How can you change your relationship with money? It’s a loaded question, but the first place to start is to focus on long-term planning rather than relying on your feeling of the moment to dictate how you spend your money.
Usually, when the topic of wealth building arises, most people think in terms of either earning more money or holding on to every dollar they earn. Financial planning is much more complex than simply relying on such basic strategies.
Here’s the plain truth: it takes time to become wealthy. You have to plan ahead and create a fine balance between earning more, spending less, and building reserve funds for future investments.
How to Earn More
Wealth building starts with learning to increase your income-earning ability. You do this by acquiring knowledge and skills through assiduously studying your field and diligently acquiring experience.
Unfortunately, many people who realize that wealth building starts with increasing their earning capacity go about it the wrong way.
Here are two common traps:
- They choose a field that doesn’t pay well. It doesn’t matter how hard you work as a ditch digger, your returns will always be low. This is because the market for digging ditches is low. Machines can do the work better, faster, and cheaper. Conversely, if you put that same amount of effort as a stock broker, you could acquire a significant income. This is because your clients put a high value on the advice you give them on where to invest and grow their money.
- They are in a big hurry to arrive. Many people who are impatient with how long it turns to acquire knowledge and skills in a field look for ways to get faster results. It’s not surprising, then, that they fall prey to all sorts of get rich-quick schemes. They may also decide to take illegal shortcuts to wealth creation. Ironically, even legitimate ways of making money like real estate or the stock market have been hijacked by this attitude of thinking in terms of hacks and shortcuts. Instead of taking the time to study how to buy and sell property or shares, they fall for dubious schemes sold by con artists to naïve people. Instead of making a quick profit, they lose what little they had in the first place.
It takes time to learn how to rise in a career, run a business, or get good at speculating in the investment markets.
Why Earning More Isn’t Enough
However, increasing one’s earning capacity alone is not enough to become wealthy.
Here’s an analogy to drive home the value of why it will only temporarily improve your money situation.
If you only get good at earning more money, you are like a football team that learns how to play offense well. Unfortunately, while your chances of winning may initially increase, if you don’t take care of your defense, too, you could end up losing the game.
Get Good at Managing Money
Assuming that you’ve finally got good at earning more, you have to make sure that you get to keep some of the money that you’re bringing in so that you can then invest this money. You want to get to the point where your money is making money rather than relying on your labor to keep the cash flowing in.
Here are 10 ways to get good at managing your money:
- 1.Create a budget so that you can track your spending and avoid “leaking” funds.
- 2.Work as a team with your spouse. If you’re married, it won’t work if one partner earns while the other spends.
- 3.Pay your bills on time. The better your ability to pay your bills in full on time, the more you will build up trust. Your credit score will improve, too.
- 4.Build an emergency fund and an opportunity fund. You never know when something unexpected happens. This can go either way, too. You might need to fork out money in a hurry or you might need to grab an opportunity before it disappears.
- 5.Use cash whenever possible. By using plastic, it’s easy to lose track of how much money is going out.
- 6.Avoid impulse spending, especially when you’re feeling sorry for yourself.
- 7.Sell things that you no longer need and that just clutter up your house.
- 8.Make saving money a series of makeable short-term goals.
- 9.Make a virtue out of not keeping up with the Joneses.
- 10. Keep things longer means keeping money longer.
In order to turn things around for yourself, you have to change how you think about finances.