Beating Broke

Personal Finance from the Broke Perspective

Making the Most of Your Money

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Rock star / Sport star / Movie star/ Prominent Businessman announces “I’m broke!” 

The following post is brought to you by Ria Money Transfer

Media headlines like these leave the rest of us wondering how this could possibly happen. But the truth is that making money is not the same as keeping it.

GETTING RICH

Rich is a relative term, and most people will never be really rich. However, the majority of people would like to accumulate enough money to cover their immediate needs, to afford to do some of the things that they really enjoy, send money to friends, families or charities, and to create some sense of financial security for the future.

Avoiding the rags-to-riches-to-rags story

Who doesn’t dream of receiving a large sum of money in a lottery, in a casino, or through an inheritance? Imaginations run wild when people think of all the different ways in which they could spend new-found wealth. In the unlikely event of this actually happening, what should they buy first?  The answer is: nothing!

When people are not used to large sums of money, it is easy to believe that the dollars won’t run out.  It is so tempting to make dramatic changes to the way they live, by buying fancy cars, moving house, wearing designer gear, throwing extravagant parties, going on expensive holidays, eating in the most expensive restaurants, and so on. Pretty soon, they are on a roller-coaster ride to financial disaster, and they probably end up being worse off than they were before.

Much better ways to use a sudden injection of cash are

  • to pay off debt;
  • to take sound financial advice and invest the money in long-term investments such as mutual funds and stocks and shares;
  • to invest in children’s education;
  • to boost retirement savings.

It is worth remembering that Warren Buffet, one of the world’s richest men, still lives in the house he bought more than fifty years ago. Granted, it is a big house, but still!

Building financial security

Most people build a reserve of money by being careful with what they spend. They learn to say “No!”  to the temptation of spending money on desires rather than needs. How do they do this?

  • They live according to a budget that encourages them to save, rather than to spend.
  • They choose their investments carefully, by finding out as much as possible about an opportunity before they commit their money.
  • They reinvest the profit on their investments. Even small amounts of money steadily accumulate, but once money is spent, it is gone. It can’t work for them.
  • They focus on their long-term investment goals.

This may sound rather unexciting, but if people look after their money carefully, the day will come when it will look after them.

Keeping your money

Let’s assume that you have managed to accumulate a reasonable amount of money. How do you keep it working for you? The problem with having money is that the world is full of schemes that encourage you to spend it.  Advertisements continually tell you that if you buy this or that, you will be smarter, fitter, better looking or happier, and the envy of your friends and neighbors, when the truth is that you will simply be poorer.

Look around you at the people you know who seem to manage their money successfully, and take some tips from the way in which they live.

  • They are not stingy, and they may live well, but they still take advantage of freebies, special offers, rewards schemes and other ways of stretching their dollars.
  • They don’t feel the need to display their money in order to gain status or recognition.
  • They understand the difference between comfort and extravagance.
  • They are often generous, but not foolish, with their money.

People who appear to be wealthy are sometimes deeply in debt, so be careful whom you listen to when money matters come up. Avoid get-rich-quick schemes and only take advice from reputable financial advisors who have been recommended to you by people you really trust.

Warren Buffet sums up the issue of getting and keeping money in these words: Do not save what is left after spending; instead, spend what is left after saving.

Using your network to achieve your financial freedom goals

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This is a guest post by Millionaire Mob, a blog focused on investing in dividend growth stocks, passive income ideas and travel hacking. We have helped thousands of people with bettering their financial future through our personal finance tips.

A solid network is a promising asset in your financial freedom journey. Having a strong network is crucial to achieving financial independence.

“No man is an island” an old adage goes.

How are you utilizing your existing networks to reach your financial goals?

We are social beings and are connected with different people within different circles. We have people around us some who are family, friends, and colleagues that we have formed a strong bond with. These people can support us in one way or another to realize our financial goals.

