Okay so I get that being 20 or 30 something with a high disposable income is bloody exciting.
If you’re yet to have those big responsibilities like kids, mortgages and car loans then you’re probably free to be a little frivolous with your cash, and hey, I get it.
I’ve been in this trap MANY a time. Every time I walk into David Jones or take a stroll through the Queen Street Mall it’s hard to resist the temptation of the Louboutin store or Chanel.
Just a look, I’ll rationalise. But I always seem to walk out with another pair of shoes or a pair of sunnies.
SLAP ME! I FEEL THE GLARE FROM MY ACCOUNTANT RIGHT NOW!
You see, the trap that many young professionals and entrepreneurs whose businesses start to make a little coin fall into when they start earning a little more money, is they then start spending more money.
It’s a simple equation – EARNING MORE = I CAN NOW SPEND MORE.
EARN MORE SHOULD EQUAL SAVE MORE. OR BETTER YET, INVEST MORE.
And in Robert Kiyosaki’s latest book, Why The Rich Are Getting Richer, which I have just finished reading, the concept of Save Money is a dying one.
Well, according to Kiyosaki, who is better known for his best seller Rich Dad, Poor Dad; money itself – that paper stuff, is fast becoming worthless. No point in saving it he says.
The Rich, or those who have smartened up on how to build wealth, are Investing their earnings, and Property seems to be the way to go, according to Kiyosaki.
Now I’ve read a few of his books in the past and as much as I resonate with the concepts he presents about how the traditional education system has failed us and how you really shouldn’t be taking advice from Financial Advisors who “catch the subway to work”, I have to cringe when I read the sections about property. Again, the basic concepts of what he preaches are in my opinion sound, but in practice, I feel like he makes investing in property sound all too easy.
It’s as simple as buy a property and let the income from the property pay off the mortgage and expenses whilst it (hopefully) puts an extra $50 or so a week in your pocket.
VOILA! YOU’RE ON YOUR WAY TO BUILDING WEALTH.
In other words, positive gearing.
In Australia, and in particular Brisbane, this is a lot easier said than done. But that’s a whole other blog and a road I won’t go down just this minute.
So with that said, let’s get back to the topic at hand which is how to be smarter with your money.
Okay so I’m going to make this really simple for you.
HERE’S MY TOP 5 SUREFIRE WAYS TO BE SMARTER WITH MONEY.
You work hard for it yeah? So don’t waste it!
SAVE MORE THAN YOU SPEND, AND INVEST AS MUCH AS YOU CAN.
Okay so this one’s certainly not a ground-breaker and if you googled anything relating to finance you’d probably see this top tip come up on repeat 10 times over. What I want you to take note of is the Invest part.
As Robert Kiyosaki says, don’t Save; INVEST.
PAY YOURSELF FIRST.
As human beings, we naturally put ourselves last if we’re the non-narcissistic type (which is thankfully the majority of the population)! We think we’re being responsible by paying all our bills and commitments to others first, whilst leaving what’s left over for ourselves.
My financial advisor recently ran me through this concept yet again because I’d fallen off track with it. When we pay ourselves first, we GUARANTEE ourselves a set amount of money each time, and if you an setup an automatic payment, then it’s like forced savings which is never a bad thing when it comes to money management.
I think there’s also something about the psychology behind putting oneself first when it comes to allocating funds that boosts your self-esteem and self-worth which in turn makes you want to work harder, smarter and earn more of the big bucks so you can put this habit on repeat.
DON’T SPEND YOUR TAX MONEY OR GST!
Who has done this?! If you’re self-employed or work under an ABN, it’s easy (and a little naive) to think that all the money that hits your account when someone pays an invoice is instantly yours to keep.
Remember, you’ve likely got GST, tax, and possibly even instalment tax to be paid out of those funds, not to mention other business expenses that need to be paid for. My advice is get yourself a great accountant who is onto you about forward tax planning, and setup some separate bank accounts to hold tax and GST money while it’s waiting to be paid out.
INVEST IN INCOME PROTECTION INSURANCE.
Now this one might seem like it’s come out of left field. After all, Income Protection Insurance is often looked at as just another expense in the short term, but what happens if you get sick or have an accident and you can’t work for whatever reason? How will you continue to live and pay the bills?
If you don’t have a rich boyfriend, spouse who can support you or sugar daddy, then you need a Plan B!
You know those couples who are too tired to do the grocery shopping at the end of the week so instead they go out every night for dinner or order Uber Eats on the fly?
Yeah, well I’m guilty of this.
Some weeks I’m good, and I do a big grocery shop and plan our meals for the entire week, but then there’s other weeks where I’m just so busy with work stuff that unimportant things like food take a back seat.
People who plan ahead don’t get caught out having to pay triple retail prices for last minute must haves like meals, drinks and even holidays!
IT ALL SOUNDS SO SIMPLE DOESN’T IT?
WELL, MAYBE NOT THE INVESTING PART (BUT I CAN HELP YOU WITH THIS).
Tell me, are you doing it?
Are you putting these actions into play, or are you like I was a few years ago and blowing a large portion of your salary on feel good “stuff”. Crap that gives you a sugar hit in the hours following the purchase, but long term, you wonder why you ever handed over your credit card.
And admittedly, I’m guilty as charged on all of the above. It’s just I’ve learnt the lessons of being a poor money manager in the past, and I want you to do better.
I’m telling you right now, it’s not a good place to be when the words “payment arrangement” are constantly thrown at you by the tax office.
But with that said, I’ve taken these lessons on board and I’m a lot wiser when it comes to my wealth and investment plan.
Sure, I reward myself now and then with a splurge purchase but the difference this time, is that I’ve allocated my money accordingly so that what might seem to be a splurge purchase, is actually a pre-planned reward that gives me a sense of accomplishment and achievement after I’ve hit a goal or target, rather than a sugar high.
ULTIMATELY, IT’S YOUR MONEY, YOUR LIFE, AND IT’S YOUR CHOICE WHAT YOU DO WITH YOUR EARNINGS.
But if you want to be wealthy, you better smarten up and put some solid money management practices in place.
There’s a lot of apps available nowadays that help people manage their finances and this is one possible way you could approach the money management task.
Just do what works for you and keep your eye on the long term goal, because this my friend, is what ultimately matters most.
I’m connected some great Financial Planners who not just talk their talk, but walk their talk.
If you don’t already have a Planner, then I’m telling you that you need one.
Get in touch with me and I’ll connect you to someone amazing.