#75 - Basics of Money Management

There is a saying that "Money can't buy you happiness." It's only partially true.

• How can you think about realizing your dreams if you can't afford food?

• How can you have enough time to do things you love when you are bounded to a permanent job and have only a few hours of free time every day?

• How can you afford tools for your creative work if you have barely enough to pay your bills each month?

It's important to have enough.

• What does enough means for me in numbers?

• How much money do I need each month to have a comfortable life and be able to just focus on enjoying every moment?

• What is included in this amount?

Understand, that at a certain level of wealth you stop making money only for yourself or your family. You actually make more money to positively impact more people. This sentence changed my way of looking at wealth. Let's become rich and let's bring love to humanity!

Another reason why is worth having some money on a side? Let's say life opportunity will knock on your doors. However, it requires some investment. Better you won't be hanging with empty pocket at that time ;)

You probably heard that a lot of people nowadays are in some debt. Elimination of it will give you an additional happiness boost. Scientifically proven!

Improving your financial situation requires discipline and deliberate action. Let's focus on building financial consciousness, so you will be able to work towards financial freedom.

There are many actors, singers, athletes who had millions on their bank accounts and end up broken. You might think it's weird to get broke having so much money in the bank account. The same goes for people who won big money on the lottery, statistics show that 70% end up broke.

If you are unprepared for big money, there is a high chance that it won't benefit you and it is possibly quite opposite, can bring a lot of turmoil.

That's why we are going to bring up the topic of financial education. Who knows, maybe some of you will connect and bring some projects to life together?

Money, if you don't have any passive income can be directly translated as time. You are actually trading your time in exchange for contractual value.

There are 4 forms of professional activity according to Robert T. Kiyosaki:

• The left side of the money flow quadrant. Employed, Self-employed which are active exchange time for money.

• The right side of the money flow quadrant. Big business, Investor which is a passive way of making money. Money makes more money.

Not everybody will have enough mental will to get to the point where actually money makes more money. It's understandable not everything is for everybody.

In my opinion, passive income is the perfect scenario, when you have both time and resources to do amazing things in life.

Having multiple streams of income is a safe way to build passive income. In a situation when one of them will fail you have still others to rely on. You don't have to quit your job once you will get to the point when you don't have to work for money anymore. Having well build passive income gives you freedom of choice and extra security.

Passive income involves work upfront. It's ideal when a certain action is done and its results (financial) are paying without active participation, or require only some of the additional labor along the way.

Passive income is about working smarter. It's about looking for automatizations in order to free up some time.

People often think that passive income is about not doing anything anymore once it's all set to run. In many cases, it will require some engagement and management. Most of the people that got to this point have a mindset that even if they don't have to actively work, they will still look for interesting opportunities.

Ideas for passive income:

• Rental income. It requires more work than people expect. Calculate the return, total cost and expenses, and risks of owning a property. Some people take a mortgage, rent the property. Will you survive through the time when suddenly tenants won't be able to pay their rents and there will be an economic crash?

• Business in which one doesn't actively participate. You can create an automated business, that can possibly run without you being all the time available. You can sell a big portion of your business while having still some shares. With the money you make you can start another venture and do the same.

• Stock dividends. It requires a lot of luck and skill, to really make a good choice on the right stocks.

• Create an app, software, game. You can always sell the rights to the app and cash it out immediately or (if successful) enjoy a constant stream of money for ads, subscriptions, download fees.

• Create a blog or Youtube channel. More popular you get, the higher chance to draw sponsors to you. Additionally, you can earn money on paid ads. Content that you have created is making money for you.

• Start a paid community. It goes well with online courses. You gather people around some ideas and charge a membership fee. You can automate it thanks to a strong team.

• Affiliate marketing. Popular social media influencers are able to make a lot of income on promoting third party's products by including links to the product on the site, social media. It's interesting as all of the content stays and is working actively to bring you income.

MLM - Multi-Level Marketing. If you will find a product in which you really believe, it can be a pretty good business for you. To simplify things. You invite people to join the store, where they make a purchase. Each of the purchases earns some commission for you and people above you in structure. Each MLM has its own rules and way of how everything is calculated. When you help others make money you actually make money yourself. Make sure to find stable business.

• Selling information products (e-book, audio, video course). There is also a way to create a freemium model where you build your free content and then charge more for detailed information. It's possible to automate processes and reinvest money back into the marketing stream until the destined amount of money is being made each period.