Before you enlist the help of your network, you first need to have a clear goal of what you intend to attain. You need to plan why and how you will accumulate wealth and build a firm financial foundation. Our study shows that the true meaning of accumulated wealth is approximately 11x your income.

Set a plan of action with details of how you are going to generate income. Find out how you can diversify your income sources. Perform a research on different investments available to you. Read different resources to discover more information about the types, the advantages, and disadvantages of different investments. Get the opinions of diverse financial advisors and join their networks. Consider different investments that you can involve in. Engage in active, passive and portfolio income ideas. Consider getting a part-time job or try to obtain online jobs. Check out this list of over 23 proven online jobs without investment.

Whatever your financial targets are, they need to be clear and achievable. Define your deliverables, set quantifiable goals and gauge the level of risk appropriate for you. Set a timeframe on when to achieve every milestone. Be disciplined and avoid that which can distract you from your vision. If you set realistic goals, you are more likely to attract people with similar financial ambitions and resolutions.

Here are 4 surefire ways in which you can use your network to achieve your financial freedom goals:

  1. Foster quality connections

Your networks can be a great resource that will connect you to your dream job or an amazing opportunity that will change your financial situation. You can find potential partners to strike profitable business deals with that will take your business to another level. Your connections can also become your clients if you can offer valuable products to them. All you need is just to be outstanding in what you do.

These prospects this can be obtained without necessarily spamming your connections but by presenting and positioning yourself in such a way that opportunities find you. In one way or another, it will help raise your financial position and ultimately reach your financial goal.

With recent developments in technology, it is easier today to make more connections with friends, bosses, classmates, customers etc over social media platforms such as Facebook, LinkedIn, Whatsapp and Twitter among others.  Take advantage of these platforms to expand your circle of influence. Reach out to potential employers and be ready to grab every opportunity that may come your way. Be ready to deliver value and to produce exceptional results in your work so at to get referrals. When you are outstanding in what you do, you are more likely to attract and maintain quality connections that will thrust you to your financial destiny.

  1. Start a financial challenge

A challenge helps to keep the participants on their toes until they achieve their objectives. Start a financial challenge, for example, a challenge that can help to fix bad financial habits that can ruin your dream.

You can start a challenge to clear all your debts within the shortest time possible and enlist your networks to become part of it. Get and share resources to motivate and inspire each other to pay off debts.

It could also be a challenge to live frugally and to save as much as possible. Start a savings challenge. Find ways to help save and reduce expenses. Share discounted products, items on sale, and couponing ideas among other saving tips. You can also incorporate the use of different financial apps. Some apps like Spendee, Dollar bird, etc help you to track your expenses, manage budgets and track purchases among other great features.

You can form a group of friends or create a savings group through social media and start the challenge. It can be a year-long or a few months challenge. Make clear the rules and the governing the group, set milestones and track the progress.

For each month, week or day try to set-up or create a task to accomplish, the tools that you will need and the timeframe to do it. At the end of the challenge, gauge the outcome and see if there were any changes in your financial position. Create a new challenge and continue with the cycle.

When you create a group of people who are up to the challenge, it helps you to remain committed to the main agenda of the group and to be accountable to each other.  A financial challenge can help to keep you on the check and help you to avoid bad financial habits that are not aligned to your ultimate objectives.

  1. Keep learning from the best

Ensure that you have connections with people who have similar interests and learn from them. They may be resourceful especially if they have done something or have similar goals that you intend to achieve. They can also share with you different tips and tricks, what to do and mistakes to avoid achieving the specific goals.

  1. Share your interest

Share your financial objectives with people in your networks. You can use the social network platforms to engage with other professionals, join groups and forums that discuss financial matters and opportunities. Share content, create and post blog posts and online profiles with an aim to connect with other people with similar interests.

You are more likely to get tips and tricks from people you share related interests with. They can also encourage and motivate you to remain focused on your financial goals.

