Learning how to manage money is the prerequisite to building wealth. This might sound simple, but how many times have you tried to skip the step of living off of a written budget, developing a set of expense categories to live off of and all those other “boring” money habits and tried to go right for the step of building wealth? It has been said that there are a millions ways to make a million dollars, and this is true.
However, none of them will work unless you first start managing what you already have. Let’s look at a simple plan which can help you accomplish this…
A Simple Plan for Controlling Your Cash Flow
Many times, the reason we have a hard time developing and living by a budget is that we over-complicate our budget with pages of expense categories. Instead of trying to live off of that kind of detailed plan, try these four simple expense categories:
1. Investment of 10% of your income
2. Giving of 10% of your income
3. Reserving of 10% of your income (for making cash purchases instead of credit)
4. Paying expenses with the remaining 70%
As you can see, this plan is simple and to the point. Now all you have to do is set aside ONE day every month to allocate your monthly earnings into these categories. This will help you learn how to manage money without having to focus all your energy on monitoring your budget, filling in spreadsheets and trying to balance your spending categories.
Instead, you take one day out of the month to pay all your expenses (you can place all your cash in envelopes for things like food shopping) and to make your investments, your charitable giving and set aside your cash reserves. You can also use this day to assess your financial situation on a monthly basis and make sure you’re on track to achieving your long-term plan.
Getting Started With Wealth Building
Once you get control of your cash flow using the above system, you’ll discover that you have more money to use for building wealth than you originally thought. Your next step will be to get rid of as many things as you can which are causing a negative cash flow. This means paying off your debts. After all, if you have debt which is costing you an 18% interest rate, there’s no point in making an investment which is only earning you 15%.
Learn to manage your money and get rid of the debt first, and building wealth will come much easier.