How to take control of your money and build wealth - even if you failed several times before
Uppdaterat: 15 juli 2020
Actually, it's very simple. Money just like health. To build wealth: make more money, keep your costs as low as possible, save and invest. For health: Eat healthy and exercise regularly. But if it was that simple, wouldn't everyone be rich and thin then?
Money has two sides: the psychological part and the practical part. In this post I want to talk about both sides.
When it comes to the practical part, there are a few things you need to get right so that you have a good structure for your money management.
Here are 8 of the most important parts.
1. Understand where your money is going
In other words: write down all purchases every month. You can use an app or paper and pen. It sounds tedious and boring and it actually is. In the beginning. After a while it's something you just do without thinking so much about it. The result is incredibly valuable. It might sound obvious but knowing exactly where your money is going gives you 100% control to change it.
2. Understand how much money you have today
If it is a minus or plus total. This is done by listing everything you own, then listing everything you owe and the difference becomes your net worth. Is it scary? yes. Is it necessary? also yes, unfortunately. If you want to turn around your money situation, this is the number you should focus on increasing through savings and investing. Focus on saving and buying assets (stocks, bonds, gold, real estate etc.) and avoid debt from credit cards, trips, etc. (debt with really low interest from something that generates money when all bills are paid is ok to keep as debt. E.g. an apartment that you rent to a student).
3. Automate savings
Immediately after you get your salary, savings should be transferred directly and automatically. This is done by setting up a standing order from your transaction account to your savings account. So it's gone from your account and you don't have to be tempted by it. If you wait to save from what is left at the end of the month, well, then nothing usually remains. The total savings amount (per month) that you transfer, should then be divided into various "buckets".
4. Save regularly every month for your "buckets" which are:
investments for the pension, big bills like taxes, Christmas, holidays, dentists, etc. and a large sum for unforeseen things like loosing your job, a pregnancy, etc. Be sure to top up this bucket afterwards if you spend money from there. An emergency fund that covers 3-6 months of living costs provides an incredibly strong financial situation and peace of mind.
5. The power of the gap
It is incredibly powerful to increase the difference between what you earn and what you spend so you get more over for saving and investing. Since this is the simplest way to have more money towards debt or wealth building, it is also something you can do from today. You can either find ways to make some more money, or reduce your spending or both which makes the biggest difference.
6. Every time you buy something that is not an absolute necessity such as food and heating, etc., weigh this item towards your motivation to save and invest.
For example, say you love online courses (one of my personal weaknesses) and spend quite a bit on this. The next time you are looking to enroll in a course, weigh it against your motivation to save and invest. So what could your motivation to save and invest be? E.g. Give your child a home with a financially secure family? or maybe it's to be able to leave your husband who is not treating you and your children well? or having the peace of mind from knowing that your retirement is under control? mm. We all have our personal reasons for taking control of our finances and building wealth. Write down your motivation on a card and bring it with you in your wallet so you can look at it when in the shop.
7. Create different documents to keep track of your money
This can be done either on paper or with excel or google sheets (free). You will need:
A tracking sheet for your buckets (how much are in them, date when updated etc.)
A money snapshot or net worth calculation. Here you list your assets such as cash, securities, a car, etc. and all your debts and calculate the difference between them. You also need to put a date somewhere to know when you calculated it last time.
A tracking list with all your purchases. You can enter the amounts each night in this list from things you paid for during the day (if any). Make sure to also add other sources like invoices, direct debit, subscriptions etc. You can list them under different headlines: Transport, Housing, Transport, Entertainment etc. (check out expense tracking categories on pinterest for more ideas).
In the tracking list for all purchases: (previous point) add the total for each month. Then also add the incoming amounts (salary, gifts etc.) at the top and compare the total of incoming and outgoing so you see the exact number for each month. If it is minus, you spend more than you earn and if it is plus then you earn more than you spend. This creates soooo much control of your money its crazy!
