Tuesday, September 18, 2012
Allocating capital sounds like a fancy job. All it is is telling your money where to go. I look at it as much more than just investing. Every expense I pay is allocating capital. It you accept that definition then we all allocate capital. We have to pay for housing, food, and transportation among other things. So hopefully we try to find the best deal on everything we have to pay for monthly. We can then send our money off knowing that it's getting us the best value for every dollar. I enjoy having the internet. I feel like I get a lot for the money I pay every month. I therefore have no problem allocating capital in that area. Electricity is another example. To me I think it's cheap for what I get. It would be very hard to live without electricity. There's not much of a choice on that one, even so I don't feel bad allocating capital to pay for electricity. The key with getting better with money is getting better at telling your money where to go. The first problem is getting a sufficient income to pay all your bills and to have a surplus to put to work. Once that is done then it's time to efficiently allocate capital. Money is always limited even if you're a billionaire. It's good to learn how to handle it at smaller levels even if you become rich at a later time. So once you have sufficient income I think managing it better is something worthwhile to aim towards. There are people who are living paycheck to paycheck even at high levels of income. Of course it is easier to build wealth if you make more, but it doesn't happen automatically. It's a conscious choice. Even if you have very low income you can still build wealth with shrewd money management. So the next time money is coming in or out of your account think of yourself as allocating your capital efficiently like a business.