Showing posts with label money saving. Show all posts
Showing posts with label money saving. Show all posts

How to manage your money

How to manage your money, 50/20/30 principle

Let’s talk about what personal finance is, and more specifically about the 50/30/20 rule.

Your full income of money is 100%. And 50% of those will go to your needs. This is all about budgeting and understanding where all your money is going in an ideal, personal budget portfolio. So, 50% are ‘needs’, 30% will go to ‘wants’, and 20% will go to ‘savings.’

Now, let’s dive deeper to understand each one of those categories. Keep in mind we would be giving examples in after tax income – which means net income, you will have some gross pay, but in the end what matters is the money you take home – your net income.


1. So - 50% of the income will go to ‘needs.’ Those are:

  • Groceries
  • Housing
  • utilities
  • Health insurance

Literately – ‘need’ means something you really can’t live without or something that will greatly inconvenience you, and even the lack of it harms you.


2. The next area is ‘want.’ Let’s see what we consider as ‘wants’, as we will put 30% of our income there. There is a great difference between ‘need’ and ‘want’, and you should always try to understand it. Simply put – ‘want’ is everything you desire but can live without it. Or something that causes mild inconvenience in your life. It’s not necessarily a matter of survival if you give up on something you want.

  • Shopping – e.g., new pair of shoes, or modern clothes.
  • Dining out – it’s easier for most of the people in the US to buy dish, than cook themselves
  • Hobbies – everything you do for fun and not earn money with it


3. The last 20%, although it sounds basic, should go to ‘savings.’ Or paying off debt. Examples:

  • Emergency fund (6-12 months of living expenses).
  • Credit cards
  • Student loans
  • Deposits
  • Retirement plan
  • Investments

You might be thinking, you know all of that but until you sit down and write down the 3 categories and track monthly your spending – you will not be able to get the full picture and make corrective adjustments in order to be able to save more money and achieve your financial dreams.

How debt could help you generate money

How debt could help you generate money

Yesterday we got an interesting email from a guy named Tom. He challenges our articles and ideas about saving money and investing savings. Tom is sharing the idea that rich people never save money – they make money out of the money of the others. Borrowing money with low interest and investing them into profitable assets.

Tom really has a good point so in this article we will cover how and why debt could be considered something good and could earn you a fortune.

1. Not everyone has enough capital to start their own business
If you have a brilliant idea or discovered a profitable niche waiting for your savings to grow until you invest in it might be not so clever. In the best-case scenario, somebody might get into the niche or simply steal your idea and make it true, benefiting from it. Timing and execution are the primary reasons behind each success story.

Also, if you have a working business model and you want to expand on it, then basically debt could be a better option to go and get capital instead of waiting for your savings to grow up. This is true, especially if you don’t want to give away equity. A lot of business owners prefer to keep most of the ownership to themselves and build the business from the ground up. After all, it’s their idea, their dream, and their sweat and tears.

2. Borrowing money to invest in real estate
Real estate is thriving most of the time, and although it might be slow and dependent on the country or region, as a rule of thumb a property nowadays cost much more than 20-30 years ago. In some countries and regions, it could be more than 300% increase in the value.

If you want to invest in property, make sure to do some analysis to make you can use it as an investment. So, when you borrow money the tenant or if it is a commercial property then the business owner who is renting it is going to pay you a monthly rent. Using this income, every month you would be able to cover the payments on your debt and probably even have a little bit of cash leftover.

3. Borrow money only if you will be generating wealth out of it
If you know how to use and invest money correctly, by any means debt is your friend. It is important to remember - every time you borrow money you need to understand that you have to have the money to pay for it. Therefore, it's important not to borrow money if you just want to go and buy presents for your family, but only if you are going to invest and make more money out of it. The only time that you should borrow money is if you know that you can create enough cash flow from that debt to pay off the debt.

4. Borrow money when your business has a minimum 30% return out of it
If you own an Amazon business or Shopify, or even a regular convenience store and you know that whatever money you put into the business - you can make a minimum of a 30% return on your capital, so you should be able to pay back your debt with that money and be able to grow faster your investment, than debt is the best way to go.

5. When you borrow money you leave most of your cash for emergencies
You are not depleting your actual cash flow and actual cash so in any case of unforeseen events, you would be able to stabilize faster and not lose your business to an unfortunate event.

If you ever have a down month, or you need to get more supplies or if you need some equipment it's best to have a little bit of money saved for your business. Most markets and environments are unpredictable, and there are always good months and bad months

A good example is the retail business. Usually, the Christmas season is strong, so November and December are usually profitable. At the same time in January the sale drop and then throughout the year they're more or less consistent, depending on the type of business. Some businesses have a strong summer, while others are growing over the winter season.

6. You can use debt when it comes to leasing
There are a lot of business owners who need better machinery or equipment for their business. They are usually expensive, and it is much better for some business types to consider leasing, instead of permanent purchase. Your business will save thousands of dollars if you just lease and will only be paying for the time that you're using the equipment and the machines and when you don't need them anymore, depending on your lease contract, you can return it or you can exchange it.

