Financial genius are not the ones who knows everything about finance. Financial genius are ones who knows the ‘right things’ about finance. People who have become very successful in money making knew the right things about finance very early in life. Even common men can grow and become financial genius. Handling money is in genes of humans.
Riding a bicycle is also one skill that humans are destined to learn. But one just need to practice to sharpen those skills. Sharpening can be done by reading good books and by practicing.
Unfortunately we are not taught much about finance in our schools. Hence kids grow with virtually zero know-how of money management. This is one reason why finance-genius of most people are very poor.
Financial genius of people gets activated once they start building wealth on their own. Earning fixed salary in job makes it very easy for people. This is ‘work hard and earn money’ kind of concept. But wealth building is different. Wealth building requires financial genius. To become wealthy one must take charge of ones finance in own hands. One cannot expect others help to become wealthy.
If one wants to learn riding a bicycle, they cannot expect to sit in comfort of room and let the advisor practice for him. One need to sit on bicycle to learn riding one. The person may get hurt during this course, but every scar will only make the learning stronger. Its very similar in wealth building as well. Take charge of money management in own hands and start handling it by self.
Traces of Financial Genius
* Geniuses don’t work for money, they make money works for them.
* They are in-charge of their own finance – not dependent on parents, company or government.
* Genius knows that its easier to get a job, but its wiser not be make oneself too dependent on ‘income from job’.
* Genius keeps developing multiple source of ‘passive income’.
* Genius knows the advantage of ‘building wealth’ over doing only job.
* Genius knows that building wealth takes time, but they will take it anyhow.
(1) Practice Frugal Living
How often we go out for dinning? How often we go to multiplex? How often we boy clothes we didn’t need? How often we swapped our credit card knowing that we do not afford that purchase? If your answers worry you, its time for action. This is how money gets lost on needless things. Practicing frugality is a must.
(2) Party, But Don’t Over Do It
Who doesn’t like to party, but excessive party can draw a big hole in ones pocket. Socializing is a good thing. People enjoy meeting & hanging out with friends and relatives. But hanging out does not always be in expensive restaurants, paid clubs, bars etc. Socializing can also be done in public places without spending too much.
(3) Buy Insurance Policy
Insurance can seem like a cost but its essential for personal finance management. Financial management not only deals with money multiplication but also takes care of uncertainties of life. In normal days, investments will take care of our needs. In tough days, insurance coverage takes care of urgent needs.
(4) Increase Financial Intelligence
Only a minority are financially knowledgeable. These people take informed financial decisions and builds wealth gradually. But a large majority does not know finance. Majority earn money to only spend it. It is essential to keep increasing ones financial intelligence. This can be done by reading good books.
(5) Budget Expenses on Kids
Kids are expensive but budgeting we can help to identify extra costs. Education, medical, personal care, gifts, entertainment etc are few expense that happens on child. Carefully budgeting and tracking expense on kids can bring down the cost dramatically. Better save for kids than overspend on them.
(6) Be Aware of Your Credit Ratings
How knowing ones credit ratings helps? Good credit rating means things are done in right way. Such people should continue to be like that. If ones credit rating is poor, it means they must bring changes in the way they currently handle money. Being aware of one credit rating is like doing a periodic reality checks.
(7) Reduce Monthly Expense Growth Rate by 1%
We may not be aware but household expense grow at a dramatic pace. The rate at which our monthly expense grows is several times faster than inflation. Practically one may be able to reduce monthly expense, but we can slow down the growth rate. Review your last 5 years expense. Reduce the growth rate by 1%.
(8) Involve Family in Money Management
Money management cannot be done alone. Wiser alternative is to include full family. One must start with setting up of an objective. The objective can be like buying home, new car, long vacation etc. To meet the budget all members must be asked how they can contribute. Keyword in involvement.
(9) Use Credit as if its Cash/Debit Card
When we swap a debit card the money equivalent money gets immediately debited from our savings account. Hence use of debit card is like cash payment. One can also weekly review all payment made by debit card using online banking. Alternatively we can use credit card but use it as a debit card.
(10) Reduce Air conditioning Cost
Air conditioners can cost one very dearly. If in normal days the electricity bill is $30, then in winter/summer it can shoot up to as high as $65. In months when air conditioning works, electricity bills are nearly double. These days both winter and summer are extreme. Use darker shades on glass windows will help. Use of 5 start air conditioning is also advisable.
(11) Avail Tax Deductions to Maximum
Investing first on income tax savings options should be given priority. Retirement savings, life insurance, health insurance, home loan, government bonds, tax savings mutual funds etc are some popular income tax savings options. One should target 100% utilization of tax deductions allowed by govt.
(12) Calculate the fund needed for retirement?
Most of us contribute to our retirement fund. But do we know that it will build a sufficient fund? Try to predict your expenses when you retire. Take help of your parents or great-grand parents while doing this exercise. The income equivalent to the estimated expenses must be generated from retirement fund.
(13) Build an Emergency Savings Fund
Do not depend only on insurance to manage emergencies. Apart from health one can face other type of emergency in life. Some can be car breakdown, house repair, unplanned travel, sudden guests etc. These are such activities which are both price intensive and demands quick action. Emergency fund will help.
(14) Discuss Money Management with Others
Let it be in your office with colleagues, or with your parents, brother, sisters, friends…anyone. One must talk about money with others. A mere brain storming can give more insights than reading a book. Create a group of people with whom money management can be discussed. Discuss money once a week.
(15) Delay Gratification
That urge to eat junk food, go on long drives, weekend night-outs, gadget purchase, etc are gratifications which can be avoided. But there is a nice way to avoid. Tell yourself that “you will do it (like purchase or go on vacation etc) but next week”. This way that immediate urge gets curbed and one gets time to re-think.
(16) Budget Income & Expense for Next 20 Years
Preparing a budget for next 20 years is like living those years today. In next 20 years one might encounter requirements like child birth, first home, first car, child education, etc. Preparing a budget once a week. makes one aware about those potential future expense. This helps to save money more decisively.
(17) Generate Passive Income
Generating income by working hard for it is not passive income. Suppose one has Rs 1.0 crore worth of shares of a company. This company yields dividend @ 4% per annum. It means, every year one will earn Rs 4 Lakhs/annum in form of dividends. To generate dividends investors needs to do nothing. This is passive income.