How money works today:
These rules that determine how money works are the foundations you need to understand and apply to improve your financial life.
Once you have them clear and begin to develop them in your life, you will not only start making money faster, but you will make better financial decisions and have an abundance mindset that will help you build your wealth in the long run.
Some of these concepts regarding how money works may contradict your judgment. The invitation is that you review them, and if you consider it a good option, try it in your life and see how your finances behave.
1. Your salary is not the same as your savings:
Remember that your wealth is more important than the amount of income you generate each month. A high salary will not make you rich, nor will a low salary make you poor; what matters is if you know how to save money, how much, and how much you invest.
2. If you don’t save, you won’t have anything to invest with:
A basic principle regarding how money works is to understand the importance of saving. The point is that we all understand its importance, but very few do.
Saving is the first step to being able to invest your money, in addition to giving you the peace of mind of having financial support when financial crises arrive.
3. A misused credit card can be your loss:
If you don’t know how to handle a credit card, avoid them like the plague. We are not saying that these plastics are bad, but if you do not understand how money works and on top of that, you think that the cards are an extended quota to your monthly income, you are going to have serious problems.
The first thing you should do is learn how to get out of debt, and then study how credit cards work and how you can get the most out of these plastics.
4. Live below your income:
No matter how much money you make, if you can’t keep your lifestyle below your income, you’ll never achieve financial freedom.
There are a lot of people out there making thousands and thousands of dollars, and when you ask them how they are doing on their financial goals, the first thing they will tell you is that they are deep in debt.
One of the most difficult decisions we must make, once we understand how money works, is to control that our expenses do not increase to the same extent as our income grows.
If you earn more and more, but spend more, no matter how many zeros your monthly check has, you will always have financial problems. To learn how to manage your money.
5. Credit is important if you know how to leverage it:
One of the key principles of how money works are to differentiate the types of debt that exist, and the way that it can help you achieve your financial goals.
Credit is not bad, what is bad is what you do with these resources.
So build a good credit history, have a good relationship with banks, and show them that you have good money habits.
Having banks as allies allows you to access credits to buy your house, access investment credits for your business, to have capital that you can invest, among others.
You must understand that these credits that you receive must generate income that covers the cost of interest. If you go into debt to take advantage of discounts or make unnecessary purchases, you will be making the same mistakes as people who will never be financially free.
6. Your priorities determine your daily expenses:
A personal budget is a tool that helps you identify what your daily expenses are, what your priorities are, and what you like to spend your money on.
Knowing these consumption habits is the first step to understanding your financial habits and then being able to change them.
7. The importance of automating your financial commitments:
Before you understand how money works, you must understand how you work. If you know that you forget your commitments, that it is difficult for you to save, that you pay monthly interest in arrears due to late payment of your debts… simple: Automate.
Set your accounts payable to be automatically debited from your account, create a monthly savings of X amount of money that will be invested in another account, and set each of your accounts to be paid automatically.
In this way, you will not only have the possibility of earning money in that free time, but you will also save money that you pay in unnecessary interest.
8. Take care of the pennies, the millions take care of themselves:
There is a general rule of how money works, and that is that, on many occasions, when we are worried about not spending large sums of money, we fall into the trap of assuming small, daily, and recurring expenses that affect our personal finances in the long term.
It is important to take care of your savings and avoid making emotional purchases that involve large sums of money. However, you should also review those daily expenses that have a significant effect on your quality of life.
9. Another alternative to the emergency fund:
Don’t build an emergency fund, build an income-producing heritage that you can use for such occasions. Many times having emergency funds, results in the capital that you save, which does not generate returns since we do not invest them and ends up being used in other expenses that have nothing to do with the purpose of the fund.
Remember that before understanding how money works, we must know our habits.
10. Make sure:
There are risks that you can minimize through policies. However, remember that insurance is to protect your wealth, not to build it.
So get good advice about what insurance is for you, since many times these insurances end up becoming unnecessary expenses since they are not fulfilling their function.
11. The contributions that your company makes for you are not enough:
The compulsory savings that your company makes for you is not enough. Match these contributions with voluntary savings, and you will see how your wealth grows substantially and the years you have to work to obtain a pension are reduced.
12. Annually increase your savings percentage:
The trick is to increase your savings level every time you receive a raise. With this, you will be able to avoid falling into the savings trap, the one that consists of saying that when you earn more, you start saving, and the only thing that happens is that your lifestyle becomes more expensive.
13. Choose your friends and neighbors wisely:
Appearance is one of the main causes of poverty. Give up that need to prove you’re financially well off by buying things you can’t afford.
When you surround yourself with people who invest in their future, who are trained, who build assets and not appearances, you will end up looking like them.
14. Learn about the money game:
Don’t just watch the news, entertainment, and things related to your work. Investigate what is happening with the global economy since it will somehow affect your pocket. If you don’t understand much, find someone to explain it to you, buy finance books, access courses and start with the basics.
15. Compulsive spending won’t make you happy:
In the long run, spending your money on material things will not make you happier.
What does this have to do with learning how money works? Once you understand that emotional shopping produces dopamine, which makes you feel good in the short term, you will stop using “mall therapy” to feel satisfied and rich.
16. Invest in your financial education:
Educate yourself. Read a book, there are countless books about personal finance that can help you, online or face-to-face finance courses that teach you everything you need to know about money.
The reality is that neither the school nor the university care about teaching you this kind of thing, so it is up to you to educate yourself financially.
17. Determine the value of your estate:
Ask yourself the following questions: How much is your estate? How many assets do you have, what is their value and how much do you have left once you subtract your liabilities (debts, commitments, and others)?
These questions are important for knowing how money works because to know where you want to go, you first need to know where you are.
18. Dominate taxes:
To build your wealth you must become a tax expert. Mastering the subject, or advising yourself with someone who does, will avoid unnecessary expenses or unexpected fines. Whether as an employee or entrepreneur, knowing your tax portion will help you understand how money works and how to take advantage of it.
19. How many sources of income do you currently have:
The eager search to generate new sources of income is a basic principle that millionaires apply. Although saving and investing part of your income is important, if you do not earn more money over time, it will be difficult for you to achieve financial independence.
A salary is not enough. This is pay for hours worked, and your time is limited.
20. Your goal is not a pension, but financial freedom:
Finally do not dream of retirement, but financial independence. Your goal should not be to reach a certain age at which you should not work but to generate an income in which, regardless of what happens, your quality of life is not affected.
Therein lies the importance of applying all the principles that define how money works. Once you are clear about how it works, you will not only be able to increase your income and wealth, but you will also know what the different behaviors that people have with money are due to.