Yes, you own more cars and expensive gadgets and live in a bigger house. But, if you are to lose your job, you will end up on the streets like everyone else. What does it mean to be successful and what are the financial tips you need to build wealth, protect your wealth, and reach that financial independence you always dreamed of?
Millions of people are struggling financially not because they don’t make money. They make a lot of money and end up living a paycheck-to-paycheck lifestyle. People are stuck in the make-spend lifestyle. Every penny they make is taken away from them. That is why they can’t get ahead. If you are one of the people who are stuck in the personal finance maze, the financial tips I am going to cover will be your guide.
In order to break the poverty cycle, you will need to learn and stick to financial tips and money management habits that reach people follow. You need to build new habits and replace old ones. That is the secret of success. What do financially free people do that you are not doing? You can take control of your finances by making changes to your daily financial decisions.
The following are 12 financial tips and habits that will help you manage your money and build wealth.
Related: 7 important steps to get out of poverty
1. Never spend more than you make
One of the most important financial tips you probably heard of many times but did not act on is to never spend more than you make. This sentence is simple yet powerful.
Why should you avoid spending more than you make? The portion of your income that you do not spend is what makes you rich. Many people are struggling financially not because they don’t make enough money. Instead, they spend most of the money they make. These financial habits lead to a paycheck-to-paycheck lifestyle.
No matter how much you make, if you spend all of it, you are not different from someone who did not make it. Yes, you own more cars and expensive gadgets and live in a bigger house. But, if you are to lose your job, you will end up on the streets like everyone else. For this reason, keeping most of the money you make is the foundation of all riches. Your desires will keep you poor for the rest of your life. They can also make you rich, should you desire riches and financial freedom.
One effective method to employ is to create a functional budget and stick to it. Your budget should include your total income, total expenses, and savings. The goal of this budget is to help you increase your savings by lowering expenses. You should also separate needs from wants. A good way to reduce your expenses is to eliminate wants and lower how much you spend on needs.
Related: 8 Budgeting Mistakes you need to avoid at all cost
2. The first step to building wealth is to get a job
You are probably thinking that you have a job but you are not wealthy. Almost everyone out there has a job but not everyone is rich. Why? Because people settle and get comfortable after getting their jobs.
Having a job keeps you stable and gives you peace of mind. A job covers all your expenses and gives you extra money to live off. But, if you stop right there, you will never be different from the rest of the population. That is why millions of people have jobs but they are not successful financially. They get jobs and settle for good.
Let’s see why a job is the first step to building wealth. There are two ways you can build wealth and become financially independent.
- Starting your own business. No matter what you make or sell, you can become wealthy through your business. Most successful people are business owners.
- Investing. If you are not a business owner, you must invest money in order to build wealth. Investing means making your money work for you. A day has 24 hours. Even if you work 24 hours every day, you will still be limited in how much you can earn. In addition, you cannot work that much for a long time. Remember, you are a human, not a robot. That is why you need to start investing. You need to start making money while you are sleeping.
Before you start your own business or invest, you will need money. Where will you get the money? The money will come from your savings. But, in order to save money, you must make it first. In order words, you need to get a job and save most of the money you make so that you can start investing or start your own business. Your job title does not matter as long as you make money.
Your job can also give you insights into how businesses are run, how to develop successful products, how to build great teams, etc. All this knowledge can help you greatly, should you want to become your own boss.
Note for those thinking about business loans: Always remember that it is easy to get a car loan than a business loan.
3. Compound interest is the key to building wealth and reaching financial independence
Compound interest is a type of interest that let you earn interest on your principal amount and earnings. That is you reinvest your earnings back into the markets. This strategy helps you grow your portfolio exponentially over time. That is what the rich do.
One thing to keep in mind is that success takes time. In order to take advantage of compound interest, you need to invest the money for a long time. Time gives you a chance to accumulate substantial returns. The more earnings you reinvest, the higher your portfolio becomes. Over time, your return on investment(ROI) becomes higher and higher. That is how you say goodbye to poverty and build wealth like the 1% of the population.
4. Good debt gives you control of expensive assets, bad debt destroys your finances and your life
Millions of people are struggling financially due to debt. According to Urban.org, 64 million Americans(roughly 28% of the U.S population) had debt in collections on their credit reports. If you are not struggling with student loans, you have expensive car loans and mortgages. Those who do not have credit card debts have expensive personal loans, etc. That is why every penny they make gets taken away by lenders one way or the other. People can’t get ahead.
