The purpose of this article series is to show you why you should control your finances and then how to do it using AlphaManager.
Part 1 (you are here) : Why control your finances ?
This is the first question we could ask ourselves.
- Have fun without thinking about where to find the money.
- Take care of your family and their needs without wondering how to find the money.
- Manage the unexpected without borrowing.
- Invest in future projects.
- Achieve financial independence.
Financial independence does not necessarily mean being wealthy, being able to buy anything you want. Be financially independent is not to depend on a salary to live. A salary is an amount that an employer gives you in exchange of a job. Generally, we sell our time and skills for money. Financial independence allows to overcome this constraint. In the case of financial independence, your income is passive. That is to say that you do not necessarily need to be present to earn this money. These revenues are the fruit of your investments. What you gain by being financially independent is time. The most precious resource whoever.
However, to be financially independent, you have to work at one time or another. But you have to do it for a specific purpose: Make your money work for you and no longer work all day for money.
In his book "Rich father, poor father" Robert Kiyosaki defines wealth as duration during which you can live if you stop working. It's your ability to be able to live without working.
Here are two examples to illustrate my point:
Example 1 :
Williams works in a company and earns 500,000 F per month. He has a very high standard of living. He lives in a beautiful apartment, he has a car, he likes to buy nice clothes, trendy phones. He spends around 400,000 F per month. His salary is his only source of income and he has around 2,000,000 F in his savings account.
Example 2 :
Ruth works in a company and earns 200,000 F per month. She recently left the family home and started to rent a studio. She spends 150,000 F per month. When she found her job, she first stayed with her parents to save a max. She then used the money to open a small ready-to-wear boutique. It took time but today she has a profit of 100,000 F all charges deducted per month. On top of that she has a small business selling boiled eggs which earns him about 25,000 F per month. She has 700,000 F. in her savings account.
A priori the richest is Williams we agree. Now imagine that Williams and Ruth lose their job.
Let's imagine that William had a layoff bonus of 1,000,000 added to his savings which makes him 3,000,000. Having a lifestyle of 400,000, he will be able to live around 7.5 months without working. He has 7 months to find another job.
As for Ruth, she will be able to live approximately 4 months (700,000 / 150,000) approximately. Except that Ruth collects 125,000 every month from activities without having to be there. Ruth can more calmly seek another job. Because part of his expenses is covered by her activities and so she has less pressure.
If Ruth continues to manage her finances well, to invest, Ruth will one day become financially independent.
Here are two examples of the principle of financial independence. The goal is not to be multimillionaire but rather to have time, to reach a stage where one works by choice and no longer by constraint.
Financial independence offers you the most precious resource in the world: time . If you lose 1,000,000 F, you can regain that one day. But if you lose 5 years of your life you will no longer be able to recover them.
In your daily life, controlling your finances will also allow you to stop using consumer credit. Avoid living month by month. It will also allow you to invest, seize opportunities and make you happy without putting yourself in financial danger.
The control of finances is an activity which is addressed to any person who has flows of money: entries and expenses. Students, unemployed, workers or retirees. It is important to know how to control your finances.
If you do not want to find yourself or if you are already in a situation where your income seems to you lower than your needs, you need to control your finances. The financial difficulties in working life are the more often the consequences of poor financial management.
Here are some important things to know first:
A liability : It is a good whose value decreases over time. For example a television, shoe, telephone etc. Most consumer goods are liabilities.
An asset : It is a good whose value will increase and which is likely to generate income. For example land, actions etc.
In your quest for financial independence, you must favor the assets rather than the liabilities.
Here are some tips to follow to achieve financial independence.
1. Accept your responsibility in the current situation.
We very often think that our financial difficulties are linked to the fact that our incomes are small, we think that it is because we have too much burden: parents, brothers and sisters. We think that with more money we will have no more difficulties. This is a mistake because very often our difficulties are simply due to the fact that we live beyond our means . This is why even with an increase in these revenues we end up finding ourselves in exactly the same situation. The increase of our lifestyle is our responsibility. We must recognize and accept that it is our choices that are the cause of our situation. There are of course exceptions. But very often, we are responsible.
2. Start early.
Achieving financial independence takes time, especially if you start from scratch. This is why you have to start early. Imagine that you start at 20 and that it is at 35 that you get there. It will have taken you 15 years. You may have it feels like a lot but you will see that time flies. The best time to plant a tree was 20 years ago. The other best time is now.
3. Know how to keep the money you earn.
Today's society makes us believe that we must consume constantly. Buy ephemeral consumer goods, Buy state-of-the-art television when 95% of the features will not be used. This is to the benefit of businesses who produce these goods. Society makes us believe that happiness is in these consumer goods when it is mainly useful to enrich others.
To save you have to learn to live below your means. Your cash inflows must be greater than your expenses. And for that it is necessary to give up certain non-essential goods. You have to be patient and not to want everything immediately. Accept that your current income does not allow you certain goods and work first to increase this income. When you have more inputs, increase your savings first and then your lifestyle. Also, save allows you to easily support unplanned and hard knocks of life. Imagine that you or one of your loved ones get sick and an expensive operation is urgently needed, how will you do it?
4. Invest your money and create assets.
After saving, the next step is to invest. The goal here is to have income that falls regularly with little or no no effort. Be aware however that an initial work will be necessary as well as a starting bet. But once in place you will not regret it. Gradually increase your passive income with the ultimate goal of being greater than your salary.
5. Take risks.
Take controlled risks but know that it will sometimes be necessary to think outside the box. Whatever you do will not necessarily succeed. But the knowledge you gain will be invaluable. And if you manage your savings well it will always allow you to absorb your financial losses.
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