• Print-on-demand designer. You can make designs on t-shirts, cups etc. for companies that take care of printing and shipping it to customers. All the projects if good enough can work for you in the background.

• Charge license fees. Stock photos, stock footage, music, designs.

• Dropshipping is a method of e-commerce where an online store sells products to customers, but merchandise moves directly from the wholesaler to the customer without being handled or stored by the retailer. Can be automatized.

• Other financial products like REIT, bond ladder, high-yield CD or saving accounts, solo 401(k), SEP IRA, ETF. There are really plenty of different products.

There are really plenty of opportunities. Don't get fooled by FOMO (fear of missing out), if one train will leave without you, there will be another one to come. The key is to find the right one for you.

It's interesting as if one opportunity will work for someone it doesn't mean it will work again for you. Look for one that will touch your heart, and be align with what you believe in.

It's important to understand that there isn't anything like a 100% secure opportunity. The general rule is - more yield you would expect in a shorter time equals higher risk. It's important that I used the word general, soit doesn't have to apply to all scenarios.

If someone is telling you that have a 100% secure investment, it means that either want to cheat you or just repeats the words of others without practical knowledge. Each carries some risk factors. The art is to build sufficient knowledge about the particular investment and build a diversified portfolio that will balance potential losses.

I can't give you a golden grail that will be 100% best fit for you as one doesn't exist. Sad, but true. Based on real stories, even the most professional investors and biggest companies can become bankrupt.

Be very mindful of financial gurus. Why they would share their "knowledge to make millions" for few bucks? Wonder maybe they make millions on people who pay few bucks each. I am not saying there isn't any genuine one out there. If you will find a real one let me know. ;)

There are plenty of different famous specialists or investments channels, and 95% of them just repeat things or manipulate the market with the news. If they will make real money on the market they won’t be so urged to share tips with others, but they get paid to be specialists.

Everybody needs to find their own way.

• I encourage you to do your own research about it. Study, learn, try.

• Be ready to lose. It's a matter of luck and statistics. There is always a chance to lose your money. Be smart about it.

• Always calculate your risk, and balance between hope, greed, doubt, and fear. It might be much more difficult on the field.

• Use common sense and never put all money in one stake.

• Never invest with debt (without proper knowledge).

• Don't invest money you are not ready to lose.

Be mindful to not get into a trap that your life is going to be only about making money. If it comes to business, you need to solve some problems in order to get a stable flow of customers. There has to be some value, some positive energy behind each cent you will make. In the end, it won't be about how much wealth you have accumulated, but how much love you shared with the world.

"The stock market is a device for transferring money from the impatient to the patient." - Warren Buffett

If you decide to become a specialist in trading. Remember to master the basics rules of financial markets such as supply and demand.

Don't get into the illusion that financial markets are a lovely place. To make money somebody else has to lose them. That's what this game is about - outsmarting other players. No holds barred. It's an interesting psychological game where everybody is just waiting for another person to make a mistake.

When buying anything like lands, properties, equities, commodities check:

• What factors stimulate the price?

• What is a historical seasonal pattern when goods are cheapest and when they are most expensive? (charts are your friends)

• What would have to happen to see a price skyrocket or a major drawdown in the price of the asset?

I won't get into more details as this course is not a place for it.

Keeping money in the bank is not a good choice either. Looking at the history, during a market crash. The bank is not able to give paper money to all people at once. They just don’t have it.

It's wise to diversify cash in few strong currencies USD, GBP, JPY, EUR, JUAN. In case when one currency will drop badly you still have others to rely on.

However, don't keep all your money in "socks" as they lose purchasing power due to inflation.

Buying physical gold, silver - 1 oz gold coins, and bury it somewhere in the ground for very long term or trusted ETF, if you want to have more freedom to sell and buy.

There are plenty of different ways to invest money (like some people invest in whisky) and you need to do a lot of research on your own.

Let's begin our financial journey with a very important habit. Track your expenses!

It requires you to be always honest with yourself and your goals.

At the end of every day go through all your daily spends. Count everything even the smallest 1 USD one, as it all adds up over time.

The easiest way to do it is to find a bank account that has budgeting in its features. It will automatically categorise every card transaction, transfer, and withdrawal.

You can also do it manually, by collecting all receipts, card statements, notes for each expenditure. At the end of each day go through every purchase, categorise them and check on the total in each category. You can use "old school" and reach for a spreadsheet program or look for some cloud-based software.

