Sound personal financial management is a critical life skill. Not only would we able to afford the finer things in life, this also prepares us for the proverbial rainy days.
Successful people take their personal finances seriously and have started to keep track of money matters earlier on than the rest of us. Here are some money smarts we can learn from them.
1. They don’t live beyond their means
Successful people have taken this formula to heart: Income – Savings = Expenses. They make it a point to pay themselves first (i.e., savings) before spending. More importantly, they manage to live on less than what they earn.
What you can do: Learn to distinguish a “want” from a “need”. You’ll be happily surprised to learn that there are many things you could actually do without.
Start by setting aside 10 percent of your monthly paycheck, which should directly go to a savings account you can’t readily access.
2. They look for long-term value
Successful people are driven by the value of an object, and not the price. Sure, a quality, bespoke suit may cost $500 more than what’s available in the department store, but with proper care, this suit will look great for years. A master’s degree may be expensive now, but if it leads to career advancement, it will be worth it.
What you can do: Invest on products that will last a long time.
3. They don’t waste money on unnecessary charges
Successful people know that paying bills beyond the deadline will incur them penalty charges, so they’ve made arrangements to have payments automatically debited from their account. They make it point to pay credit card bills in full so they won’t incur exorbitant interest charges. They also use their bank’s ATM network so they won’t have to pay for transaction fees. These small charges add up and will create a dent on your resources in no time.
What you can do: Review your financial accounts for 5-10 minutes each month to understand your banking fees.
4. They plan their finances for different life stages ahead of time
Are you planning to start a family? Will you be retiring 5 years from now? Are you financially prepared should a family member be ill? Successful people think long-term and prepare for such life events, which will have a significant impact on their finances.
What you can do: Stay on top of your finances by mapping out a plan with family members or a trusted financial advisor.
5. They look for ways to earn more money
Successful people are not content with just their paycheck, even if they get a raise regularly. That’s because rising inflation rates reduce purchasing power. Successful people work around this by looking for ways to earn more. They embark on self-improvement projects that will make them a valuable asset any team would like to have.
What you can do: If you have a skill you’re particularly good at such as website development or graphic design, why not earn from it on your spare time? Better yet, look up in-demand skill sets and learn something new; this might pave the way for a higher revenue stream.
6. They stay on top of their finances
Successful people take the time out each month to review all their financial statements, from mutual fund investments to savings accounts, credit card statements, utility bills, and more. They know where every single dollar goes and take immediate action should they discover any discrepancy.
What you can do: Go through your own financial statements. If you’re just starting out, keep a notebook where you can list down all your daily expenses. This will help you monitor your spending behaviour and assess if there are areas where you can save – maybe limit the signature cappuccinos to just a cup each week instead of the usual three.
7. They make calculated risks
While all investments have a certain degree of risk, successful people minimise its impact by protecting their investments (i.e., signing up for home, car, and life insurance) and by not putting their eggs in one basket – they have a diversified portfolio of investments.
What you can do: Investment schemes that are too good to be true probably are. Look into the company’s history, operations, and roster of investors. If it all sounds shady, you’re better off placing your hard-earned money somewhere else.
Savings accounts yield very little returns. Why not look into other investment instruments that offer more?
8. They are not afraid to ask questions and do their research
When it comes to personal finance, there is a lot of information out there and it can be overwhelming to process. Successful people know that there might be concepts they need help with and seek the advice of financial experts. They do take account their insights and do their own research to come up with the best decision possible.
What you can do: When you consult with financial advisors regarding possible investment options, don’t be afraid to ask questions and have everything explained to you in detail.
Refresh your money and investment knowledge. Get back to the basics and pick up a couple of timeless personal finance books, such as Suze Orman’s “The Money Book for the Young, Fabulous, and Broke” for the millennials, and George S. Clason’s “The Richest Man in Babylon” which emphasises the importance of saving.
9. They don’t think that it’s all about the money
Achieving financial prosperity is a worthwhile goal. After all, it is a means to having access to things that make our lives more fulfilling, such as travelling, a home of our own, and resources to support causes we believe in. However, it should not override aspects of your life that are just as important, such as your health or your family. If being financially successful means countless sleepless nights that could lead to a trip to the hospital, then it’s not worth it.
What you can do: Step back and evaluate your goals. Make sure to strike a balance between your financial goals, personal goals, and career goals.