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Money Management
April 23, 2024
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Everyone wants to make money. Money, after all, is what you need to survive, pay your bills and give yourself the life you want. And to make money, you must work hard. It's the number one rule in the book. If you are not tiring your muscles, you are tiring your brain.
But one thing is certain. Making money requires more than hard work. You need to learn some rules to help you develop sound financial habits and stick to them. You will need the discipline to follow through with your financial plan. Those rules will help you make as much as you desire.
So, what are these rules? This article will explore ten rules of making money that you need to know. Read on.
Read Also: 9 Money Rules You Should Live By
The first rule of making money is knowing why you want to make money. If you have plans, you will know how much you need to make and what to do with your money.
Setting goals can motivate and help you stay committed. For instance, if you plan to buy a house in ten years, you will need to know how much to save per month. To achieve your monthly saving goals, you will need to know how much to make. If you bring home less, you will struggle to save to afford a house. That means your goal will be derailed.
And that's not all. Setting goals and controlling your finances will help you develop a strong money mindset. Your mindset will define the approach and attitude you take toward making money. Ideally, it should help you develop a positive attitude with strong values and behaviour that will increase your success without jeopardising yourself.
If you set long-term goals such as educating your kids to college or saving for retirement, you will know that to achieve these goals, you will need to make clean money. If you take the wrong path or approach, you risk losing more.
Read Also: 6 Ways to Stay in Control of Your Finances in a Crisis
You have heard the phrase, "make your money work for you," thrown around. In simple words, it means investing your money. You can put your money in a bank account, but if you want to make more out of it, you will need to take risks by investing. There is no risk-free investment.
As an investor, you will need to understand the risk-reward tradeoff. The concept is the higher the risk of the investment, the higher the potential reward. You need to find a balance between the level of risk that you are comfortable with and the potential for reward that you hope to achieve. To strike that balance, you need to know your risk tolerance.
Different factors, including your age, income, investment experience, and external factors, such as the current state of the economy, will determine your risk tolerance. Your risk tolerance can range from conservative to aggressive, depending on where you invest your money.
Understanding your risk tolerance will help you avoid losses and make the most money. It will help you develop a sound investment portfolio that suits your needs depending on your financial situation and help you achieve your objectives.
Read Also: 6 Clever Ways to Overcome Your Fears and Take More Risks in Your 30s
Comfort zones can be addictive because they feel safe. But they can hold you back when looking for ways to make money. Once you find yourself in a comfort zone, you stop dreaming or setting new goals and taking risks.
You can find yourself in a comfort zone when you develop new fears or lose your competitive touch. These two things can prevent you from taking the risks necessary to reach financial success and your earning potential, respectively.
Comfort zones have limited opportunities. Constantly challenging yourself and stepping outside these zones can lead to professional and personal growth. You will find new ways to increase your income, whether it's through investing or changing jobs or positions.
To step outside your financial comfort zone, you will need to seek new opportunities to make money, invest in your skills, and take on a career challenge. You can do this by returning to school, starting a side hustle, asking for a promotion at work, and setting long-term goals.
Read Also: Friends and Money: Maintaining Friendships When Incomes Differ
The people you associate with can significantly impact your earning potential. To make more money, you must surround yourself with individuals with a growth mindset. They can influence you to invest and make more but, most importantly, hold you accountable and push you to your limits.
Associating with like-minded people who share your money values can help you build a strong network that can work to your advantage in many ways. First, you will have people you can seek advice from whenever you have a dilemma. This will help you avoid pitfalls that can cost you.
Second, they can help you find new opportunities to make more money. They can share their money-making secrets, mention you in rooms of opportunities, and help you make connections that can advance your career and increase your income.
Finally, the people you surround yourself with can help you weather financial calamities. You can rely on them for emotional support when you have financial difficulties, as they can help you come up with solutions and bail you out when you hit a roadblock.
Read Also: Money and Me: I Need to Change My Friends Halfway in my 30s
To make money, you will need to be financially smart. And that requires being financially literate. If you are ignorant about how to make money, you will likely be more susceptible to losses and victims of fraud and scams. Financial education can help you identify good investment opportunities, set realistic goals, and control your risk appetite.
Personal finance is a broad subject, and it is dangerous to depend on instinct whenever you need to make a decision. Financial education can help you understand every aspect of your finances, from simpler areas like budgeting and saving to more complex areas like investing and understanding debt. Without financial education, you will struggle with balancing your income and expenses and have problems managing debt.
To be financially smart, you will need to educate yourself by:
Read Also: 9 Financial Topics You Need An Understanding Of
One of the most important rules of making money is to never rely on one source of income. If you lose that source, you will expose yourself to financial instability. Diversifying your income will help you weather financial setbacks and ensure you stay on track to achieve your goals when you lose your main source.