Managing your debt is one of the most important financial tips you will get. You see, debt is not bad at all. It all depends on what kind of debt you have and why you are in debt.
The rich use debt to build wealth and become richer due to their tax advantages. Rich people borrow money to buy assets that earn them more money. Poor people use debt to accumulate a lot of liabilities and eventually become poorer. That is the difference. Poor people by a lot of liabilities that keep them poor. Your car, expensive watch, clothes, house, etc. are all liabilities. They don’t make you money but you are paying interest for owning them. That is how you become poor and stay poor for the rest of your life.
Any debt you get to buy things that don’t make you money is bad debt. Think of consumer debts. Millions of people are struggling with credit card debts. What do people do with credit cards? They go shopping for food, clothes, and expensive gadgets, go to watch movies, pay for subscriptions of all kinds, etc. They are not earning anything. But, they are paying on average a 21.40% annual percentage rate(APR) on those credit card debts, according to Lendingtree. You don’t have to pay that much interest so that you can go shopping.
One good side of debt, however, is that debt can give you access to expensive assets. For example, a $20,000 down payment can give you access and control of a $500,000 rental property. Since you have borrowed money to buy this rental property, you will have tax benefits. At the same time, your tenants will pay for that property. That is what the rich do.
5. Saving alone will not make you rich
Earlier, I mentioned that you need to keep most of the money you make through savings. You also heard that saving is good for your finances. That is true. One of the most important financial tips to keep in mind moving forward is that saving is a crucial step you must take on your journey toward financial freedom.
Every dollar you save adds up to something.
If you only save money and stop right there, your savings will not make you rich. Saving alone cannot make you rich. What you do with the money you saved is what makes you rich.
You probably heard that the inflation rate is at an all-time high(8.5% to be exact). What does this percentage mean? Inflation shows the rate at which your money is losing its purchasing power. For example, if you spend $100 to buy a bike today, you will need to spend $108.5 next year to afford the same bike. In order words, your money loses value.
So, if you keep your money in a piggy for one year, its purchasing power will go lower by 8.5%. You must pay more money to buy the same things you used to afford for less.
The only way to protect your money is to invest in securities that have a rate of return higher than inflation.
A big financial mistake millions of people make is to assume that saving alone will make them rich. The money you save loses its value over time. For this reason, saving alone will not make you rich.
More readings
- 7 money accounts everyone should have in 2022
- 8 reasons why poor people stay poor
- 5 types of savings accounts and how they can benefit you
6. You can’t be successful if you don’t know the difference between assets and liabilities
Financial education is all about knowing how to use money and the impact of different financial products you acquire on your finances.
There are many financial tips you need to stick to in order to take control of your finances. One big financial mistake that you are probably making right now is buying a lot of liabilities thinking that you are acquiring assets.
When it comes to building wealth and taking control of your finances, what you buy makes all the difference. You need to buy more assets and fewer liabilities.
What is an asset and what is a liability?
Millionaires and rich people, in general, accumulate more assets and use those assets to finance their liabilities. In simple terms, an asset is anything that makes you money. A liability, on the other hand, is anything that costs you money.
For example, your car is a liability because it does not bring you money(even if it is fully paid off). A rental car, however, is an asset because it makes you money in a form of cash flow. The same applies to your house. Your house is a liability because it costs you money. Remember, you pay homeowner insurance, property tax, interest on your mortgage, regular maintenance, etc. But, the house does not bring in any cash.
If you have a rental property, however, then you will be looking at a different situation. A rental property is an asset because it makes you money.
This is why knowing the true difference between assets and liabilities is an important financial tip you should master. In order to be rich, you will need to buy more assets and stay away from liabilities.
7. Success is the difference between where you started and what you have accomplished
Many people struggle with the term success. What is success and what does it mean to you? Some people think that being successful is equate to having a lot of money. Others think success means being healthy, having happy families, being able to travel the world, etc.
What about you? What does success means to you?
The best way to define success is to evaluate your progress from start to finish. If you think that success means having a successful business or having a lot of money, evaluate the difference between where you started and where you are right now. If you are happy with the results or the progress you have made, then you have succeeded.
A big mistake people make is to assume that being successful is the same as having the same amount of money, happiness, cars, houses, etc., as their neighbors. There is no amount of money that is enough. No matter what level of money you achieve, there is always someone who has more than you.
Instead of wanting the same amount of money as your rich neighbors, focus on the progress you are making. Life becomes much easier when you enjoy every small progress you are making.