(search pinterest or google for "download free budget or personal finance printables")
8. Schedule a meeting or "money-date" once a month to update your documents and to look over your money. Maybe over a glass of wine, your favourite chocolate or with a friend on the same money journey to make it an enjoyable thing and not a chore.
Phew - that's a lot of practical tips. If it feels overwhelming then it is perfectly ok to focus on one at a time until each of them feels under control.
The second part of taking control of your money and building wealth is the psychological part.
The problem is often that we do not do what we really want to do. As with the example of training in the beginning. Why is it like that? why don't we do what we say we want to do? Amanda Crowell from TEDxHarrisburg has three reasons that I think are very good.
1. We don't think we can do it.
We don't think we CAN take control of our money & we don't know HOW to do it. We don't think we have the talent or the right genes to do this. We believe that there are finance pro's who just have the talent for it. It is the "fixed growth mindset" versus the "expansive growth mindset". Meaning if you think you can learn things in an area or if you think you can't.
A gamechanger here is just to understand that it is actually possible for you to learn. Write down and think about things you have learned that you had no idea how to do at the beginning. For example: walking and running when you were little. Learning a new language? a sport? a new job? how to pay your bills? do your hair? It may sound silly but the first time we did them it didn't feel that easy.
It can be painful, embarrassing and feel weird at first but then it gets easier with time when you learn something new. So how do you learn to take control of your money and build wealth? The first thing to know is that you only need to learn about 2% of all the "finance information" out there. So much is completely not needed to manage your money. The second thing is to practice with small steps, read (posts like this!), try it out, not care too much if things go wrong in the beginning, constantly taking small steps forward.
2. The other reason why we don't do what we really want to do is: identity.
"People like me" have no money. "Moms", "single moms", "women", "working class", "own entrepreneurs", "academics", "free spirits", "insert your last name" etc. don't have money. Is it really so? Are there no moms, women, entrepreneurs, free spirits etc. with lots of money? Sometimes we choose labels that are practical for not changing ourselves. To keep us "safe" and stuck in a bad place. I have also been stuck in these victim mindsets for periods.
Like one time when I chose to blame my external circumstances for not finding a job for several months. It felt very bad and I noticed that it was not the person I wanted to be. One day I realised that I didn't want to sink into that identity for longer. So I used all my willpower to change my situation, and it worked after a while. I started by getting up early, put on professional clothes and fixed my hair, found a baby sitter, did a lot of networking, organised all my documents, etc.
The solution for this point is to wake up if you have put yourself in a comfortable victim position. It is uncomfortable to sort out things but it feels SO good on the other side. It is also good to find role models that crush our existing beliefs around this. Look in your buddy group or nearby (not celebrities) and find examples of single moms, own entrepreneurs, academics, etc. (or whatever you use for blaming your situation on) that seems to be good with money. Maybe talk to them or write in your journal about them. Be curious and inspired instead of envious.
3. The third reason why we do not do what we say we want to do is: that we do not really WANT to. We do not see the benefits.
We don't think it matters if we have money or not. On the surface that is. Deep down there is a little voice that says "think again". Maybe you think that "It'll work out" or "I'm sure I'll get that inheritance" or "My husband is keeping track of our money" etc. It somehow feels like it is under control although it really isn't.
This is hard to hear but important: So many women end up poor in retirement age because they trusted others to take care of their money: financial advisers (that actually was a sales-person), their husbands (do they know how to?), the state, someone else in the family, etc. What if we can't find work? or a divorce happens? The only way to secure their financial future for themselves and their children is to learn about money and take control of it. It's not impossible, it's actually pretty easy once you get into it.
So what's the solution here? Link your money journey goals to something you can appreciate TODAY, not in the future. Most people find it difficult to be kind to their future selves. Even imagining yourself in the future is hard. What is the use of money control for you today? The feeling of security? of control? peace of mind? to be a strong mom? not to worry so much? to know that there is money in the bank if something happens? all of them are absolutely perfect reasons for taking control of your money and build wealth. Write it down to remind yourself of it every day.
Thanks for reading!
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