Fixing your Money Problems - 1

I’ve always been pretty good at handling money; besides an education based on business and finance, I guess I was one to figure out how to not over-spend, save a lot, invest in a semi-reasonable way etc. The same situation doesn’t seem to apply to most people in today's world, unfortunately. With the increasing cost of living, massive debt through loans and credit cards among other things, a lot of people have managed to get their financial situation a little out of hand.

I get people every now and then asking me what they can do to manage their monthly spending, save up more money, and in general let go of the living paycheck-to-paycheck syndrome; so here I’ve decided to bestow some of my judiciousness and wisdom upon the common folk with a series of guides towards ensuring a better financial situation, or fixing it if you’ve managed to screw it up already. Most people complain about their salary not being enough; in reality, salary isn’t the biggest factor in being financially stable. Sure, it does play a part, but it’s not the most important one - i’ll highlight this point later. It doesn’t take much more than a little bit of common sense, and a lot of self-discipline; but that isn’t always very obvious, especially in the case of money – a very twisted and perverse entity that is here to either make our lives hell, or full of bliss depending on how we make use of it.

I’m not sure how many guides I will post here; I guess it will depend on the feedback I get and if people find them useful. Anyhow, let me know what you think, I'll try to make them as light as possible; I will be starting off with the most basic information on how to save more money, not spend as much, putting a plan for sorting out any financial messes you’ve managed to get yourself into etc, and then move on to more complicated ways of making your money work for you, investing it, etc.

So, Part 1:

Very basic start here; To understand the concept of being rich, or getting there, you need to understand the theory of how money works. Money adds up; plain and simple. How much income you get every month isn’t always the biggest factor to saving a lot of money; it's how this money is saved month by month, and what total it comes to. All those small amounts of money you save or spend are going to affect the big picture, and one of the illusions of money is that extra dinar or so you spend won’t affect your total saving/spending, actually has a big result on the aggregate.

Think of it this way; I’ve seen people earning 300 dinars save up enough money to buy a new car in cash, while I’ve seen others earning 1,500 not able to put enough money together to go on a short vacation without taking out a loan. That’s very simply because of how they combine together the amounts they receive month by month.

Example; Person A gets a salary of 300 dinars a month; he saves half of it every month, so by the end of the year, he manages to put together 1,800. After 5 years, he’s collected 9,000 dinars, enough to buy a new car, go on a trip, buy some new furniture, all in cash and without taking any loans. Or if he wanted, he could place a down-payment on a house.

Person B gets 1,500 a month; he spends most of it, paying off his loan and credit cards, rent for his luxury apartment, buying new DVD’s, going out to restaurants, coffee shops, etc. He’s left with about 200 dinars every month. A few months later, he’s saved enough to buy a brand new laptop, so he spends whatever he’s saved up. Again, same routine, and whatever he saves up, he ends up spending on a laptop, vacation, etc. Now, 5 years later he needs a car, and has only managed to save a few hundred dinars. To buy a car he needs to take out a new loan, and getting a mortgage for a house is not even an option.

Now, this may be an extreme example, but it illustrates how the whole concept of putting money together works. Maximizing your saving, and minimizing your expenses, especially those small things you don’t really need.

How is this relevant to you, and how can you make use of this concept? I’ll talk about that in part 2.