8. Money can’t buy happiness, but everything in your life including happiness has something do to with money
There is a common saying among many people such as “money can’t buy happiness”, “money is evil”, or “money is the root of all evil”. I hate to break it to you. This mindset will not get you anywhere. One of the greatest financial tips my mentor gave me was to never confuse money with happiness.
What is true is that having money does not mean you are unhappy. There are a lot of people who have a ton of money and are happy at the same time. Not knowing how to use money property is one of the most important financial tips many people never focus on. Do you think a person who is struggling to find food, take his kids to school, or pay off loans, is happier than someone who is wealthy? I don’t think so.
Most people who say that money is the root of evil are the ones who don’t have it. They can’t stand the fact that they are poor. So, to make peace with it, they try to look at money from the dark side. Just like everything else, if you use money the wrong way, you will end up in the wrong place.
Almost everything in life has something to do with money
- Do you want to travel? Well, you can’t travel without money
- Do you want to retire early? You can’t retire early without enough retirement savings or enough passive income that can cover your expenses.
- What about buying your dream house? You know money is involved.
- You can’t enroll your kids in different sports that require memberships without money. You cannot even feed your kids without the money.
The lesson here is that money is neither evil nor the root of all evil. Not having money is the root of evil. Who gets jealous when a rich person with an expensive car passes by? Poor people and those who can’t afford it. Not the rich.
If you dare to be rich and take control of your finances, you got to start looking at money through different lenses. You need to understand the benefits of money before you accumulate it. This is one of the best financial tips that a few people talk about or even understand. Money amplifies who you are as a person. A person who is evil after having money, they were evil way before they accumulated it. They did not have the means to show it.
9. It is not about money. It is the freedom that comes with the money
When I started my journey toward financial independence, I used to think that what I wanted was money. I was wrong. After learning these financial tips, I realized that it is not about money. Instead, it is about the freedom that comes with having money.
When you have money, you will have the freedom to do almost everything you want. For example, you can travel all year round, stay wherever you want, eat whatever you want, etc. You can’t do this when you are stuck at your 9-5 job.
The only time you can do this is when you use your three weeks’ vacation. In some cases, you can’t travel that much simply because you don’t have enough savings. You spend most of your time working and forget to live your life. Having money makes everything possible. You don’t need permission from anybody to take a day off or go on vacation.
Your job determines where you live and your financial stability. Most successful people work hard because they want to have the freedom to do what they want. It is freedom, not money.
10. Your desires will keep you poor or make you rich
Desires are internal feelings of wanting to do something no matter the cost. Have you ever been in a situation where you wanted to buy a car to a level where that is all you thought about? Or wanted to do something until you did it? That is desire.
You are not poor or struggling financially simply because of debts. How did you end up in those debts in the first place? It is because you had a desire to buy expensive cars, costly houses, etc. Every one of these products comes with interest. Not only that you are paying the principal amount, but you are also paying interest.
Every dollar you make goes to the lender.
Some desires can make you rich. Think about wanting to be financially free no matter the cost. These desires will motivate you to work harder than anybody else, do your homework, and never stop until you have succeeded. Learn how to use your desires for your benefit.
Related: How to think like a millionaire: 9 ways to have a rich mindset
11. It takes a lot of hard work, discipline, and time to achieve meaningful results
This is probably the best financial tip to remember at all times. Everything in life that is worth cherishing requires hard work. You need to have exceptional discipline in order to achieve results.
There are times when the only thing standing between you and failure will be your discipline. Things will get tough and you will want to quit. Your discipline will keep you moving.
Success is like raising a baby. You can’t give birth to a baby and expect the baby to do chores the next day. First, you need to raise them, take them to the hospital, and let them learn how to walk, talk, etc. Once the baby has built a strong mental aptitude and is physically strong, that is when you will ask them to do chores. This process takes time and success follows the same path.
Your journey to success in life will have similar patterns. You will have ups and downs all the time. No matter what you are after, you will need to give yourself enough time to master it and get results. In other words, time is everything. Overnight success is a gamble.
Related: 4 reasons why success takes time all the time
12. If you are not learning a new skill, you are losing one
In order to stay competitive in this world, you need to continue learning new skills. The world is changing so fast that what you know today will be obsolete tomorrow. If you are not replacing fading knowledge with new ones, you will not be able to market yourself for new opportunities.
What you know will not be needed. At the same time, you will not have the knowledge and skills the market requires tomorrow. In order words, you will fall behind.
Continuous learning is one of the top financial tips that you need to master. New financial products and ways of making money are being developed every day. The more you learn and stay updated, the better financial choices you will make.
