Money is not the key to happiness. But it definitely gives you the freedom to live your ideal lifestyle, and focus on the things that do make you happy. With that being said, there is a bit of a misconception when it comes to managing money, and building wealth. When most people think about the wealthy and rich, they think about fancy mansions, and cars that cost more than your average house. The media, of course, promotes this idea, with its continuous coverage of celebrities living in luxury and extravagance. So naturally, people equate being wealthy to excessive spending habits.
The truth is, building wealth and financial freedom is a result of living below your means, and reinvesting any savings for the long term. The same can be said about maintaining wealth. Let's say you are part of the 1% of the richest people in the world. Without proper financial management, and careful planning, your fortune will not only disappear, but you may end up in serious debt. People are creatures of habit by nature. So building good habits is the first step in becoming more financially responsible. As obvious and basic as they may sound, these 3 habits are the basis and foundation for starting and really maintaining financial freedom.
1. $ave Dat Money
If you've ever seen the music video for Lil Dicky's (real name David Burd) $ave Dat Money, you know that the video was filmed, and made with a very minimal initial investment, whereas most rap music videos cost tens and even hundreds of thousands of dollars to produce; all of David's scenes with the mansion, the sports cars, and the night club were really 'donated' by the very generous owners in exchange for promotion at the end of the video. While the lyrics and theme of the song were made in jest, they promote a message everybody should consider. Everyday millions of people buy products and services that they could definitely live without. Do you really need a 100 channel cable subscription on a HD flat screen, or can you survive with Netflix on a regular TV? Do you really need the latest iPhone, or can you get by with a used but functioning smart phone? Be creative and try to find more affordable alternatives. Spending habits dictate how much you can save. Start cutting down on purchases you can really do without, and instead use that money to grow your savings.
2. Shop Around
Whether you're looking for a new car, or a new toothbrush, it's always smart to compare prices among different vendors. With most product information available online, there is no excuse to not do at least a little research before making a purchase. Visit the websites of major retailers to find out more about your product of interest and compare the features to what the competitors are selling. Another thing to consider is asking for price matches. Most major retailers price match their products with their online store, as well as with competitors. It's not always about finding the cheapest price. Look for products that have better durability, quality, or have a longer usability. Use technology today to your advantage, and compare prices to help you find the most affordable products for you.
3. Create your own BudgetIf you don't like working with numbers, this may be a boring exercise for you. But if you love saving money, and making sure you have a secure financial future, then this isn't an exercise you can simply ignore. I recommend making a spreadsheet on your computer so you can easily keep track of every detail. First identify your fixed costs. These are your monthly costs that you have to pay every month including housing, transportation, insurance, food. Add up these costs, then subtract them from your total income. Now you have some room to be a little creative with the leftover difference. Depending on your saving habits, you can adjust your budget to meet your needs. A majority of this difference should be invested, in order to grow your savings. Stocks, bonds, and savings accounts are just a few examples of how you can invest. Stay tuned for future posts on choosing the best investment strategy for you.
To sum it up, building wealth is all about developing and maintaining good financial habits. Whether you're living pay check to pay check, or have a seven figure bank account, this universal concept applies to everyone. Stay tuned for more posts and details on how to manage your finances.
Have any questions? Disagree with part of the post? Disagree with all of the post? Let us know your thoughts at Eugene.choe@capriadvisory.com.