Money Matters
Understanding how to make money work for you and knowing the basics of
wealth creation is where you can begin to really up the stakes in terms of income
generation. If your vision is to work less hours and earn more income, or to work
in a style that energises and motivates you, then building wealth will take some
of the pressure off. It can take you away from having to do a nine-to-five day to
pay for your lifestyle.
Earning a higher income is not just about creating wealth and the most
successful businesspeople understand how to manage their money in order to
create everlasting wealth. I am not a financial advisor nor am I a multi-
millionaire: my aim here is not to tell you exactly what you should do with your income.
Everyone is responsible for their own financial decision making. I would,
however, like to share with you some of the key lessons I have learnt on my
journey and some of the advice I learned from years of studying wealth
management books, which helped me turn my money management around.
My Own Money Story
In my early days as a golf coach I worked very long hours and often six or seven
days a week. This gave me a good income and I enjoyed my lifestyle very much,
going out for dinners, weekend breaks and buying myself clothes and golf
equipment. However I wasn’t a big spender and never blew my money on silly
things, plus I lived in very cheap accommodation and drove a small economical
car.
The money that I would accumulate throughout the season would almost see me
through the winter months, but generally I began the next season with almost
nothing in the bank, credit card debts and worried about paying any new or
unexpected bills. As the season kicked off I would be OK again and pay off my
debts and begin a new cycle. After four years of absolutely working my butt off, I
had nothing to show for it but the normal cycle of debt and recovery.
Today I am very fortunate to have multiple businesses, properties, investments
and money invested in my retirement: and none of that would have been
possible if I hadn’t begun to educate myself in the ways of money and how to
make it work for me. It takes courage to look at yourself in the mirror and admit
that change is needed to build a better future. If you are not great at managing
your money then the lessons below will help you to understand how I turned
things around.
Reduce Your Spending
Reducing your spending seems entirely logical when it comes to looking at your
finances and trying to see where you can save money. However, most people
who stay poor are reluctant to change or reduce their current creature comforts.
Everybody can save a little money somewhere if they really want to. I made a
note of every penny I spent for a month, every coffee, sandwich, beer and
restaurant bill as well as petrol, and my normal fixed bills. Then I marked off the
ones which can be classed as unavoidable, like my health insurance, my car and
petrol (as I needed a car to get to work), my rent and electricity, mobile phone
and so on. Then I was left with the nice-to-haves costs: yes, I needed food but I
realised I was spending a lot of money in restaurants, on drinks, coffee and
sandwiches all which were avoidable or could be hugely reduced.
I also had a
cable television subscription which I never used and was buying new golf
equipment once a year which I did not really need. All of these expenses, plus
my taxes were keeping me poor even though my annual income was adequate.
If you are living on the limit from one pay check to the next you are actually one
step away from bankruptcy and ruin. If you want to live the lifestyle of
somebody rich but you have no passive income, no savings and no investments
then you will always be poor, like I was. I needed to take a long hard look at my
lifestyle and be honest with myself: did I really need to live like I did, or did I
want to become successful? So I reduced all the unnecessary expenses in my life
to free up more of my income and begun to build wealth.
Divide Your Income
Once I had addressed my crazier spending habits, I saw a little more money in
my bank account at the end of every month. Next I decided to divide my money
up in different money pots. Firstly, before anything was paid I put 10% of my
income into a savings account. Then I opened a pension account and set up an
automated transfer into that account, which was very little at the beginning but it
soon starts to add up. This process is actually about building the habit of saving
money, which is initially more important than the amount. Then I took a third of
what was left over and put it in another account for my taxes.
Then of course I had to cover my fixed costs, which took up most of the rest of
the money. I did however decrease these costs by changing to cheaper car
insurance, a cheaper telephone provider and cancelling that television
subscription which I hardly ever used.
I also used the money that was left over more intelligently by shopping for more
cost-effective food eating more often at home, rather than at a restaurant, and
taking packed lunches to work with me. Believe it or not I still had a little change
left over to meet my friends once a week for a beer or two.
If you can stick to this habit you will suddenly start to see how the power of
saving and living beneath your means can change both your mindset and your
lifestyle, being frugal is not about being tight with your money but being smart
with it. The next step I took was to try and reduce my debts, starting with the
smallest one first.
Reduce Debt
I had been pretty much living off my credit cards for five or six years, sometimes
paying them off completely, but usually just paying the minimum required every
month. This is honestly the worst thing you can do as you are mainly just paying
the interest of the debt and never the actual debt. And with credit cards the
interest rates are extremely high. Credit cards are great when you need quick
access to money, but it’s money you don’t actually own and they seriously
destroy your ability to invest, save money and build wealth. Many wealthy people
say that you should never spend anything on your credit card which you cannot
pay off in full at the end of the month.
Make it your goal to pay off your debts, starting with the smallest one first, this
could be a loan you are paying back or a credit card debt you have accumulated.
Maybe the 10% you have put away each month could be increased to 15% with
5% of your income being dedicated only to debt reduction. Or maybe you have
saved enough in your 10% money pot to pay off a large debt altogether. I used
to pay around €500 a month to my credit cards as well as another €300 towards
other debts. Now that €800 a month goes towards investments and building
wealth.