Personal Finance

Essential skills to manage your money before you start investing in property

Before you start investing, whether it be in property, shares, commodities or whatever you choose as your investment vehicle. You need to be able to manage your money. Sounds simple doesn’t it?

It’s almost embarrassing to write about it. But if you look at statistics worldwide, whether it be Australian, American or European statistics they all tell the same story. People can't manage their money. They're over their head into debt, spending money they don't have on things that lose their value as soon as they're taken out of the box and investment returns of the average investor are just miserable. Heck, the majority of professional fund managers can't beat their benchmark indexes.
 
The following, taken from Jamie McIntyre's book “What I Didn't Learn at School but Wished I Had”, illustrates the depth of financial intelligence of the average Australian, which I'm sure will be quite representative for the rest of the western world. Jamie states:  "If we gave every Australian $10,000 right now, what would happen to that money in twelve months time? Statistics show that 80% of Australians would have spent all the money and have nothing left, because this is what most of us have been taught to do. 16% of people would have turned the $10,000 into $10,500. Where do you think they would have put it, to get such a handsome return? Of course, it has gone straight in the bank! Now, we can not call either of these categories financially intelligent and those figures make up 96% of the population! Less than 3% of the population would turn the $10,000 into as much as $20,000 inside twelve months. If you can do that you would definitely be considered financially intelligent. In fact, if you can do that, there is probably no dream on the planet that you could not afford to buy one day, that is up to 100% return on your money! The remaining 1% of the population can turn that $10,000 into as much as $1,000,000 inside twelve months."

Not sure where Jamie got his statistics from, but they ring true. So, just think...Which group do you belong to?

I know I’m not in the top 1% otherwise I wouldn’t even be creating this website. I know I’m also not in the bottom 80% or even in the 16% who just made 5%. I’m one of those 3% of people who would make a good to great return on their $10,000 but not necessarily as much as 100% in one year though. But I also know that 5 years ago I would have been in the 16% who would have made measly 5% and 10 years ago I would definately just have blown the money and had lots of fun doing so - which is not a bad approach for a twenty something! But once you get older and if you have plans to not work till your 60th, 65th or even 70th that approach won’t work and you need to get smarter at managing your money.

Now, there are plenty of money web resources and books out there that aim to explain to people the basic concepts of properly managing their money. One of them is Robert Kiyosaki, author of Rich Dad Poor Dad who coined the phrase Financial Intelligence and in his books aims to explain a lot of basic money management skills most of us do not learn at home nor at school and therefore go through most of our lifes without them.
 
And that is what this section of the site is all about. I have summarized all the essential elements from Robert Kiyosaki’s Rich Dad Poor Dad, from the Millionaire Next Door and other classics in these pages and provide numerous external links to great sources of additional information. So everything you need is here.

Now, it’s up to you.

Read. Learn. Take action. Become wealthy.

Creating Wealth

So you want to be wealthy and use property to get you there. Well so do I, but did you ever think about what wealthy means to you? Is it just being rich or maybe there’s more to it? Most will agree that money without having family or friends, without having your health or without having time to enjoy your money is not the complete picture. Sure money is an important part of the wealth equation, but only to the degree that it allows you to make the choices you want to make, after that it won’t increase your happiness. Read more about creating wealth.

Good Debt versus Bad Debt

I often read that people have been taught that all debt is bad, yet when you look at the statistics for personal debt you'd could be forgiven for thinking that we all believe that all debt is good debt - the level to which the average western consumer has buried himself in debt is just crazy, because the majority of it is bad debt. Clearly we don't know how to manage debt and we clearly can't distinguish between good debt and bad debt!

Saving

Saving is at the heart of creating wealth, and luckily it's darn simple. Saving is nothing more than spending less you earn, or earning more than you spend...Either way you look at it, you've got to work on both sides of that equation to save. Maximize your income and minimize your expenditure. Start saving now!

Budgeting

Whether you budget on a continuous basis or eventually opt for a more top-down target setting approach like I have done doesn't matter. What does matter is that you have a good handle on where your money is going and you are achieving your saving goal. Either way, budgeting is a great tool for setting a savings goal and making sure you achieve it.