Very often that's a 100% tax write-off and when it comes to the debt you borrow to pay for the lease it's 100% percent tax write-off so you're getting a tax advantage and you're able to grow your business a lot faster. That’s why many business owners, as Tom mentioned, prefer  debt when it comes to growing wealth than anything else

7. You can borrow against the business
That's cool. It is a good idea to keep your personal and your business separate. This is a very strong foundation for your business so your business can borrow on its own merit. When you're borrowing against your business idea then it is possible to have the business as a warranty.

If you try to borrow money on a personal side, the bank will ask you about your credit score (we covered in the previous article). Your credit score needs to be good; you need to have low utilization rates, and you need to have enough income to support the monthly fees and taxes.

The other way to borrow money from the bank is through a balance sheet, from your business.
A balance sheet shows the bank your financial education and if you are borrowing from the bank, they want to check how much cash flow is coming in; what's your business model like; how much debt are you going to be taking on; who's going be paying for that debt.

Therefore, you need a financial statement and balance sheet and if you can show the bank that you did your homework and your financial IQ is good then they can lend you even more money.

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As a conclusion, it is true that the richest people in the world use debt to generate more money than anything else. After the gold standard removal, and the inflation rate skyrocket – many see money as plain pieces of paper already, without any value. So, having such a mindset helped the rich borrow huge amounts of debt, invest smartly in something more tangible, and generate huge amounts of profit. We would also like to warn you to be careful though. Make sure you have a good plan and profitable place to invest the debt, otherwise it will just be a liability to you and not bring you any benefit.

How to save money

How to save money

As we discussed in Money Master the Game: 7 Simple Steps to Financial Freedom review – the first step to financial freedom is to accumulate some wealth by saving money. According to different surveys though, the majority of the population has difficulties to save money regularly and efficiently. 30% of the US population admits they never had any savings, and only 5% save regularly.

Basically, there are two major forces when it comes to saving money – “develop saver’s mentality” and “get rid of spending opportunities” – or simply said: “focus on saving” and “avoid spending”. We will cover both of them. Surprisingly for most of you, the second one is easier to adopt so let’s start with it.


I. Avoid spending money tips and tricks

1. Get rid of your credit card. Yeah, you have read it right. Possessing a credit card is all about enabling your spending power. Spend anything, anywhere with the minimum hassle. It doesn’t sound right – especially if you would like to cut on wasting money.

2. Leave only the minimum amount you need for the month into your debit card. Nowadays debit cards could be used as efficiently as credit cards, as long as you have the credit in. So, the trick is to calculate your average monthly need to add 50-100 USD on top and immediately transfer everything else into your savings account. Let’s say you need about 800 USD on average for your basic needs, add another 100 for some emergencies and you end up with a monthly allowance of 900USD; All the rest is saved and not touched.

3. Using the strategy at point 2 usually creates an even better saving mentality. Out of fear that you might run out of funds, you would become extra careful about every dollar spent.

4. Remove your CC and DC credentials from any web sites and online wallets. This might sound inconvenient if you have some favorite stores, but that’s exactly the point. The easier it is to spend – the more you will do it based on emotional urges, instead of well-thought needs.

5. Create strict rules in your head. If you need to spend up to 10 USD; take at least 10 minutes to consider if you actually need the purchase. If the amount is 500 USD or more the rule should be – 20 days to consider and weigh all the pros and cons. If after 20 days, you still believe the benefits heavily prevail – go for it. In most cases after the hype about an item or service is gone – you will feel more likely you won’t benefit from owning it. It leads us to the next point…

6. Avoid owning where you could rent inexpensively instead. Many folks get into mortgages slavery or heavy debt owning stuff. The simple rule is – if you buy something expensive – it should be an investment. If it is not an investment – rent it, instead. An expensive home mortgage - you have to repay for the next 30-40 years, would cripple your ability to save and invest for the period while renting an averagely cheap room would let you have some additional funds to invest and operate with.

7. To elaborate more on point 6 – every “big purchase”, which is not an investment should be avoided. A good example is a new/luxury car – you acquired. Only after one year, its price is probably 30-50% down. Not to mention the hassle on maintenance, supporting it, selling it later, etc… Instead if you rent the car for one year you would probably pay about 5% of its price (top), and in most cases, you are covered in any negative scenario.

8. Get rid of everything, which requires expensive maintenance. It applies, especially to expensive hobbies. Yeah, I know it is cool to have a yacht or go for scuba diving regularly. Also, expensive motorcycles, bikes, etc… are on the target. But all of those will require a huge amount of spending to maintain, support and keep in good condition. It’s even worse if you just use them once a year but keep maintaining them (e.g. losing money) all the time.