Bottom line

Financial freedom cannot be achieved in isolation. You must have and nurture your connections and be committed to making it possible. You should make it a priority to prepare and set clear financial goals before you enlist your networks. The financial objectives will also help you find people with common interests who will inspire you along the journey towards financial freedom.

How to Build Your Financial Foundation

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“Can I afford that?” 

If you’ve ever asked yourself this question and not been sure of the answer, it’s time to establish your financial foundation.

Think of a gleaming, towering skyscraper.  It didn’t appear out of thin air.  It took months of preparation and carefully designed installation.  Most importantly, that skyscraper’s construction started with its foundation.  Then, floor-by-floor, it was eventually completed.

The key point here is that the foundation came first.  It’s an absolute necessity to the stability and longevity of the building.  Without it, the tower would crumble.

Your financial foundation works the exact same way.

Without a proper financial foundation, your finances will never be in perfect harmony and you will never be financially stable.  Moreover, you’ll never relieve yourself of financial stress, which is a heavy burden too many people bear.

Financial foundations are an easy concept, but they take a mindful, dedicated approach to put together.

Sticking with the building theme, your foundation will consist of three “pillars”:

  1. Short-term money
  2. Emergency money
  3. Long-term money

Pillar #1: Short-term money “STM”

Your STM reserve will be used to cover your active, day-to-day expenses.  Think groceries, rent, utilities, etc.  Although there isn’t a universal dollar amount, there is a guideline you should follow to determine how large your STM reserve should be.

Follow the below steps to determine your STM reserve:

  1. Calculate the amount of money you usually spend in a month. If you use a debit or credit card, you can use your monthly account statements as estimates.
  2. Take this dollar amount and multiply it be three.

That’s it!  That number is the amount of money you should have set aside for your short-term expenses at any given time.  For example, if your monthly expenses are $1,000, you should have $3,000 in your STM reserve.  This covers the volatility and variance of your expenses.

Let’s face it, we’re all human.  Some months you’re going to spend a little more than others, some months you’ll spend a little less.  But with a STM reserve, you’re covered.

This will ease your day-to-day financial stress.

Pillar #2: Emergency money “EM”

Think of your EM reserve as a rainy-day fund.  You can’t predict your next fender-bender or doctor’s visit.  So, you need to have EM at the ready for such an occasion.

Again, there isn’t a universal dollar amount, but the calculation is easy: take that same monthly expenditure amount and multiply by six.  Using our example from earlier, $1,000 multiplied by six would give us a $6,000 rainy-day fund.

See how easy this is?  This number provides you six months of leeway if you were to ever lose your main source of income (i.e. your job).  This gives you plenty of time to reestablish that income stream or find a new job.

Pillar #3: Long-term money “LTM”

We’ve accounted for your active expenses and potential, unexpected expenses.  Now, it’s time to turn our attention to the future.

Your LTM is for your future goals, such as a house, graduate school, kids, etc.  The sooner you prepare for those occurrences, the sooner you can take advantage of compound interest.

After satisfying your STM and EM reserves, you should contribute at least 20% of your monthly income to your LTM goals.  If you’re making $3,000 a month, net of taxes, you’ll set aside $600.  Want to reach your goals faster?  Up that percentage.

And there’s your financial foundation blueprint!

Tie it all together

Construct these pillars by filling your reserves one-by-one, in the order listed.  In other words, start off by focusing on your STM reserve.  Once you’ve hit a comfortable point (i.e. about three months of expenses), move on to your EM.  Lastly, after you’ve covered your short-term expenses and potential, spontaneous expenditures, you’ll start investing in your future.

A solid, formidable financial foundation is integral to financial success.  These three pillars will provide clarity to your financial horizon and ease your financial stress.  I know it’s easier said than done, especially if you’re living paycheck-to-paycheck.  If that’s the case and you’re barely breaking even, create a budget and cut back on discretionary, non-essential expenses.  Or, commit some of your free-time to building a secondary source of income.  That way you’ll be on your way to sitting pretty at the top of your skyscraper!