig a ditch, and you work 8 hours a day, you'll make $160 a day for digging ditches. The logic would have it that if you worked 10 hours a day, you'd make $200. What this logic fails to consider is you'll be so exhausted from digging ditches that you might not be able to work 10 hours the next day. Not only that, but your incidence of injury increases with the higher hours. Rather than teaching people to work harder, sometimes we need to be taught to work smarter. The person who gives talks for free could start improving their talk and getting paid to do the talks (maybe even $1,200 per talk!). Another person who sells for a company might offer their knowledge in a program about how to improve selling (I do this, myself!).

4. Own our choices. It is hard to face the fact that the stock we bought at the all-time high in March of 2000 might not be worth more than 1/20 of the purchase price. But, we knew what we were buying. My point is that we need to own our choices. Taking responsibility for those choices helps us learn faster, so next time we won't make the same mistake.

One of our choices is about how we spend. The other choice is about our perspective about money. I really like the contrast as demonstrated by this quote from Rich Dad, Poor Dad:

One dad would say, "The love of money is the root of all evil." The other, "The lack of money is the root of all evil." Having two dads - and loving them both - forced me to think about, and ultimately choose, a way of thinking for myself."

Perspective is useful. Making sure we own our perspective about money is as important as owning the choices about how we spend our money.

5. Instant gratification and earning more money are not good partners. Most people who make a lot of money do not do it through winning the lottery. Most people who make a lot of money do it slowly, through time, good earning, spending, and saving habits, and making wise choices regarding usage of their money. It is easy to go out and blow a wad of money for things that depreciate: cars, furniture, clothes, etc., but the wiser thing to do is to put that money in an investment (real estate, stock, bond, business, 401K) that eventually earn us more interest or appreciation to be worth far more than the original investment.

6. Giving money or giving something often leads to others sending money back to you. Like the link exchange strategy in growing a website, if you offer a link to a site with high traffic volume, and they offer a link back to you, it only makes sense that you will both gain in traffic (and potential income) through sharing traffic. The Biblical principle of tithing money to a church or charity is a valuable discipline in money management.

7. When asked "What is more important, love - or money?" most people will respond "love". Yet, it is easier to pay for things in life when you have more money. Nevertheless, money does not buy you happiness. Most people forget that they are happiest when their life is most simple and their social networks are empowering to them.

8. Use a system to pay your self first. Most people have a hard time saving because they don't have a system to manage their money. When you have a system to manage your money, money will get appropriated more easily. For example, when I first chose to invest in an IRA account, I funded it at the end of the tax year, by writing a check to an account, rather than investing in it monthly. The following year I funded my 401K, but rather than investing at the end of the year, I withdrew money from my paycheck on a monthly basis. I noticed my pay seemed lower the first month of this deduction, but I adjusted to the change in net money shortly therafter. Over time, the 401K account filled until maximized the $10,000 to fund it each year. This is one of the best ways to create a fund like this. Pay your investments to yourself and your retirement first, before you pay your bills.

9. Self-employed people have to put an extra measure of effort into making sure they pay themselves first, by first sending money to their account, then to the 401K, then to the charity, then to their business, then to their bank account. I've started creating bank accounts for various things I am funding, so that I can track each separately.

10. Regarding buying anything new, I like to ask myself the following four questions:

(1) Do I need it?
(2) Can I afford it right now?
(3) Do I love it?
(4) Is this the best time to buy it?

When I follow these sets of rules, my money management is much better.
I'll be digging into this list further, and eventually offering the full series as a little money management e-book here at AspireNow and If you have suggestions or personal stories that might be fun to include in the e-book, please share in my comments!

This article is written by Scott Andrews, Founder of AspireNow. Copyright 2007. All rights reserved.

This article is provided as entertainment, only. I always suggest talking to a financial advisor before making any change in financial investments. To receive more tips on money like this, subscribe to the A-Blog.

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