This blog is intended for educational purposes only. None of these posts are meant to give legal or financial advice. If you need advice you should consult an appropriate professional.

Thursday, October 27, 2011

riches to rags

We've all heard stories of people going from rags to riches, but what about individuals who go the other direction.  I don't mean to be pessimistic with this entry.  I'm just trying to look at something that's not talked about a whole lot.  Whether through misfortune, bad decisions, or both some people go from the top to the bottom.  You have many lottery winners who come into sudden money and don't know what to do with it.  They think the sky is the limit while buying all kinds of contraptions.  The same rules of money apply to everyone no matter what your level of affluence.  It boggles my mind to read stories of rich and/or famous people who make really bad decisions regarding money.  In theory it should be a one way trajectory for those with a high income.  Up!  If you keep your expenses at a manageable level while raking it in wealth building can come in short order.  The strange thing is this is not a given.  I must say it has to be hard to go from having much financial security and material possessions to very little.  If you never had it I don't think you would miss it.  So the whole thing is just because you have it today doesn't mean you always will.  One good lesson to be learned from this is riches are uncertain.  It's good to respect money and treat it well, but don't trust in it or worship it.

Wednesday, October 26, 2011

cash management is key

Financial planning is a pretty broad subject.  There's a lot to consider with each individual situation.  It all starts with cash management though.  It's the day to day cash flow that's the foundation for everything else.  The money comes in (hopefully), and it goes out.  It's important to track this movement of funds meticulously.  It's hard to get a grip on the more advanced areas of financial planning if you don't have a good grip on your cash flow.  The bottom line is WATCH YOUR SPENDING.  Money is never in an unlimited supply, so we have to be diligent about spending.  Once you've built the surplus by spending less than you take in then you can begin to maneuver better in this world where it takes money to do almost anything.  It's a good idea to know what bills are on the horizon and where the money is going to come from to pay them.  Always know how much is in your bank accounts and in your wallet.  When you know you're going to spend money figure out which pot it will come out of.  You can also keep a little piece of paper with you to keep track of where you're spending your money.  This is what I do.  It's kind of a pain for sure, but it lets you see where your money is going.  Also try not to spend on impulse.  Give yourself at least a few minutes to think it over before you buy.  Know what's coming in and what's going out, and you will have the data you need to make adjustments.   

Monday, October 17, 2011

buy assets

Money is hard to get your hands on these days for a lot of people.  That's why it's important to buy assets.  You can think of assets as something that has the potential to go up in value or give you income of some kind.  Now I know we all have bills to pay, but with the money that's hopefully left after that try buying an asset.  It could be a paper asset, real estate, precious metals, a business, or many other things.  I'd say quite a few people spend most of their hard earned money on things that immediately depreciate in value.  And sometimes they use debt to do it.  No no no!  At least avoid the debt part.  Change your state of mind from earning and spending to earning and putting money to work.  A small start is better than none at all.  Consider each purchase carefully.  Our money supplies are not unlimited, so treat each dollar with respect.  You can think of them as your little employees, or how about this, a seed that grows into a big tree.  Think of new ways to use your money to be better off in the long run.

Thursday, October 6, 2011

Income is not wealth

Many people want to have a big income.  That's all well and good, but income is not wealth.  It is quite possible to build wealth on a very low income.  The key is to build a surplus that can be put to work.  Some of the highest income people have little wealth.  Now it's easier to build a high net worth if you have high income no doubt.  The more you make in income the more you pay in taxes though.  Wealth is stored income.  Income and expenses go together as do assets and liabilities.  Wealth is the assets you own.  A high income doesn't do you much good if you spend it all or worse yet go into debt.  I think one of the most admirable and challenging things is to build wealth while making income on a minimum wage level.  Once again I have to conclude that expenses are paramount in this world.  Keep them low!  Keep your money for yourself.  You earned it didn't you?  Any level of income can be spent no matter how high.  The principle is what matters not the amount.  Respect money, and it will be there when you need it.