Moneywise24 Personal Finance

Sometimes I am wondering, what I do all this for. I mean, all the work, financial planning, breaking my head over my retirement planning. Often, a typical month would look like this:

• I work the hard, the entire month,
• I pay taxes on my salary, and receive about half of my salary on my bank account at month’s end,
• I pay for my loan from college times,
• I pay my rent, and all other bills,
• I cover for my expenses,
• And, with a bit of luck, I will have some money left and the end of the month.

Often, when I have something left at the end of the month, I am so proud of myself that I give myself a treat and spend the money anyway. Or I start traveling and go places… so in the end I have nothing left anyway.

I stumbled on this chapter in “The Cashflow Quadrant” by Robert T. Kiyosaki. Kiyosaki writes, that you should pay yourself first, before spending any of your hard earned money.

The basic principle is, that you should look at yourself as a running business. And the main purpose of a running business is to make profit, and to increase assets. What individuals do in stead is focussing on paying the bills first, i.e. other people’s profits and assets, before they focus on their own life.

So what does this mean?

Basically, it means that you should calculate precicely what you need during any month, and when. The first thing you want to do is to set aside the money you do not need in that month. It could be put on a savings account, or it could be invested. This is the decision of each individual.

By setting apart money, you are actually doing two things:

• Firstly, you are creating a mental boundary. You see money available on your checking account, and you know that this is what you have available for the current month.
• Second, it creates awareness on the income side. An awareness is created, that the money you have available is actually much less than the actual net income, and it creates additional pressure to perhaps negotiate a higher salary, or to start looking for other ways to earn an extra income.
• Last, and perhaps the most important part: the money you set aside is generating extra income, in the form of interest, dividend payouts, or increase in value.

An additional strategy, which I have started to adopt recently, is to set aside much more money than I need during the current month to a savings account. I know, that I will need that money at some point during the month, but what happens is that this money is actually generating an additional amount of interest, that I might not have received when it had been sitting on a regular checking account. This is basically an extension of not paying my bills immediately.

The only condition, and this is the case in my situation, is that transfers between cheking acconts are free of charge. Else, the fee for addtional transfers may exceed the additional interest received, which does not make sense.

There are many different ways to play around with one’s finances. Keeping track of my finances closely has for sure paid out, and the extra energy I put into my financial planning is coming back to me as an increase of assets.