Without diversifying your income, your ability to pay your bills remains in the hands of a single entity, and you will have trouble bouncing back from a change of job status. To diversify your income, you need to find ways to leverage your skills, interests/hobbies, and possessions.
For instance, if you are a good writer or photographer, you can monetize those skills and make money as a freelancer. If you are passionate about cooking, you can create and sell meal plans and recipes or pick up personal chef gigs on weekends. Finally, you can use your possessions by renting them out. Have any unused land in the village? Lease to farmers and make extra cash.
Read Also: 8 Ideas to Create Multiple Sources of Income
Financial emergencies always happen and can affect your earnings if they catch you off-guard. And that is exactly what happened to Otieno, a 33-year-old sound engineer. Otieno got sick and was bedridden for six months. He had to pay for unexpected medical bills and provide for his family. During that period, he was also laid off by his employer.
By the time he was back on his feet, Otieno had not only used up all his savings but also liquidated his investments and sold his car. The medical bill proved a burden particularly.
Otieno was never prepared for this double emergency; high medical bills and loss of employment. He didn’t have an emergency fund, and his only other source of income was driving uber partner time. That’s why he had to use his savings and sell the car when he couldn't work.
How can you financially prepare for the worst-case scenarios?
Building an Emergency Fund: Save for at least six months of expenses you can fall back on when you lose your income or have unexpected expenses. Put this money in a separate, easily accessible account. Use your other savings to invest in income-generating vehicles.
Invest in Insurance: Insurance can be a lifesaver. It will prevent you from paying huge bills out of pocket, helping you extend your emergency funding. Some vital insurance you need includes; health, income protection, auto, life, and homeowners/renters insurance.
Read Also: 14 Common Money Worries and How to Deal with Them
Most people looking to achieve long-term financial success usually try as much as possible to avoid debt. And they have the right reasons. They don't want to commit their future earnings to pay off loans or risk losing their collateral if they default.
To use wealth to increase your earnings and build wealth, you need to learn how to differentiate between good and bad debt. In simple terms, bad debt is any type of loan used to invest in depreciating assets or for consumption. On the other hand, good debt is any loan you take to invest in equity-building or income-generating assets.
As an investor, you need to avoid bad debts like consumer loans and use the good debts to your advantage. Some of the ways you can leverage debt to build wealth include:
Read Also: Good Debt Vs Bad Debt: How to Tell the Difference
Thinking long-term means considering the long-term consequences of your financial decisions and planning for the future. This is an important principle of making money because it prevents you from making short-sighted decisions that may have negative long-term consequences and ensures your income streams will never dry.
Long-term thinking helps you build a strong financial background which can be vital in two ways: keep you financially secure when you retire and keep your dependents financially stable in the event of your untimely demise.
Plan for Retirement - The bills don’t go away when you leave the workforce. To maintain your lifestyle, handle unexpected expenses, and protect your savings from inflation, you must develop ways to generate income in your sunset years.
Plan your Estate - Making money doesn't stop after your demise. You need to invest in instruments that will generate money after your death to keep providing for your dependents. Estate planning will also ensure all the money you have accumulated doesn't get lost and it's passed to your rightful heirs.
Read Also: Why Estate Planning is Important in Financial Planning
Making money is an ongoing process, and you will run into handles once in a while. You might make decisions that affect your earning potential or lead to loss of income. When that happens, you need to be able to pick yourself up faster.
The best way to do that is to accept that you are human and humans are prone to making mistakes. You risk trapping yourself when you choose to beat yourself up after falling into a pitfall. You will start developing self-doubts that might hinder your future growth and prevent you from taking risks.
You need to pick yourself up as fast as possible when you make any financial mistake. To do this, you first need to acknowledge your mistake. This will help you identify the root problem and help you salvage what you can. Next, you need to forgive yourself. Reflect on your mistake and put it behind you. Finally, use your mistake as a learning moment; it will prevent you from repeating it in the future.
Read Also: 10 Financial Mistakes Everybody Should Make
There is no easier way of making money. It's a long and tedious process that requires patience and commitment. It requires that you have the know-how to develop plans that will help you generate money and increase your earnings, but it also requires discipline to follow through with your plans.
One of the biggest mistakes you can make in your quest to make money is taking shortcuts. Shortcuts can lead to more losses, and worst put you at crossroads with law enforcement.
Take your time to build your income streams and slowly increase your earnings. Remember that time is your best friend and everyone has their timeline. Therefore, stop competing with others and taking risks you can't sustain.
If you keep up good habits, follow your plans diligently, and improve your earnings slowly and at your own pace, it will eventually pay out. And you will have yourself to thank.
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