5 Simple Money Management Strategies I Am Using To Become A Multi-Millionaire
If you don’t learn to manage your money, your money will manage you.
Photo by Carlos Muza on Unsplash
Money makes a great slave but a terrible master.
If you don’t learn to be a master of your money, be prepared to remain a slave to its desires.
And what does a lack of money have in mind for you? Stress, anxiety, and the occasional sleepless night.
No thanks.
The great news is that learning to be a master of your money is easier than you think. All it takes is creating systems and processes that work for you, not against you.
Successful money management is aligning your spending with your values.
I won’t be forcing you to eat canned beans and sacrificing your morning coffee. You can spend your money on whatever you like, as long as you are doing it consciously and with intention.
Just like launching a rocket into space or jet setting to a new destination, building enough momentum to take-off always takes the most amount of energy and effort.
The same is true with creating your money management system.
Breaking bad money habits and implementing better ones takes hard work and time in the beginning. But once it’s in motion, you don’t need to worry about it anymore.
Take the leap and do the hard work. Your future self will thank you.
#1 Understand This Principle First
How do I always stay motivated to keep saving and investing 50% of my income consistently?
The truth? I don’t. I am actually a spender by nature.
Any money that comes into my bank account I immediately want to spend on something. A new shirt, books, or the latest tech gadget.
But I get around my default money preference by automating my decisions.
I replace my willpower with system power.
Willpower is perishable. System power is infinite.
Once income hits my bank account, every $1 has a home and a purpose. A proportion of my income gets automatically invested in crypto, index funds, retirement fund, saving funds, and my spending account.
I don’t feel guilty about using the money in my spending account to buy what I enjoy because I’ve already allocated more than 50% to savings or investments. I can sip my $4 latte in peace and enjoy a new book without any worry.
Automation simplifies your life. You ask yourself fewer questions: how much should I save this month? Where should I invest my money? Automation takes care of all these questions and allows you to spend time enjoying life.
How to implement:
Set a savings goal for the year.
Create a system that serves that goal.
Start automating aspects of your system until it functions without your active input. You can easily do this through your banking app or through BPay.
Review every 2–3 months to see if it is still working for you. If not, iterate and change.
#2 Ensure You’ve Got A Plan For This
If you fail to plan then plan to fail.
Answer this question for me: what would you do if you suddenly received a 20% raise at work? What about if you won $50,000?
Would you buy a new car, upgrade your wardrobe or buy a bigger house?
Lifestyle inflation is a trap that many people fall into. The gradual increase in income is often accompanied by a gradual upgrade in their lifestyle.
The worst financial decisions are often the ones you don’t notice.
Nobody ever wakes up in the morning deciding to destroy their net worth through financing a car or pointless house upgrades.
Limit your lifestyle inflation.
If you don’t have a plan for what you would do with additional money, your money will have a plan for you.
How to implement:
In your financial system, factor into it increases in your income or large unexpected windfalls and have a clear plan for where that money would go.
I tend to use percentages rather than a specific dollar amount. For instance, if I won $50,000 it will get broken down into 60% invested 40% spend.
#3 These Tools Will Liberate Your Mind
What gets measured, gets managed— Peter Drucker
Clarity breeds confidence.
I’ve been using spreadsheets to track my finances for a couple of years now.
Take this advice from a person who hates numbers. I barely passed Year 9 maths in school and still struggle with looking at basic financial models at my full-time job. Sorry boss.
But tracking my expenses and income has been a game-changer in understanding where my money goes. It provides the data necessary to make good decisions and allows me to plan for the future.
I’ve become quite addicted to playing around with different financial scenarios and models. I run what-if experiments to stress-test my financial health. Some scenarios I run include:
Losing my full-time job.
Interest rates doubling and the implication for mortgage repayments.
Unexpected operations or having to buy a new (second-hand) car.
Once you know you can survive the worst possible outcomes, your financial fears no longer have power over you.
There is nothing more liberating than having your worst financial fears realized and knowing you’ll survive.
I’ve got a contingency plan that means I won’t go homeless or starving. This sets your mind free. You start to worry a lot less about the future. That freedom of mind is priceless.
Some great trackers include: (add links here)
My Wealth Dashboard(you have to pay, and this is not an affiliate link)
Or you can DIY. Start by:
Open Google Sheets or Excel.
Create a tab for your expenses. One column for the item. Another column for the cost and liabilities. List all your fixed and planned costs. Including holidays, bills, gifts, eating out, debt repayments, etc.
Create a tab for your income. Again, one column for the source of income and assets. Another column for the expected amount. List out income from your work, investments, etc.
Create a shared tab that views both your income and expenses. Ideally, your expenses should not be more than your income.
Creating a basic spreadsheet of your costs and income will help you manage your money better. The clarity reduces ambiguity.
From here you can add more variables and get more sophisticated. But that comes later.
You need to standardize before you optimize.
#4 Do This To Stay Ahead Of The Game
Self-education is a continuous process.
Our education system does not prepare us to manage our money effectively. And if you’re acting on financial advice from family and friends, that’s a recipe for disaster.
I am not here to bash schools and teachers or tell you to ignore your friends and family, but your financial health will improve to the extent you take responsibility for it.
Invest in your financial knowledge through good books, podcasts and YouTube. Take a short course on Udemy or Skillshare.
Just stay away from get-rich-quick schemes. If someone is selling you a get-rich-quick scheme, they are getting rich off you.
If they are promising to make you millions overnight or get paid for doing little work, run for the hills.
The world is rapidly changing and new knowledge is constantly being created. Don’t be left behind. Stay ahead of the curve by constantly adding to your financial health.
Government policies are constantly changing related to saving schemes and financial regulation.
Increasing your financial knowledge is increasing your financial power.
Some great books to read:
The Psychology of Money — Morgan Housel
Rich Dad, Poor Dad — Robert Kiyosaki
Your Money Or Your Life — Vicki Robin
I Will Teach You To Be Rich — Ramit Sethi
Some of my favorite YouTube channels:
#5 Avoid This At All Cost
Avoid any consumer debt.
I can’t stress this enough. Consumer debt is cancer to your financial health.
You experience a double whammy when it comes to consumer debt:
Most of the time, the item you bought will rapidly depreciate.
The item you bought probably takes money out of your pocket.
You miss out on other investment opportunities.
I will never understand people who get into mountains of debt to buy a brand new luxury car. It is one of the stupidest things you can do. You are literally throwing your money away and destroying your net wealth in the process.
I will only ever buy a used car after it reaches its depreciation curve. I’ve never driven a car worth more than $4,000. And I usually drive them for 4–5 years minimum.
Will I ever buy a brand new luxury car? Of course. I’ve been eyeing a Tesla for a long time. But I’ll pay cash and the purchase will represent a tiny fraction of my net worth.
Summary:
Notice anything about financial management?
It is incredibly boring and simple.
That’s a good thing. You want excitement in other parts of your life, not when it comes to your finances.
The more boring your financial management strategy, the more exciting your life can be. You’ve got more time and energy to focus on relationships and hobbies that bring you joy.
Make your money a slave to living your best life. It should serve you, not the other way around.
Financial management will allow you to tell your money what you want to do, not your money dictating how you live.
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