Incase you think that you can get rich by earning more money (not caring about spending), you are mistaken. Today I want to share something really really important, may be more important than whatever I’ve shared with you so far. But you may not like what I am going to say. How do I know? Because I didn’t like when I was warned about it. I totally ignored the warning, suffered terribly, learned my lesson & since then warning as many people as possible.
Why suddenly writing this post? Yesterday a close friend of mine excitedly told me that he bought a bike worth INR 2 Lakh. I congratulated him but asked ‘How much savings do you have?’. He didn’t have any. He recently left his job and started as an entrepreneur. He spent all the money he has earned in last few months to buy his bike. I see similar incidents regularly. And it disturbs me a lot because I made the same mistake few years back and paid the price heavily. Let me share about that.
How I messed up and learned this lesson
Middle class upbringing
I was born and brought up in a middle class family, where my parents struggled a lot to give us a financially stable life. Though my parents never made me feel lack of anything, but I’ve always learned to spend money with care & live within limited budget.
When I started my business at the age of 19, and after few years started making good money ( I was making 20K INR/week back then, earned 40K INR in a week too), I was on top of the world. I went crazy seeing that much money for the first time. My parents and other well-wishers suggested to save that money and invest, in case business takes any negative turn in future. Books like ‘Rich Dad Poor Dad’ that I was reading & teaching others from, also suggested the same.
But I was over-confident. I foolishly believed that business would grow forever & started spending money like crazy. Bought costly bike, watches, spec, clothes. Dined in premium restaurants, went to star resorts … lived like a king.
Then life brought twist & business started going down. At the age of 26 when my first business venture crashed & I was preparing for fresh start, I didn’t have a single paisa in my bank account. Imagine how stupid I felt! And this stupidity affected all aspects of my life in very severe manner.
Can’t go back in time, so no point regretting. But I learned the lesson. Now after rebuilding multiple sources of income stream after that crash, I’ve developed habit of living at minimum possible expenses & saving maximum amount. I don’t buy luxury from my income anymore, I build asset first & then finance my luxury from the return of the assets. Or at least try to save a good amount of money before buying anything costly. Also I try to warn as many people as possible so that they don’t make the same mistake as I did.
First Step of Better Money Management is Changing Spending Habits
So the topic is ‘Spending Habits’. You should know that wealthy people have totally different spending habit than common people. Common people & wealthy people buy totally different things with their income.
It seems I am not the only fool. Most common people make the same mistake. They earn money and buy things from that money that would not give any return, rather sometimes will attract more future expenses. When their income increases, they spend more. So no matter how much they earn, they never get rich. They keep working harder and harder, but fail to build wealth. Example? Look around. Check what people buy with their first salary or business profit? A bike / car / house / mobile etc … sometimes people even buy using Credit Card. All these things not only gives you nothing in return, but also attract future expenses.
But if you are lucky enough to observe any wealthy people’s spending habit (or you can read about it in books & online), you’ll find out that they invest in assets with their income.
Asset vs Liability?
In simplest term, [Tweet “An asset puts money in your pocket. A liability takes money out of your pocket.“] It can be a piece of real estate (not a house where you’ll live), or stocks or some business or some intellectual property (book / music / art / movie etc) … anything that can be a source of income for you in future.
A Laptop can even be an asset, if you are going to use it to make money (I did). Investing in your website can be an asset (for me it is), if you are going to run an online business or take your business online.
Financial Statement of Poor / Middle Class vs Financial Statement of Rich
So the common resistant most people feel at this point is : “So you are saying that I can’t enjoy life, do or buy the things I want with the money I earn?”
What you need to understand is that if you just be a bit patient & let your assets grow, then the income from your assets is going to finance everything you want.
Quoting Robert T. Kiyosaki
Very simply, the rich invest their money in assets that put more money in their pockets, such as real estate, stocks, bonds, notes, and intellectual property. The middle class and poor invest their money in liabilities that take money out of their pockets such as mortgages, consumer loans and credit card debt.
Imagine you have 5 Lakh from your income right now. if you buy a car with that 5 lakh, not only you won’t have any money left for any kind of emergency but also you have to worry about the money you’ll need for its maintenance. But if you invest that amount & after 5 years that investment starts giving you great return, not only you’ll be able to buy a better car but also you have to worry less as you are not touching your primary income.
Bad Spending Habits & How to Fix Them – Infographic
Bad spending habits are making life hell for not only people in Ameria but also from every parts of the world. You can find some useful tips in this infographic.
How to Teach Your Child Good Spending Habits – Infographic
Like all other habits, best time to develop good spending habits is childhood. You might find this Infographic useful to teach your kids / siblings / young students about money.
The Basic Principles of Effective Money Management
from The Richest Man in Babylon
Now that you understand the importance of good spending habits, you can find some really simple and easy to follow suggestions in the book The Richest Man in Babylon [Flipkart Amazon]. I’ve seen many successful and rich people recommend this book.