That's an easy way to see your spending over the day, week, or month. You will be able to see spending trends that can be adjusted. It might be difficult for some, but it's the first step in the journey to mastering the art of money.

Being aware of what you spend your money on, as in most cases it's your time. It will let you build the habit of asking: did I really need to spend money on this?

You already know how much money do you have now then it's time to create a budget. Every household like every company needs a budget.

Tracking expenses is crucial, as it gives you a look at where your money goes.

Thanks to it you will:

• be more conscious of everyday decisions;

• understand what is necessary and what is not;

• be able to find opportunities to cut frivolous purchases;

• not make impulse purchases;

• organize an approach to finances;

• be more in control of your life;

• become an example for your children;

Step by step:

• Each budget should be made up of categories, for example; Sports, Coffee, Gifts, Charity, Beauty, Rent, Utilities, Education, Entertainment, Services (including subscriptions), Transport, Shopping, Groceries, Travel, Restaurants, Health.

• You need to check up daily if your spending fits the current stack.

• Is good to do a weekly checkup, as that gives you a bigger picture image, lets you predict future expenses, confirms if you are on the good path.

Check up questions - check daily/weekly

• What are my mandatory expenses?

• Do my expenditures fit what is set under each category?

• Should I increase or decrease the capital for a particular category? Why?

• Did I make a purchase because I needed, or wanted it?

• Are there some spendings which I can eliminate?

• Can I see any financial leakage such as spending habits that I can eliminate or reduce?

• What are my spending triggers?

• Did I spend money on things that truly matter to me?

• Is there any item which I regret? How can I avoid it in the future?

Make small incremental improvements each time when you do check-ups.

Honestly evaluate your financial situation. - check monthly

Merge all your accounts into one. (credit cards, debts, checking accounts, investments, personal assets like a house or flat, etc.)

PS. Wake up call. If you own a house, remember that since you pay a mortgage it is a bank possession.

Ask yourself:

• Do I earn what I deserve?

• What can I do to increase my income?

• How much do I spend each month, and in what categories?

• How much debt do I have?

• How my budget would look like without debt payment?

• How much available cash do I really have - right now?

• How much do I earn on my returns, interests from my savings, and investments?

• How much do I save each month? How can I do better?

• What is my financial plan for the future (year, five, etc.)?

• Did I secure my family in case of sudden death?

• Do I have an emergency fund to cover at least 3-6 months of my spending?

• Do I set a good example for my children?

What are other questions worth asking in order to evaluate the financial situation?

Regularly go through your monthly or weekly bill statements: subscriptions, fees, utilities, credit cards. They might seem small, but multiply them by 12 months or more and you will see how much money you spend on each.

The key is to eliminate, decrease each monthly expenditure. More money means that you will pay off your debts quicker and start investing money for a bright future!

What is interesting, it is often possible to negotiate lower prices!

Car insurance, phone or internet bills, TV bills, banking fees simply pick up the phone and renegotiate the price!

It works as the cost of acquiring new customers is often higher than the amount you will try to negotiate. You need to be aggressive through the call. It's especially effective if some of the competitors offer a lower price. So is important to find out about prices in other companies at first to know what you are aiming for (ideally lower than that).

"I was calling to XYZ and I got a much better deal as a new customer than you offer me as an existing one. I am sad as I am your customer for X months/years and I thought you always want to give me the best offer. I am seriously considering switching the operator. Is there anything you could do for me to change my mind?" - often works. Be prepared to respond how much the other service costs, don't take the first offer - negotiate :)

What are your ways to get better deals, how much did you save? Share with us on the Facebook group.

After a couple of the calls, you will build up your self-esteem a bit more, learn how to negotiate so it will benefit your life.

Set up automatic withdrawals. When planning your budget it's important to set up a fixed amount of money that will be automatically saved for long-term (low risk) investments. Instead of taking what is left on the bank account on the last day of the month, it's more beneficial to do it just as you receive your payment.

Planning your budget without this amount will let you be more reasonable and keep you away from distractions. You will tighten your belt and not spend much during this month.

It's also important to find out what is your financial goal:

• Save for large investments (for example, real estate property)

• Save for your children.

• Save for retirement or early retirement.

• Get out of debts.

Or maybe something else?

You should start with eliminating all your debts in the first place. As if you don't have any investments skills, interests are higher than any other interest you would generate from any investment. Pay off starting from the highest to the lowest interest rate.

