MANAGING MONEY
Isn’t it interesting that managing money (and debt) is really a life skill in today’s society.
This is one thing we are not taught how to do at school but it’s the one thing every person leaving school needs to know.
At Financial 3, we believe it is essential that your money (and debt) is managed effectively.
So we find out everything we can about your financial situation.
But what will your numbers say about you? Will they tell a story you want to hear?
We want your story to be one you love to hear. We don’t want you to live below your means.
To become wealthy you need to expand your means. And the following is a great place to start.
There are two types of budgets. One is a Budget to Make Money and one is a Budget to Lose Money.
Your budget is a plan. But most people budget to Lose money without even realising it. We don’t want that for you – we want you to have a Budget to Make money.
Here is a quick explanation.
If you are operating a business and it is running at a loss you have two choices; make more sales (earn more) or decrease expenses. That’s it. Otherwise you will go broke.
If you are an individual and are spending more than you earn, you’re making a loss. If you continue to do this, you will end up with very serious money problems; in the extreme you may even need to declare bankruptcy.
The only way to solve this problem is to earn more income and decrease unnecessary spending.
Running a Budget to Make Money however means you have more income than expenses. We love the sound of those words; more money than expenses.
We do not necessarily mean living below your means by reducing spending; however reducing unnecessary spending will lead to an excess of income.
Once you do that you now have a Budget to Make Money and this means you now have three options:
- you can pay down debt,
- increase spending; or
- start investing.
We would suggest you only use two of the three options -pay down debt and then start investing to create more income without you working harder for it. Then you can spend more.
Unfortunately, most people are running a Budget to Lose Money and that’s why every year they never seem to get ahead.
But if you can change to running a Budget to Make Money, you will be well on your way to financial independence.
If you would like to know more, we can show you how you can do this and manage your money more effectively without it affecting your lifestyle.
Managing Debt
The best type of debt is no debt at all, which is ultimately what you need to achieve to be financially independent
But for many people this is simply not possible. So if you need to use debt, use it wisely.
Because debt is a concept that is often misunderstood even by a lot of seasoned investors.
- Good debt is debt that makes you money and that someone else pays off for you, like a positively geared investment property.
- Bad debt is debt that takes money out of your pocket or that you have to pay for yourself, like a personal loan or a maxed out credit card.
Your home loan could also be considered a bad debt but there are strategies anyone with equity in their home can use to turn some of that bad debt into good debt (but that’s a conversation for another time). So you don’t need to sell your home!
But what most people do is they buy their home, use credit cards or a line of credit to pay their bills, and then use the equity in their home to pay off the credit cards or the line of credit or they do a big renovation or put in a pool! You just can’t become financially free doing it that way.
If you would like to know more about how you can rid yourself of Bad debt or use (leverage) Good debt to make you money, please let us know.