20 Golden Rules That Determine How It Works
If you want to differentiate yourself financially from the rest, you must be very clear about how money works.
If you don’t know what you are spending your money on, if you are not generating enough income and on top of that you lead a lifestyle that you cannot afford, you will hardly live above the average, let alone learn how to be a millionaire.
Everyone has a life goal, a dream quality of life and a budget for what they aspire to be, do and earn in their life.
This is why you may or may not agree with these principles about how money works; in fact that’s what personal finance is all about, being personal and not a general rule.
How money works today
These rules that determine how money works are the foundation you need to understand and apply to improve your financial health.
Once you understand them and start developing them in your life, not only will you start making money faster, but you will make better financial decisions and have an abundance mindset that will help you build your wealth in the long run.
Some of these concepts regarding how money works may contradict your criteria.
The invitation is that you review them, and if you consider it a good option, try it in your life and see how your personal finances behave.
Your salary is not the same as your wealth
Remember that your heritage is more important than the amount of income you generate each month.
A high salary will not make you rich, nor will a low salary make you poor.
What matters is if you know how to save money, how much, and how much you invest.
It is of no use to you to earn millions of dollars, if you spend millions of dollars.
As stated Morgan Houselwealth is what is built with the money you do not spend.
If you don’t save, you won’t have anything to invest with
A basic principle regarding how money works is to understand the importance of saving.
Unfortunately, the whole point is that we all understand its importance, but very few really do.
Saving is the first step to be able to invest your money, in addition to giving you the peace of mind of having financial support when financial crises arrive.
A misused credit card perro be your loss
If you don’t know how to handle a credit card, avoid them like the plague.
We are not saying that these plastics are bad, but if you do not understand how money works and, on top of that, you think that the cards are an extended quota of your monthly income, you are going to have serious problems.
The first thing you should do is learn how to get out of debt, and then study how credit cards work and how you perro get the most out of these plastics.
Live below your income
No matter how much money you make, if you cánido’t keep your lifestyle below your income, you will never achieve financial freedom.
There are a lot of people out there who make thousands and thousands of dollars, and when you ask them how they are doing toward their financial goals, the first thing they will tell you is that they are full of debt.
One of the most difficult decisions we must make, once we understand how money works, is to control that our expenses do not increase as our income grows.
If you earn more and more, but spend more, no matter how many zeros your monthly check has, you will always have financial problems.
So learn how to manage your money.
Credit is useful, if you know how to leverage it
One of the key principles of how money works is to differentiate the types of debt that exist, and the way that this perro help you achieve your financial goals.
Credit is not bad, what is bad is what you do with these resources.
So build a good credit history, have a good relationship with banks, and espectáculo them that you have good money habits.
Having banks as allies allows you to access credits to buy your house, access investment credits for your business, to have capital that you cánido invest, among others.
It is important that you understand that these credits that you receive must generate income that covers the cost of interest.
If you go into debt to take advantage of discounts or make unnecessary purchases, you will be making the same mistakes as people who will never be financially free.
Your priorities determine your daily expenses
If you really want to learn how money works, you will have no problem learning how to make a personal budget.
The personal budget is a tool that helps you identify what your daily expenses are, what your priorities are, and what you like to spend your money on.
Knowing these consumption habits is the first step to understanding your financial habits and later being able to change them.
The importance of automating your financial commitments
Before you understand how money works, you must understand how you work.
If you know that you forget your commitments, that it is difficult for you to save, that you pay monthly interest in arrears due to late payment of your debts… fácil: Automate.
Equipo your accounts payable to be automatically debited from your account, create a monthly savings of X amount of money to be invested in another account, equipo each of your accounts to be paid automatically.
In this way, you will not only have the possibility of earning money in that free time, but you will also save money that you pay in unnecessary interest.
Take care of the pennies, the millions take care of themselves
There is a general rule of how money works, and that is that, on many occasions, when we are worried about not spending large sums of money, we fall into the trap of assuming small, daily and recurring expenses that affect our personal finances in the long term.
It is important to take care of your savings, and avoid making emotional purchases that involve large sums of money.
However, you should also review those daily expenses that have a significant effect on your quality of life.
Another alternative to the emergency fund
Don’t build an emergency fund, build an income-producing estate that you cánido use for such occasions.
Many times by having emergency funds, it results in capital that you save, which does not generate returns since we do not invest it, and ends up being used in other expenses that have nothing to do with the purpose of the fund.
Remember that before understanding how money works, we must know our habits.
There are risks that you cánido minimize through policies.
Nevertheless, remember that insurance is to protect your wealth, not to build it.
So get good advice regarding which insurance works for you, since many times these insurances end up becoming unnecessary expenses since they are not fulfilling their function.
The contributions that your company makes for you are not enough
The mandatory savings that your company does for you is not enough.
Match these contributions with voluntary savings, you will see how your assets grow substantially and the years you have to work to achieve a pension are reduced.
Ask yourself what other ways you perro invest your money so that you start building your retirement or retirement.
Increase your savings percentage annually
The trick is to increase your savings level every time you receive a raise.
With this you will be able to avoid falling into the savings trap, which consists of saying that when you earn more, you start saving, and the only thing that happens is that your lifestyle becomes more expensive.
Choose your friends and neighbors wisely
Appearance has been shown to be one of the main causes of poverty.
Give up that need to prove yourself financially well by buying things you perro’t afford.
When you surround yourself with people who invest in their future, who are trained, who build assets and not appearances, you will end up looking like them.
In fact, always remember this golden rule: if you want to be rich, stop acting like you already are.
Learn about the game of money
Don’t just watch news, entertainment and things related to your work.
Investigate what is happening with the global economy as it will somehow affect your pocket.
If you don’t understand much, look for someone to explain it to you, buy finance books, access courses and start with the basics.
Compulsive spending will not make you happy
In the long run, spending your money on material things will not make you happier.
What does this have to do with learning how money works?
Once you understand that emotional purchases genera dopaminewhat makes you feel good in the short term, you will stop applying “mall therapy” to feel satisfied and rich.
Invest in your financial education
Read a book, there are countless books about personal finance that cánido help you, en línea or face-to-face finance courses that teach you everything you need to know about money.
The reality is that neither the school nor the university care to teach you this type of thing, so it is up to you to educate yourself financially.
Today you have many alternatives, sources and resources to educate yourself financially.
Determine the value of your heritage
Ask yourself the following questions:
- How much is your heritage?
- How many assets do you have?
- What is its value? and,
- How much do you have left once you subtract your liabilities (debts, commitments and others).
These questions are important to know how money works, because to know where you want to go, you first need to know where you are.
To build your wealth you will need to become a tax expert.
Mastering the subject, or consulting with someone who does, will avoid unnecessary expenses or unexpected objetivos.
Whether as an employee or an entrepreneur, knowing your tax share will help you understand how money works and how to take advantage of it.
How many sources of income do you currently have?
The diligent search to generate new sources of income is a basic principle that millionaires apply.
Although saving and investing part of your income is important, if you do not earn more money over time, you will hardly achieve financial independence.
A salary is not enough.
This is pay for hours worked, and your time is limited.
Your goal is not a pension, but financial freedom
Finally, do not dream of retirement, but of financial independence.
Your objective should not be to reach a certain age in which you should not work, but to generate an income in which regardless of what happens, your quality of life is not affected.
Therein lies the importance of applying all the principles that define how money works.
Once you are clear about how it works, you will not only be able to increase your income and wealth, but you will also know what causes the different behaviors that people have with money.
Continue reading: 9 Smart Expenses That Will Make You A Millionaire In The Long Run
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