It's not recommended to take loans for goods that lose their value. Like taking debt for a new phone or a bigger TV, it's simply stupid. Generally adding stress, and it's like putting a loop around the neck. Be wise, and if you decide to take some loan take it for things that will offer you some return in exchange. You can also purposely take payment in installments to lift up your creditworthiness, which might be helpful when in need.

PS. Read more about Inflation and about how your money losses its purchase power.

Be mindful about this one. It requires some of the knowledge about prices which is nothing more than skillful use of search engines. Be mindful as sometimes, prices are lifted just straight before the discount so it only looks like a good deal. Nasty. That's why you want to be mindful and reasonable to keep impulsive buying away.

Make sure you are buying something because you need it, not only because there is a good deal (poor people on black Fridays).

Whenever you travel, go out, or buying necessities - check up on coupons!

On food, it's possible to find great deals (even -70%)! On products which you buy, doesn't matter what, it's possible to find offers 'buy 1, get second for half of the price'. Keep your eyes wide open, print out coupons put them into your wallet, and let them serve you.

Where to look? Daily newspapers, magazines, the internet. Amazon Coupons, Groupon, RetailMeNot, Savings.com are few places where is worth checking out.

Shop during end-of-season sales. You can get even an 80% off discount! It's simple when there is high demand then prices will rise. When in your opinion stores sales most of the swimming suits, winter jackets and so on? Shop when others don't. :)

January and February - shop for winter deals. May and June - shop for spring deals. August and September - shop for summer deals. January - shop online (might be a good time just after Christmas craziness)

If you find your favorite store, restaurant, cafe - always ask if they have a loyalty card. Often sticking to one place pays. Check also on "payback" programs in your country. Whereby making purchases, you get few cents and over time you can use collected money for the purchase.

Consider shopping online. In some cases, it's possible to find better deals than in stationery stores.

Why not save few bucks here and there?

There can be a lot done when it comes to cleaning products, but there can be also a lot done by conserving utilities. Saving environment and your wallet!

• Turn off the lights whenever you leave the room. Consider installing sensors in some rooms.

• Switch to the highest energy class of home appliances, energy bulbs, and other devices.

• Decrease heating in rooms that you don't use. Especially beneficial if you will be off for some days.

• Unplug electronics when they are not being used. Many have a standby mode which uses some electricity.

• Instead of using the air conditioner open windows and use fans.

• When building a house, read more about passive house solutions. It usually costs more, but it pays off overtime. The basic is to have solar panels. It's possible to have separate LED lights connected to a free energy source.

• Always use the lid while cooking, and match the pot size to the proper burner.

• Use cold water to do loads of laundry. If it's about refreshing your clothes, you might not even need any detergent.

Do you have any more ideas? Write about them on our Forum.

Small adjustments over time will lead to saving you a lot of money.

Time passes and the newest model of the phone after a year or two costs substantially less than on the premiere. Same device, the same functionality, and quality, often few hundred USD in the pocket. Especially nowadays 2 years flagships have great "enough" quality for professional usage. It's definitely worth being 2 years back from the newest gadgets.

It same goes for second-hand clothes. There are so many opportunities to find clothes even brand new for few cents.

Planning a child? Or maybe your friends do... Children grow so fast! It is possible to save a lot of money on clothing, which costs often the same amount of money for a small piece of material as for the big. Instead of paying full retail price, look for garage sales, the local online advertisement. You can get a full bag of outfits for little money. It goes the same for discounted furniture, decorations, and other consumable items.

Facebook groups are your place to look for.

Second-hand pays off. Help your wallet and the planet ;)

Free! You won't even imagine how much free stuff you can get nowadays:

• Look for local Freeganism communities, they can give you some hints;

• Look for Dumpster Diving (free food);

• Community fridge (free food);

• Give away Facebook groups, give away local websites (a lot of stuff);

• Share a ride or Hitchhike;

Look for free activities:

• There is much more. It is really possible to find good free events where you can get to know wonderful people. Check on a local newspaper, community calendar, or simply Google/Facebook search for events.

• Board games. It's an amazing way to unplug yourself from screen time and spend some time with your friends or family. Interestingly there are board games stores or pubs where you don't even need to own the game to play.

• Look for open days in museums, exhibitions.

• Take a day off and explore your local area. It's possible to find some hidden gems. Take a bike, scooter, or go on your feet.

• Relax with a book or a movie.