II. Now let’s look at the best tips and tricks to develop saver’s mentality

1. Inspire yourself by a vision. Simply saving money for the sake of it, wouldn’t work. You need some inspiration and something to keep you doing it long-term. Start by visualizing your dream. It could be to buy your own house, or to own a portion of the best companies worldwide… or anything, as long as it is big, inspiring and challenging. It could even be something for the sake of improving the lives of all people - like “once I have 100 million dollars, I will invest in cure-for-cancer drugs and treatment”. Print your vision – as an image and “slogan”. Now, you know what your dream is all about. If your vision changes (shouldn’t happen too often) – change the visuals too.

2. Break-down your vision into SMART goals. Each goal should be achievable and be done in a timely manner. E.g. – this week I am going to work extra and earn 100 bucks more, or this week I will develop a new skill to be able to earn 100 bucks more per week with it.

3. Surround yourself with savers and get rid of money-wasters. You know the saying “Tell me who your friends are, and I will tell you who you are”. If your friends are just a bunch of squanderers it will be quite difficult for you to withstand the constant urges to go with the flow and waste money on all the activities, they persuade you. Instead, surround yourself with savers. Sounds boring? That’s not always the case – amazing activities require little to no money-wasting and you would be surprised to see what your new friends suggest doing.

4. Change your lifestyle and money-wasting habits. A great example is being a smoker. On average a smoker spends about 3000 – 5000 USD each year for the indulgence of the bad habit. Smoking is not only devastating to your health; it’s also devastating to your savings account too. Another example is going often to your favorite bar. If it is an expensive venue just change it or stop visiting it. The average amount spent on a night out is about 80 USD. If you only do it once a week – it is still more than 4000 USD each year.

5. Start reading and studying about money, finances, and investments. If money is not interesting to you – then it’s not a surprise you don’t have it. Educate yourself more and more, watch or read at least a couple of related articles, or videos each week. The time doing so is not wasted – it is an investment. The faster you learn – the faster you earn. The good news is most of the information is freely distributed over the net. If you need – go to a course or hire a financial coach and adviser. Again, this is not wasted but invested money.

6. Finally, start investing in different assets in order to master the game of money. Stocks, bonds, properties, funds, commodities, saving account. Diversify your investments, but first, make sure you understand what you are investing in and what your plan is if it goes wrong. Never borrow money if you do not have a reliable plan on how to reinvest and get a better rate on them, before returning.

And finally – make sure you enjoy life. Every day we are exposed to luxury habits and lifestyle by the media. That’s what they are paid to advertise and promote. Don’t go with the flow. There are plenty of “free” and still great activities, and lifestyle you could enjoy even more. How much does it cost to enjoy nature in a park or visit the local gym to have some training sessions with your kids, family or friends?

Is it difficult to switch to a new energy supplier?

Is it difficult to switch to a new energy supplier?

As a thumb of rule, energy costs are rising every year. It is always good to keep looking for alternatives and better offers. This article will answer how difficult is it to change your energy supplier and how to do it if you need to.

* Prepare the information you will need.
- You need the current energy tariff your household is on.
- The name of the company you currently use as an energy supplier and the name of the tariff are also needed.
- Calculate how much you have spent last year on energy. Please be accurate and base your calculations on the bills you received and not on assumptions.
- You also obviously need your address and postcode.
- Your current payment method – do you prepay, pay monthly or on a receipt?
- Your current yearly usage – if you don’t know it – just prepare the amount of money paid yearly.

* Do a little bit of research. You want to know all the energy suppliers in your region and compare their offers. There are websites to help you with this. For example:
- Love Money energy suppliers center - https://energy.lovemoney.com/
- Which energy supplier center - https://www.which.co.uk/switch/
(again, you will need your home postcode and the information mentioned above)

* Do not compare only the tariff but look for other benefits or financial traps. Be careful looking at the different offers. Go to the supplier website and read more about the offer itself and if there are any “hidden” costs / extra charges.

* Choose a new supplier. Base your choice on the following items:
- What is the tariff that offers the best value for my household needs? Make sure the offer fits the amount of fuel you plan to be using.
- What about extra charges or hidden costs? Be careful and read the offers completely.
-  Is there an incentive or any discount, promotional periods, etc... Again, be careful as once the promotion is over you might end up paying more than what you do currently. Calculate your future energy costs precisely or ask for help.
- What payment options are available? Payment options could impact on your energy costs considerably.
- What is the company overall reputation? Talk to your neighbors and read online about the company and the new tariff you want to switch to. What do they say?

* Switch to the new supplier when ready. Just follow those easy steps:
- Contact your old supplier and give a notice that you would like to cancel their service. Usually it will take a month to cancel completely. You could contact the new supplier directly or by the site you are doing the comparison.
- Pay all of your bills to the old supplier.
- Contact the new energy supplier and apply for the tariff you have chosen. It will take some time to do the switch. And you will have to sign a contract first.
- Keep track of your meter figures and on the day specified by your new supplier make a record of the numbers so they could start measuring.