Income is growing, and loans are multiplying. Traveling during vacation takes a significant toll on your pocket. But someone manages to save for a rainy day or a decent retirement. To become one of these lucky ones, you don’t have to have a financial education or read mountains of books. Everything is much simpler.
Those who struggle to live paycheck to paycheck look to those who successfully invest their savings in securities as financial gurus. In fact, anyone can invest their own money wisely. To do this, you just need to take a number of specific steps, and most importantly, learn to behave correctly. After all, most often it is the behavior of people that prevents them from saving money and, by investing it in stocks, receiving a good income. Financial planner, bestselling author of “The Psychology of Investments. How to Stop Doing Stupid Things with Your Money" and "Let's Talk About Your Income and Expenses" Carl Richards explains why people manage their savings illogically and shares simple tips to help improve the situation.
The article will be useful to those who want to learn how to save without making serious sacrifices, get rid of loans, start saving money and increasing their savings.
Remember: You Can't Predict the Future
There is no completely safe investment. Over time, everything changes. And trying to predict where a stock will go next based on evidence that it has been up so far is like guessing which way a coin toss will land, given that the last time it came up was heads. The previous result does not guarantee anything.
But this knowledge should not paralyze you. If you're about to invest your money and want to make a decision based on common sense rather than vague prospects, make a plan. Not a 200-page treatise that you will never have time to even re-read, but a short list of actions that will fit on a small card.
How to plan and enjoy it?
Many people mistakenly associate budget planning with a complete renunciation of life's pleasures, when it is just a matter of setting priorities. With proper financial management, the quality of life, on the contrary, should increase. Having learned how to properly manage your family budget, you will see how much money is left that you can spend on yourself or on general pleasures. In addition, the freed up money can be made to work for yourself, increasing your profits: these are deposits, bills, mutual funds, etc.
Controlling expenses will gradually become a habit and will be taken for granted. Moreover, family budget planning can increase the comfort of life and ensure your financial well-being. Plus, planning a family budget teaches financial discipline, and this, in turn, guarantees that you will never be left without a penny in your pocket. And all that remains is to enjoy the positive results.
Answer the question, what does money mean to you?
For many people, financial planning seems so overwhelming that their first reaction is to throw up their hands and start begging an expert to tell them what to do. No specialist can give universal yet effective advice.
From the book “The Psychology of Investments. How to stop doing stupid things with your money":
“Each person’s financial situation is unique because their goals are unique. Each time we are talking not about abstract dreams... but about everyone’s specific ideas about a prosperous retirement and a good education for children. And if what brings joy to your neighbor cannot make you happy, then someone else’s financial plan will not work in your case.”
So the first (and most important) question you should ask yourself is: “What does money mean to me?” For some they are synonymous with security or opportunity, for others they are the equivalent of freedom. Once you've formulated your unique answer, think about what your realistic goals, time horizons and risk tolerance are, and what you're willing to change.
Having identified your goals, choose the three largest ones. And whenever you think about investing, ask yourself whether it will help you achieve these goals.
How to manage your money and get out of the “squirrel in the wheel” game
There is one very good rule from Robert Kiyosaki, almost all millionaires and ordinary people who “always have money” have it.
This rule is very simple:
Spend less than you earn.
Once you learn to be friends with this rule, you will always have money in any situation. You will feel like a completely happy person, and peace of mind will never leave you, because you are conscious about your money and you are the master of your life.
It is worth understanding for yourself that knowledge about money and how to manage it is given to few people in the family, and this is also not taught at the institute. You need to comprehend and learn this skill yourself.
You can do this:
- Anytime
- any age
- for any income
The main thing is the desire to comprehend the science of “managing your money.” I recommend learning this with a coach; a good mentor will quickly correct your “jambs” and suggest ways to obtain additional sources of income.
Don't be led by emotions
By acting like those around us, we feel safe. That's why we buy stocks that are expensive in hopes that they will continue to rise, and sell stocks when they start to fall out of fear. We may hold our employer's shares because we are loyal, or we may sell securities because it's...fun. This behavior is more like gambling. It's exciting, but it's unlikely that you would advise someone to play in a casino to save money for the future.
Investing is not fun. They should always be consistent with your goals and principles, and not based on feelings about what will happen. Don't play in the stock market.
Tips for every day
Every month a person faces the difficulties of distributing money. To avoid this, it is better to follow the guide for every day:
- 2 days before receiving your salary, we make a list of necessary expenses for the month.
- The day before we receive our salary, we buy food.
- On payday we don’t buy anything except bread and milk.
- We distribute income among envelopes.
- We pay loans, mortgages, rent, etc.
- We study applications with discounts.
- We buy food for the week on special offers.
- We buy household chemicals for a month.
- We purchase food products for the preparation of semi-finished products.
- We prepare semi-finished products for a month.
- Watch a video on financial management.
- We are looking for an additional source of income.
- We buy food for the week.
- Let's go visit because it's profitable.
- We are looking for tips for saving money, implementing life hacks.
- Fasting day. They are good for health and saving money.
- We are looking for food products on sale that have a long shelf life: canned food, cereals, candy.
- We analyze expenses and calculate the remaining funds. If necessary, we redistribute money in accordance with planned subsequent expenses.
- We buy products for preparing semi-finished products.
- We prepare semi-finished products.
- We buy groceries for the week.
- We review personal items from the wardrobe and sell the excess.
- We watch personal growth trainings, read a book on finance.
- We are engaged in the exchange of unnecessary things, equipment and other items.
- We are trying to earn 500-1000 rubles on the Internet.
