Let’s talk about Money

Money should not be a taboo topic anymore

In this story, I will summarise my thoughts about managing money and how to think about money. Most of us have yet to receive any education about money even though managing money might be one of the most important things we do in our lives. Even though we might say that money is not everything, to enable us to do things we want to do, money is a requirement. Money has a great impact on everything we do including our relationships. It’s estimated that financial problems contribute to 20–40% of all divorces.

Understand your current financial situation

Before improving how you manage your money, you need to understand your current situation.

You can’t manage what you don’t measure. — Peter Drucker

• Do you know exactly how much money you have?
• Do you know how much you spend on what during a month?

If you know, you are in a good position to start improving how you manage it. If you do not know, then you need to solve that first. Let me help you on that.

Go into your bank statements for the last 3 months and note down all your expenses in an Excel sheet or a money-managing app. If you use cash, track your expenses for the next 3 months. Categorize where your money went in each month.

Example:

• Rent or mortgage — 20%
• Subscriptions and bills — 8%
• Groceries — 10%
• Transportation — 5%
• Eating out and entertainment — 10%
• Clothes — 7%
• Health and wellness — 10%
• Education — 10%
• Savings and investments — 20%

Decide how your money should be spent

Now that you have a good understanding of what happened to your money, you can start planning on how it should be spent. For this walk through let’s assume your monthly salary is 100,000.

Do not save what’s left after spending, but spend what’s left after saving .— Warren Buffett

It would help if you had some cash that can be used for emergencies set aside that you never touch until an emergency happens. The amount depends on your economy but around 75–100% of your monthly salary (75,000–100,000) is good, assuming you have insurance. If you don’t have this amount in cash already, it should be your top priority to achieve it asap.

Now decide how much you want to save or invest every month after you receive your monthly income. Anything above 20% (20,000) is considered good. More the merrier.

After setting that aside, look at your mandatory expenses. What is considered mandatory depends on what your priorities are. Once you have decided on mandatory expenses, see which other expenses can be reduced and what you reduce can be used to increase your savings and investments.

As a rule of thumb, 50% of your income (50,000) may be spent on your needs, and 30% on wants (30,000).

You can make money two ways — make more, or spend less. — John Hope Bryant

Spend Less

Overspending usually happens when you buy things you don’t need, to impress people who don’t care about you. Recognize these expenses and immediately cut down on them.

A tip here is to not cut down your expenses on education or health and wellness. These are the expenses that improve you and increase your value. It is very similar to the capital investments that companies make to improve and innovate to face the future market. Compromising on them would have an adverse effect in the long run.

Rich people stay rich by living like they’re broke. Poor people stay poor by living like they’re rich. — Warren Buffett

Never spend the money that you don’t have

When talking about spending less, we usually mistake it for being stingy. It is all about being mindful of your expenses. You might be a young person who wants to travel the world and experience luxuries. You might want to do that now when you are young and with fewer responsibilities.

In this case, it is all about what you prioritize at a given time. If seeing new places, tasting new food and enjoying luxuries is a high priority for you now, start saving up for them by cutting down on the expenses that are lower priorities for you. If you want to go on a trip in 5 months, create a budget for it and save up until you can afford that trip. You cannot save the cake and eat it too. A compromise needs to be made somewhere if your income is fixed.

Make more

After cutting down on unnecessary expenses, to afford more things you need, you should look into ways of growing your money.

Increase your salary

If you are an employee as most people are, your monthly income depends mostly on your salary. Look into the things that you can control to increase your salary. It can be as simple as having a conversation with your manager, or it can be about changing your job. To enable you to get your salary increased, look into your ‘capital investments’. Learn more, gain new skills and be forever employable.

Invest

Apart from your salary, another easy way to make more money is to make your money work for you.

Money should be mastered, not served. — Publilius Syrus

What does it mean? Money is better invested and put to work than being idle in your bank account. Look into ways that you can invest your money in assets to make it grow.

It is important to understand the difference between assets and liabilities.

Assets put money in your pocket, whether you work or not, and liabilities take money from your pocket. — Robert Kiyosaki

For example, an asset that is not that hard to buy is a stock of a company (A stock represents ownership in a company. In most countries, you can invest in the stock market using apps but in some countries, you need to contact a stock broker. When you buy a stock, you purchase a share of that company, making you a partial owner. Companies issue stocks as a way to raise capital to fund growth, operations, or other business activities).

A liability that is usually mistaken for an asset is a car or a house that you use personally. They usually depreciate and do not generate revenue for you.

Some tips for investing in the stock market:

NASDAQ composite

• When creating your investment portfolio, think about the risk you can afford to take and pick stocks and funds accordingly. A fund is a pooled investment vehicle where multiple investors combine their money to collectively invest in various financial assets, such as stocks, bonds, real estate, or other securities. Funds are professionally managed and structured to achieve specific investment objectives, such as growth, income, or risk reduction.
• If you are new to investing, a good idea to start investing in funds rather than investing in individual stocks as it reduces the risk.
• When picking funds, prioritize popular index funds in developed markets as they would most probably be less risky and generally result in a positive return in the long run (eg: NASDAQ and S&P 500). If you are ready to take a bigger risk, you can invest a smaller portion in funds from developing markets as well.
• Always keep in mind that, any investment comes with a risk. If you want to get the money out in the next 2–3 years, it might be a good idea not to invest in stocks at all and look into other less risky ways of growing money such as fixed deposits with a high interest rate.
• You cannot time the market. One of the best practices is dollar-cost averaging where you invest a fixed amount of money in your portfolio regularly, regardless of the share price.

There are so many materials available about best practices in investing in the stock market so please refer them, get proper financial advice from professionals and start your investment journey!

Change the mindset

No matter how many methods and techniques of managing money are out there, if you do not change your perception of money and create a lifestyle that you can afford, you will always be poor.

Talk about Money

As a start, have regular conversations with your loved ones about money and finances. If you have a partner, at least sit-down and talk about money and finances once a month. Review the finances regularly and always have a clear idea of your buying power. If you have children, have financial conversations with them early so they will have a better understanding of how to manage their money when they grow up.

Associate with like-minded people

Another lifestyle change that you need to implement is to surround yourself with people who are on the same journey as you. Talk about money transparently. Learn from each other and inspire each other. Trust me, you are not alone.

Learn more

There are many materials out there about managing money and finances. Do not hesitate to spend your time and money on learning how to manage and grow money.

I hope this article helps you get better at managing finances and be more open about having conversations with your loved ones about money.