Moneywise24 Personal Finance

As soon as you spend money, it is gone and you will never get it back. Surely you will earn some more money, but it is not the same money. You have lost the money, unavailable for investing it, unavailable for paying back debt. Looking at things differently, you may actually have spent much more on your purchase.

Look at money from a different perspective for a moment:

If I spend some money on some item now, it will not be able to generate interest.

The magic word in this statement is ‘interest’. If I buy some item at this point in time, I am litterally missing out on obtaining interest on it. Let’s taken an example of this, a men’s suit which I bought a few weeks ago. The suit costed me 220 Euros, which is not expensive. However, would I have not bought this suit, I would have had this money available to put on my savings account. Assuming that the savings account has a duration of 5 years with an annual interest rate of 4%, these 220 Euros would turn into 268 Euros over that 5-year period. This is an increase of 21%.

If you are currently paying back debt, and you are allowed to transfer additional one-off sums, the effect is the same; the interest rate for debt is much higher than it is for savings (for example 12%). Suppse you are paying back a 10,000 Euro loan at an interest rate of 12%, during the next 60 months. The monthly payback rate would usually be 219 Euro per month, during a period of 60 months. Now suppose, you would make a down payment of 220 Euros (what you would have otherwise spent on the suit). This leaves you with a monthly payment of 215 Euros per month. You are saving 60×4 Euros, making a total of 240 Euros.

The benefit of using such a calculation as the ones above, is to be contious of the future value of the money you are spending. For myself, it allows me to strictly determine whether I really, really need an item, and whether or not it will enrich my life. If it does not enrich my life significantly, or if it does not help me in some way to either reduce expenses or increase income, I will usually not buy it. I would rather put the money aside on a bank account, or perhaps invest it, so it can grow over time.

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I have a few questions for you: Do you know your monthly net wage? Do you know how much money you spent on groceries last week? If you consolidate all of your accounts, including checking accounts, credit cards, and investments, how did your assets and liabilities develop per month during the past 6 months?  

These may seem some tricky questions perhaps, but how can you maintain a grip on your finances if you are not able to see how your finances develop over time, or if you can’t match your budget with your actual expenses? Making your finances transparent and visible is perhaps one of the first essential steps in gaining financial control.

 Doing your very personal bookkeeping means making your finances transparent. Bookkeeping does not need to be as boring as many people imagine it to be. Actually, it can be great fun, since you are actually seeing how, for example, specific changes in purchasing behaviour have a direct impact on your financial strength. Generally, Bookkeeping requires nothing more than a piece of paper (or a pre-printed book of household accounts) and a pencil. You will require separate columns for the following information: 

• Date of the transaction
• Credit amount, or the amount you received
• Debit amount, or the amount you spent
• Transaction category (e.g. groceries, real estate, living, automotive. You can define your own categories as you see fit).
• Payee
• Description / further comments

Alternatively, you can use a programme such as Microsoft Excel. Microsoft Excel offers the benefit, that you are able to set filters easily and create statistics. For example, if you would like to gain an insight on how much money you spent on automotive last month, you can set the appropriate filters and Excel will calculate this information.

If you are looking for an all-round solution, which allows you not only to do your daily bookkeeping, but also assist you in evaluating the results, you may want to consider purchasing a product such as Microsoft Money or Quicken. These programmes are specifically designed for personal finance purposes. They allow you to create multiple accounts, categories, budgets, and to enter all your transactions. In the background the programme will evaluate the data, and the programme may supply you with all the information you need.  Additionally, such programmes often allow its users to do research on companies and shares, and to plan possible future scenarios.

 The benefit of using personal finance software is tremendous; if administered regularly and precisely, you will know exactly where your money is coming from and where it is going to. Once you have your finances visible, it will allow you to make changes to how you handle money and the success over time.

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We hear stories about self-made millionaire and people who made it from being a cook to owning a private jet. We often tend to treat such people as ‘being lucky’, or we feel the need to state that they probably had the help of a wealthy uncle or family. Seldom, however, we really try to understand what goes on in the mind of someone who truly ‘made it’, and more importantly, trying to learn from it.

 Responsibility

 If you take the time to read and compare different biographies from the rich and the famous, such as Bill Gates or Donald Trump, you will soon find that they have one big thing in common: they take responsibility for their lives. They strongly believe, and live by, the fact that every person is in the position to shape his/her future. The saying “your life as it is today is the result of your past actions” could not apply more.

 The first step in adopting the mindset of a millionaire is to be responsible for your own life. Life does not just happen to you; you are in control of it, as far as it is possible. Understanding what you do today shape your future is where you want to begin. Sometimes, you may experience faith, how unpleasant it may be. However, a true winner will simply accept this as a part of life, and move on, self-confidently, and write the next chapter in his life.

 Value your time

 Be honest to yourself for second: could you imagine Donald Trump sit in front of the television, watching a soap opera? Of course not, millionaires value their time, since they understand this will bring them further in life. In fact, television, computer games, or any activity which does not intend to enrich your life in some way or the other, is a waste of time.

 In stead, go out and become active. Engage in social activities, do sports, keep your living place tidy and clean, study, travel, and do whatever is necessary to keep moving forward in life. Spend your time as efficiently as you can, and grasp the opportunities that cross your path. Becoming active on the one side will also stimulate you to become pro-active, a key characteristic of wealthy people. Being pro-active means identifying opportunities, and doing something constructive with it. The best time to do things is not later, or tomorrow. It is now.

 Insist on quality

 No matter whether you are buying an item, making an investment, or delivering work yourself: insist on the highest possible quality, always. It is completely useless to buy a low-quality item which needs replacement after a short time, in the end you will spend more money on buying countless of low-quality items than you would have on one high-quality item. The same applies if you are delivering work as an employer or entrepreneur: your own image and that of your product will depend much on the quality you deliver. Delivering a high quality of work, for example, will make you stand out above the masses, and your managers will identify you with the quality you deliver. This makes your position for salary raises or promotions stronger.

 Do not fear

 Fear is the enemy of any successful person. Fear is nothing more than a physical reaction of the body, which indicates that you are about to enter into a situation, which might be life-threatening. However, being successful also means taking risks. Building a business means investing money, with the potential of losing it. The same applies for investments, or even switching jobs. However, with the right mindset, you can limit any potential negative outcome. If you insist on efficiency and quality in your life, you are likely to deliver an excellent job, which will only astonish your future manager.

 The four characteristics described above are only the tip of the iceberg. By the way, this does not only apply to building wealth, but also applies to being successful in general and leading a happy and fulfilling life. Once you understand, and live by, the main principles of what make people successful and happy, nothing can stand in your way.

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