• Join a club of activities you enjoy. It's amazing to surround yourself with like-minded people.

Do you have any more ideas? Share them with us ;)

It's more about switching your mind to think about looking for more ways to save money so you will be able to have more money for things that matter and/or build financial freedom.

Here is the list of things that might be good to consider if it comes to saving some money here and there.

• Prepare food at home before leaving the apartment or plan your meals ahead. The healthy choice will let you stop eating fast food and spending money in places offering good deals. It's also easy to cook for 2-3 day in advance and take it with you in containers. The same goes for morning coffee, why not take a coffee with you?

• Choose quality over quantity. It's better to buy one good thing rather than 2-3 bad quality ones. Do your calculation, do research about items and decide.

• Think long-term. Do you need this item? Can you go without it? Will you need it after some time?

• Always compare prices in few places. Why pay for the same item more money? Look for the price comparisons websites. That is a quick way to find the best vendor. The difference can be substantial especially if it goes for more expensive items. That's also a good time to check what people don't like about the item you want to buy.

• Shop with the list. There is power in its simplicity. No more compulsive purchases with the list. Even if you buy something out of emotions, return it.

• Plan your day. That helps to save money and time on unnecessary trips.

• Review your subscriptions. I do it all the time! Cancel, Cancel, Cancel! Few dollars here, few dollars there...

• Be aware of Junk Mail and Promotion catalogs. We get dozens of offers every day. Let's make sure we don't get into a great deal of spending 300 USD to get 100 USD for something we don't need. It is not like you saved 100$ you spend 200$.

Let’s talk about F.I.R.E, about money management strategy. Retirement isn’t age—it’s a financial number. There’s no law that says you have to work until you’re 65. That’s a myth!

I’ve talked to many people who are well on their way to leaving the workforce early. But there’s a new wave of younger workers who are trying to take early retirement to a whole new level. They’re on a mission to blaze a new path toward retirement as part of the F.I.R.E. movement.

They believe it’s possible to retire sometime in their 30s or 40s. You read that right! But how? Is it actually realistic to retire at age 45? Or even 35? Let’s take a closer look at the F.I.R.E. movement and find out whether or not it’s right for you.

F.I.R.E. stands for “Financial Independence, Retire Early.” The goal is to save and invest very aggressively—somewhere between 50–75% of your income—so you can retire sometime in your 30s or 40s.

That’s right! You need to save at least half of your income. A minimalistic lifestyle is a great catalyst of savings.

How do people do it? – Keep their expenses extremely low and constantly raise income.

Quite logical, right? It is also good for our planet because you can’t promote overspending, overconsumption, and save that much simultaneously.

So less waste more savings! Corporates won’t like it!

It takes time and demands a lot of humility. Step by step, work for somebody, and constantly think about creating a less time cost work style, or work to be able to save more money. Diversification on investment, and earning is a key to make this path more solid and safe in the long run.

Step by step:

• Make a plan. When do I want to retire? What is the cost of my lifestyle when retire? How much wealth do I need to accumulate in order to achieve it?

• Check where else you can squeeze some money.

• Look for ways to boost your income. Maybe you’re on a career path that’ll lead you to a job with a six-figure salary. Or you’ve got a side hustle that you’re turning into a small business at nights and weekends.

Start somewhere, it’s important to start small and increase. Remember Kaizen? Doesn’t matter how small you start. If you don’t start you will end like most of adult Americans, who have less than 1000$ in savings.

Even if you won’t reach your goal to retire early you would have money to be prepared for the randomness of life, such a maybe to invest into some opportunity, or cover medical expenses. Or maybe you will be able to help your kids.

Reminder. Start with paying all your debts. It is hard to find stable investments (without proper knowledge) to make much money like are interests of most of the loans. You obviously lose money.

Studies also have shown over that you’ll spend more with credit than with cash—in some cases, almost four times as much.

That was an introduction to take care of your finances. This topic is extremely wide and it would require a separate book. Keep on educating yourself in this field as there is much more to learn. I wish you an abundance, so you will be able to bring your dreams to reality.

Don't get fooled by magical formulas to make a heck of amount of money as in most cases, you will be simply fooled. Or maybe you will be lucky :)

Look for solutions yourself, ask plenty of questions, read biographies, listen to successful people's stories.

Early retirement is a real thing. There are even many people in their twenties who made this dream come true.

Remeber that when you reach a point of having enough, it's not anymore only about you. It's how much you can help others.