Almost everyone dreams of building wealth, but everyday life makes this goal difficult for many. That’s why you should invest a small portion of your earnings in something that will generate your income later and become your wealth in the long run. Well-thought-out investments can help you earn income and build wealth for future financial security.
Therefore, it is difficult to choose the right investment plan based only on your current life situation, long-term needs, and potential risks. Compared to a complete savings plan, an investment plan can make you financially more profitable. However, it should be remembered that you can invest in trusted and government-approved institutions at your own risk, but refrain from investing where the risk is high.
What is Money Management?
Money management is to invest our money in a smart place, so that our money continues to grow, and we can save ourselves extra expenses, that is, we can save more by spending less (investment). Any good or bad economic crisis in the future can be met (saved) with that invested money.
In such a situation, even if you lose your job or your income decreases, you can take your money to help you to face that difficult situation. From there you can. Then the money management you do at that time will be very useful for you. Money management means managing your money. Keeping track of what percentage of the money you earn goes to your needs and what percentage goes to savings.
We start with some very important concepts of Money Management:
Convert active income to passive
First, I will discuss active income and passive income. One of the most important areas of money management is converting your active income into passive income. Active income is what you have to work for every day and passive income is what you earn while sitting. To survive, all humans must work. And doing this is the only option available.
We all try to master some skill in life mainly for a job and there is no problem with that. Now many people see various topics on social media that it is wise to work for yourself instead of working for others as an entrepreneur. Yes of course, if you have ancestral wealth then it is not bad to be an entrepreneur early in life. But if you don’t inherit a lot of property, you must take a job and accumulate the necessary capital to become an entrepreneur.
But it can be seen that once they get a job, most people do not want to make any kind of investment using the income of this job. If you don’t invest your active income money, it will never become passive income.
All of us after earning income spend it on various necessities and save some money and save it. But rich or capitalist people never save this money and invest it and keep their passive income flowing. You should learn to invest and invest your savings. You can learn investment by reading different books but if you want to be financially free you have to invest.
Buy his Guardian before buying the item
As a child, we had a guardian to take care of all our expenses including maintenance. In most cases it was our father, in many cases, our mother was also in charge and in some cases, both parents were in charge. They were our guardians.
When we needed it, they got us what we needed. If for some reason they were unable to do that, many more problems would have arisen including our studies, food, and clothing. Not only do people have such different needs, but different things also have many different needs that we have to bear as the owner of the thing.
Like if you own a car, you have to bear expenses like tax, diesel, garage, maintenance, etc. But most of us want to save money and buy a car/house without thinking about these expenses. Just as people need guardians, things also need guardians, and that guardian is you. But you need to shift that guardianship from yourself to a passive income field. It will be a fund that is just for your car, which we call a car guardian.
So, if you have the money to buy a car then try to start a small business/enterprise/side hustle before you buy the car so that from there you have enough money to cover all the expenses of your car. Then withdraw money from that money and buy your car. Always remember, capitalists never fill hobbies with active income.
Setting your financial goals (how much to spend per month)
To manage your money, it is very important to set financial goals i.e. financial plan. Then you will be able to manage your money, i.e. how much you take into your house and spend each month. You need to understand that calculation first. If you have money with monthly or yearly expenses, you can invest on your own responsibility in stocks, mutual funds, SIP, etc. in short-term, medium-term, or long-term trusts. You can protect your future by doing this.
Reduce the use of Debt
Loans often put people in danger. Because no matter how bad your time situation is, you have to repay your loan. Not paying EMIs on time can affect your credit score, making it difficult for you to get a loan again. So try in advance so that you don’t have to take a loan. Because being in debt stops financial growth. So always have good debt management, so that your growth continues.
Determine the direction of your Cash Flow
Passive income we understand, but the direction of this passive income is actually in which direction? And how is the income again? If two vectors act at an angle of 180° i.e. act in opposite directions, their sum is their subtraction. The money equation is like that.
The two vectors working against each other here are income and expenditure. The subtraction of income and expenses will be cash flow, and the direction of this cash flow will be in the direction of income or expenses, whichever is greater. Passive income is income outside of your job.
This income is just income (unless it is someone’s guardian), there is no expenditure on the contrary. So passive income is usually income oriented. Earlier I was saying that after buying your car or house there are many other expenses. If you can’t generate any income from that house or car then your cash flow will be negative i.e. going in the opposite direction to expenses.
So, before you buy something you need to understand whether it can bring money in your pocket. If yes, then you can buy it. If not, then you need to create a guardian for that thing so that you can balance the income and expenses. But by no means can the money you earn from your job cover the cost of your car home. But you can rent a house if you want, rent a car, that is, they can be their own guardians.
We all understand well about being rich. Now is being rich and being financially independent the same? The answer is the same may or may not be the same. We can say this, generally all rich people are financially independent, but not all financially independent people are rich. That means you may not be rich even if you are financially independent.
So, what does be financially independent really mean? Being financially independent means that you are able to bear all the expenses of your life, and you can do whatever you want to do whenever you want without worrying about money if any accident happens to you or one of your loved ones you also have the ability to bear all the expenses related to that accident. But we all do it more or less.
Everyone bears their own expenses. What happened to financial freedom here? The key point here is that financially independent people can meet all the expenses of life without doing any work, i.e. through passive income. He does not have to do any active work to meet his daily expenses.
And since everyone’s daily needs are not equal, you can understand that if someone is happy with little and if he can fulfil those little needs without actively working, then he is also financially independent, but you may not call him rich. This is the difference between rich and financially independent people.
How do you like today’s article about money management? You can comment to us about that.