- We analyze expenses. We put some money into the piggy bank because we will receive our salary soon.
- We carry out an audit in the refrigerator, taking into account the prepared semi-finished products and the products purchased earlier as part of the promotion. We are making a menu for the remaining days.
- Dinner party. You have dumplings and stuffed peppers, the guest has cookies and sweets for tea.
- Fasting day. You can drink tea with your friend's treats.
- Analysis of expenses, remaining amounts in the envelope. Allocating an amount for the remaining 2 days before payday - here it is important to allocate a small amount for the most necessary expenses. Put the saved money into a piggy bank.
By living according to this principle for six months, you can develop a savings strategy. Managing money will be much easier, and the money in your piggy bank will increase.
Use the 72 hour test
Of course, you can think about where to invest your money when you have it. What to do if they are not there? The answer is obvious: you need to start spending less. And there is a killer simple way to do this! Luckily for you, in the modern world with its online stores, where you can buy almost anything “in one click,” they have come up with an excellent tool that allows you to control costs. It's called a "basket".
Let's be honest: Of the things you order from online stores, very few things need to be purchased immediately. Therefore, make it a rule to leave items in your cart for 72 hours. When you check back three days later, ask yourself: What’s more important—the items in your basket or getting closer to achieving your financial goals? And without regret, delete what you can do without. This technique works great because it allows you, on the one hand, not to immediately say “no” to purchases, and on the other hand, not to make purchases under the influence of emotions.
Search for new sources of income
How to manage more than just personal finances
An additional source of money will give you confidence in yourself and your future.
A good addition would be a sale of unnecessary items. You shouldn’t be embarrassed about it, especially since you won’t have to go to the market. For such purposes, several platforms have been created on the Internet where you can post an ad for free.
Having studied the literature on the topic of financial literacy, you can open deposits and become an investor.
When choosing a source of income, you need to focus on labor costs. For example, you can spend 2-3 hours in the morning working as a janitor and cover a significant part of small expenses, such as paying for the phone, and devote the remaining time to business, main work or training.
Automate good behavior
The easiest way to avoid making stupid financial decisions is to not make them at all. Personal accounts on bank websites and mobile applications allow you to automate most daily operations.
From the book “Let's Talk About Your Income and Expenses”:
“Instead of forcing yourself to make the same decisions over and over again, automate them so your good intentions will turn into good behavior. You can automate the payment of contributions to a pension fund or just to a savings account, but not only. It is better if auto payments are also set up to pay off mortgages and car loans. The essence of the procedure is that the necessary debits from the account without your participation will save you from the painful desire to postpone the payment by spending the money on something else.”
As you start spending less and saving painlessly, evaluate how profitable your past investments were.
Use an overnight test
By following the plan, you will put your current expenses in order. But past investments may have been made without considering your financial goals, driven by emotions, or influenced by people you know. Therefore, sooner or later you will have to deal with previous investments.
To do this, imagine that overnight all your investments were returned to you in cash. And ask yourself what investments you would make again under the same conditions and without losses. All deposits that fail this test should be redirected.
Setting goals
The most important thing is to have a clear goal. This applies not only to life, but also to money.
You should always know what you want to achieve, it could be:
- buying an apartment or car;
- running a family or large business;
- getting an education;
- trip around the world;
- financial independence in old age and much more.
Before you save money and make investments, you need to understand why all this is being done.
It is important to understand the difference; paying off a debt or paying off a loan is not the goal.
Follow the basic rules of investing
- 1. Pay your loans on time.
- 2. Try to pay off loans faster. Once the debt is gone, you won't have to pay interest on it.
- 3. Spread out your investments. The point of diversification is to combine investments, each of which carries its own risks. Such combinations are often less risky than their components and bring higher returns.
From the book “Let's Talk About Your Income and Expenses”:
“When you bet on 'systemic risk', it means you're investing in the concept of capitalism as a whole. It is based on the idea that, despite the ups and downs of the market... it still continues to grow. Therefore, you should invest in shares of different companies. Of course, some of them will close, but this will not affect you much, since others will develop and their shares will rise.”
Mutual funds, which involve the distribution of investments among various companies, are much more profitable than individual stocks. When choosing mutual funds, remember to consult your summary financial plan.
Be ignorant and lazy
A huge mistake is made by those who read too much financial news that encourages buying, selling or other similar gambling actions. Remember: you cannot predict the future.
Experts can’t either, but they make predictions because that’s their job. So ignore financial news. Pay attention only to what can affect the achievement of your goals and what you can control.
Someone will say: “What about “black swans”? If people paid attention to details in time, they could avoid serious crises!” Economists from Oxford and New York universities responded to similar objections. In a 2010 study, they concluded that experts who correctly predict the most unexpected events are hardly listened to.
Loans are possible, but carefully
People want to get what they want as quickly as possible, this is obvious.
If we are talking about the next fragrance or shirt, then it is better to hold off on spending and postpone the purchase to the next month. But if you need money for equipment that will bring income in the future, then there is no need to save it. Bank loans solve such problems. If you don’t have the required amount, you can contact them.
Experienced investor Alexander Krasavin believes that credit cards should not be underestimated. This banking tool will allow you to buy what you need in installments. Reliable banks have developed conditions that allow you to use a loan without paying interest. In some organizations the period may be one month, in others it reaches a period of up to 3 months.
It should be remembered that the loan is issued in 20 minutes, but it will take longer to repay it
A loan helps you develop without initial capital, but you need to use it carefully. The main thing is to calculate the regular payment of the debt and have reserves for its repayment. In the opposite situation, a financial instrument will only add to the hassle.
