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Taking control of your wealth and personal finances is not a particular difficult task. Indeed, we all dream of becoming financially independent however, reaching this goal takes a lot of time, patience, disciple and focus. This article shows you how to manage your wealth and finances like those of the wealthy and financially independent.
1) Know the value of money-every wealthy individual knows the value of money. They see every dollar as a seed that has the power to grow into a tree. They continuously look at ways to increase their wealth through long term investing, utilizing the power of compound interest as well as looking at ways to increase their wealth by developing multiple sources of income. If you’d like to know more about basic investing, you can read my article on the 7 steps of investing here.
2) Financial control-the financially wealthy know how to control their wealth and finances. They set financial goals, they keep to their budget, and they control and keep track of all their expenses. In order for you to track your spending, you can use a cash notebook, regularly check up on your bank statements or use an online tool like Mint. Whatever you choose, stick with it and make it a habit.
3) Save-I have always emphasized the importance of savings, whether it’s for a rainy day or emergency fund, for retirement or for investing, you should always make it a habit to save on a regular basis. Aim to initially save at least 10 percent of what you earn and as you earn more through your additional sources of income, allocate more of that to really leverage your savings. Automatically set up a standing order so that a portion of your income gets paid into an emergency fund initially, with the rest invested. The beauty of this is that once this becomes a regular habit, you wouldn’t really miss the extra money being put away every month into your savings. And do you want to know a simple tip to automatically cut up to 50% of your expenses? Make it a priority to clear your personal loans and credit cards and pay off your balances on a monthly basis to avoid interest charges.
4) Spend less than you earn– A simple but golden rule when it comes to managing your wealth and personal finances. You have to live within your means and control your spending habits. Just because your next door neighbor spent over $20,000 in a new car doesn’t mean you have to. And have you always dreamed of going on your dream vacation but can’t afford it? Then make sure that you save enough money or look at ways to increase your income before you splash the cash. Simple as that!
5) Invest-the wealthy and financially independent know how to invest. After saving at least 3 months worth of expenses , automatically allocate a portion of your income towards investing. Understand your risk tolerance-are you a risk taker or more risk averse and invest accordingly. I personally like to allocate my investments into 3 buckets: conservative investments, medium and high risk investments. That way, your investment portfolio is well allocated and diversified. You must also understanding what you’re investing in. Warren Buffet once famously quoted that ‘you should never invest in anything that you don’t understand’. If you don’t have the time to research equity investments, then your best bet would be to invest in index funds that track a particular market such as the S&P 500 for example, which composes of an index of 500 companies in the US and is considered a bellwether of the US economy.
Don’t forget that investing is a slow process-there is no get rich quick scheme here. Of course there will be times when the market dips but if you utilise a long term horizon, you will reap greater rewards in the process.
6) Look at ways to increase your wealth by developing multiple sources of income-In this day and age, you cannot just rely on just your full time job as your sole source of income. Just ask any wealthy individual-chances are they have several income producing activities and there are several ways you can do this. Passive income for example, occurs when you turn surplus cash into assets that generate income even when you are there-renting a property or annual dividends from shares for example. Another way you could create new income streams is to utilize your skills and expertise in more than one setting for example, freelancing work on the side in addition to your day job or perhaps working in a different area where you have the specific skill set in a hobby.
7) The wealthy share their wealth-the wealthiest among us donate at least 10% of their wealth to charities and good causes, a figure that has remained constant since 2011. Warren Buffett and Bill Gates have taken the 10 percent even higher, arguing through their Giving Pledge organization that the rich should give away at least half their wealth., Indeed, 10 percent is enough to make a difference to someone who really needs it, it helps to promote financial responsibility and moreover, donating some of your wealth would certainly promote your sense of well-being and purpose.