Apparently, a lot of people don’t understand the language of money. Understanding how money works can spell the difference between fortune and poverty. Statistics show that less than 5% of the world’s population control roughly 70% of the world’s resources while the remaining 95% share the remaining 30%. Why is that so? Because only a few people understand how money really works. You really don’t need to have the IQ of Warren Buffet or Donald Trump when it comes to investing to understand the language of money. All you need to do is to understand the basics and for sure you’ll be on the right path to financial security. Here are some things that you should keep in mind about money.
1.) Money is for saving, not spending. Most people think that money is for spending. Wrong. That kind of mindset is the very reason why most people struggle financially. They fail to realize the importance of saving. Saving can keep you from falling into the financial trap later on in life such as debts and high interest rates. That is not to say that you should not spend at all but rather give more emphasis on saving. You can start by saving just 5% of your income and gradually increase it as you get used to saving. An ideal amount to save every month or every time you earn an income is 10%. If you can save more than 10% of your income, then the better. Keep in mind that it’s not how much you earn that counts but it’s what you keep.
2.) Be mindful of inflation rates. Inflation rates, in its simplistic terms, is how fast your money is losing its value. It is evident on the rapid increase of commodities prices and the slow increase of income. If you intend to invest, be sure to invest on securities that yield higher than the inflation rate. For the last ten years, global inflation rate is pegged from 3% to 6%. To be safe and to be assured that your money is not losing its value, invest on something that gives at least 7% annually. The higher, the better. Never let inflation eat your money’s worth.
3.) Invest, not spend. Investments bring in money to your pockets, spending takes money away from your pockets. Investments are the keys of the financially secured and filthy rich. They have lots of assets that provide them a steady and huge incomes. Accumulate assets and try your best to minimize liabilities. Assets are investments, liabilities are expenses and how you manage both can make you rich or poor. Use your money wisely and use it to make you earn more. Invest in health care and insurance to protect your income generating capacity, eliminate debt to keep it from growing, and invest on long term assets such as stocks, real estate, or even starting your own business. Get rid of the idea that people who spend more are rich. Truly rich and wealthy people make the most out of their money.
4.) Learn from other people’s money mistakes. There is an adage that says, a smart man learns from his mistakes, a great man learns from other people’s mistakes. Everybody’s got some money woes at some point at their lives and chances are, you may experience it soon if you won’t learn from their experience. Instead of letting it happen to you and learn from it, take advantage of other people’s mistake by pondering on it and think about ways on how to keep it from happening to you. You never know, such mistake can spare you from really serious financial trouble or could provide some valuable information on how to get much better when it comes to your finances.
5.) Invest in education. Education can be your best investment. Read books and articles about finance, financial planning, taxation, and other things that you find helpful for you. Reading financial statements can help a lot especially if you get into investing later on. Gradually improve your financial IQ. Other than reading, you can also enroll on short term courses, attend financial management seminars, or even engage in talk about finances with different people. It can really help you a lot.