So tell me, [Tweet “are you going to save at least 10% of your income from now on?”]
Where should you invest or which assets should you buy?
Now assuming that you are starting to save a portion of your income, take the next step with care – Investment / Assets.
Do not invest in anything if:
- You don’t understand how the money multiplies in it OR
- You don’t have any trusted expert guidance in it OR
- It promises ‘get-rich-quick’ / ‘easy money’ OR
- It sounds too good to be true.
There is nothing worse than losing your life’s savings to some schemes or scams.
Honestly I am no investment expert, I am learning too. But here are few suggestions I can give you from my own experiences & experiences of others I know & trust:
- Learn about money & investment. Wealth education is not optional. Some of the classic books I can recommend are:
- You can also get many interesting business ideas that will not only give you financial freedom but time freedom too, from The 4 Hour Work Week by Tim Ferriss. [Flipkart Amazon]
- You can invest in Stock Market under my friend Prasenjit’s Guidance. I’d not have recommended Stock Market, if I didn’t know Prasenjit (we studied in same college & currently I look after Digital Marketing for his company. So I know that he is a real deal). You can learn from his recently launched book How to Avoid Loss & Earn Consistently in the Stock Market [Flipkart Amazon ] or sign up for his Stock Tips packages.
Phew! That’s all I know / can think of, on this topic right now. Did you find the info useful? Please let me know in the comments. If you have some suggestions to add to this post, please comment.
You know I don’t believe that money is the solution to everything. But I believe if we don’t have money problem in our life, handling others problems gets easier. Isn’t it? So would you be kind enough to share this post with as many people as possible? A simple awareness can change many lives.
Update: Personal Finance Tips in Bengali
Here is a video from my better half in Bengali sharing some interesting ideas on saving money.
Update: Mind Games to Trick Yourself Into Spending Less
Looking at your bank statement is all but guaranteed to make you question some of your purchases. While that pricey dinner out or shopping spree may have seemed like a good idea while it was happening, seeing the hit your account took from it may bring your spending habits into question—especially when you see just how much unnecessary expenditures like that add up.
Luckily, if you’re one of the people who shudder at the sight of your bank statement, you’re not alone—in fact, over 47% of Americans have no money saved for retirement, and most spend much more than they save at near astonishing amounts. The average American spends close to $150 over budget each week, totalling to spending $7,430 over budget each year. The biggest budget busters are online shopping, grocery shopping, and subscription services. ore than 84% of Americans have made an impulse purchase, both in-store and online— and more than half of those shoppers have made an impulse buy of $100 or more.
Keeping those staggering statistics in mind, it’s no secret that most people should probably start reigning in their spending and better their saving skills—but how? The first step to take toward spending less and saving more is to understand just where your money is going. Many banking apps or budgeting software will break down your monthly spending into categories, showing where the highest percentage of your money went—food, entertainment, etc. Once you’ve identified the areas you waste the most money (excluding necessary expenses like rent, car payments, gas, or groceries), you can begin to cut those high, unnecessary expenditures (like frequent trips to the movie theatre) from your budget and put that money into your savings instead.
That’s probably easier said than done, since spending money is an ingrained habit in many of us. No matter if we’re happy, sad, excited, or bored, rationalizing a purchase and spending the money for it is seen as easy, and we are even encouraged to “treat ourselves.” So, how do you even begin to undo this habit, and spend less money?
Luckily, there are steps you can begin right now to start tricking yourself into spending less and saving more—and they don’t cost a cent, because they are mind tricks you can play to reign in your spending. These tricks range in difficulty; some take no effort at all, while others take just a bit more brainpower, but the end result will be the same: you spending less and having more in your savings account.
These tricks can be as easy as deleting your credit card information from automatically being filled in during online purchases, meaning you fill in the individual numbers each time you want to buy something instead of blindly hitting “purchase.” This way, you are forced to take a second to reflect on whether what you’re buying is really worth it or not, and can cancel the transaction before it’s too late.
Another easy way to trick yourself into spending less is simply by carrying cash. Studies have shown that there is a physical “pain” associated with spending cash, as you can easily see the money you’re parting with—as opposed to swiping your credit card when you hand it over without a second thought. Consumers who pay with cash instead of the card will actually spend 30% less in stores, so use this to your advantage and stick to cash. Try leaving your cards at home, and going out with just cash. You’ll be amazed by how little you want to spend your money on!
This helpful graphic from Turbo Intuit lays out 6 more ways to trick yourself into spending less money you can use to your advantage. Whether you want to get out of debt, better your credit score, or simply pad your savings a little bit, these tips are sure to help you cut out unnecessary purchases while out and about. Your bank account—and brain—will thank you!
Source: Turbo Intuit
Let us know in the comment if you’ve applied any of these tricks and found useful.