Many people who are successful have mentors who help them learn the skills that lead to success. I'll do my best to give you some important personal finance perspectives. People say that life is a school where you learn the lesson after the test. The same is true with money, but you can't go back in time to fix huge money mistakes you've made over time. You are a player in the money-game as long as you are alive, and you need to know the basic rules before the more experienced players tag you.
Rule #1: Use money to make money. Savings are the only way to avoid being a wage slave for the rest of your life. You can use the profit from your savings to spend more on your lifestyle, cut down on the number of years until you retire, or let you retire at all. How far along are you in your plan to save money and put it to work for you?
When you spend a dollar, you take away its ability to make you money in the future. I'm not telling you to stop eating out or going to the movies. Instead, I'm telling you to use common sense, like looking at your four biggest expenses over the last few months and working hard to find ways to cut them.
The biggest problem with the first rule is any kind of personal debt (other than a mortgage) or any kind of lease. Every debt you take on hurts your net worth, which is the money you could have used to make money over the course of your life. Taking on personal debt is the same as making a big hole in your wallet. In the money game, when someone says, "I can afford that monthly payment," a lot of money moves from the "Haves" to the "Have-Nots." Here's a hint: the people who say that are the "Have-Nots." So, please don't ever think about whether you can afford a monthly payment to buy something. Instead, save up for the item and pay cash for it. Everything you buy with a 0% interest payment plan must be more expensive than it needs to be. Behind the scenes, your payment contract is sold to a lender with an interest rate. Retailers wouldn't do this if they didn't make enough money from it. Ask stores how much the item will cost if you pay for it all at once, and you might be able to get a better deal.
Rule #2: Always be in charge of your money. The first step to losing control of your finances and spiralling into debt and other money problems is to avoid dealing with them. With health, life, disability, and auto insurance, you can be ready for major financial disasters. Before you buy something, make a plan and save up. At least once a year, make a balance sheet for yourself to track your progress. Pay every bill on time, or get in touch with the creditor to explain what's going on and offer to pay only part of the bill. If you can't handle any of this right now, you should ask for help right away and find someone you can trust to do it for you.
Most of the time, a bad event in your life is the cause of money problems. This can be a health problem (like high medical bills or being unable to work), an emotional problem (like a divorce or the death of a loved one), or a money problem (losing a job, cut in pay, relocation, unexpected expenses). No matter where the problem comes from, it leads to three emotional problems: denial, feeling overwhelmed, and hopelessness. People who are in denial don't open their mail and keep spending as usual, and people who are overwhelmed can't get help or deal with the situation. For example, if you just lost a family member, balancing your chequebook and paying your bills are probably not at the top of your list of things to do. Unfortunately, interest and penalties can turn small amounts of debt into mountains of debt that seem impossible to get out of. This leaves you with bad options like bankruptcy, bad credit, spending less on your lifestyle, and adding stress to your relationships and work.
Rule #3 Pay attention to how much money the people you spend the most time with have. Whether they are family, friends, or coworkers, these are the people who have the most effect on your money. Do they follow the first two rules of the money game most of the time? Do they make about as much as you do? If you answered "no" to either of those questions, you should spend less time with them, and here's why. If they don't follow the first two rules all the time, you probably won't either. You tend to act like the people around you, and the more people you're around who don't follow the first two rules, the more likely you are to do the same. No one thinks they are "trying to keep up with the Joneses," but we all do it to some degree, and this is how it works. On the other hand, if they make a lot more money than you do, you may get into a lot of debt trying to keep up with them (meeting them at their favourite expensive restaurant, joining them for another expensive vacation, buying a new car because yours is the junker among all of your friends, etc.) If most of your friends earn a lot less than you, on the other hand, you will become the group's banker. For example, you'll find yourself putting down your credit card to pay for dinner, and everyone will say they'll pay you back later. But 50 percent of them never do, and they don't mind taking advantage of you because you make a lot more money than they do. Or, you and your friends need to pay a deposit to rent a house, but they expect you to write the checks because you have the money and they don't.
Your neighbourhood also puts you under financial pressure to go against the first two goals. I've already said that your neighbours are likely to become friends, but they can also affect the size of your home, how much landscaping you do, how much your furniture costs, and how big your TV is. So, pay close attention to how your neighbours handle their money. If you don't like how they do with the first two rules, move to a place that better fits your financial goals. If your family and friends aren't as good with money as you are, find some other people to hang out with who have habits you'd like to copy and learn from. I have friends with a wide range of incomes, but it's much harder to stick to the first two money rules when I'm with people whose incomes are very different from mine. You'll just find it easier to move on to the next rule if the people you hang out with are more like you in terms of money.
Rule 4: Make the other three rules go faster:
You can save more money by getting a better job and making more money. It doesn't matter if you like it or not; it's just a way to get to the goal, which is getting closer to rule #1. You can save more money if you work hard to cut four of your biggest expenses. Start hanging out with people who talk about investing money and are building their wealth the fastest and most methodically. When you put these four rules together, you should be able to figure out what to do next to start getting more "wins" in the money game.
